This paper seeks to describe the relationship between strategic planning and financial planning in the case of Starbucks. The paper will also describe the risks associated with initiatives that management has announced and the financial impact that these risks may have.
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Strategic planning involves the design of options from which the company must choose deliberately in order to attain its mission and vision. Strategies are made therefore after an environmental analysis, both external and internal. External analysis involves looking at industry opportunities and threats while internal analysis may involve conducting a financial analysis to determine company’s strengths and weakness. From these opportunities, threats, strengths and weaknesses, strategies are prepared and implemented to attain corporate objectives in line with corporate mission and vision.
Financial planning on the other hand must be considered part of the process of designing the financial strategies for the company in relation to the strategic plan of the company. Financial planning therefore specifies some of the details of the strategic plan by looking at how financial resources will sustain strategic plans.
To apply the same in the case of the Starbucks, it may be argued that it is the company’s objective to attain an acceptable level of return in order to recover with profits above its cost of capital. Since financial plan is implemented by making financial forecasts for the future, it may be asserted that what the company has forecasted in terms of revenues and expenses in its financial plan is on the basis of initiatives that management has announced (Starbucks, 2008b) pursuant to strategic plans. Management must align with the strategic plan of the company to attain certain level of profitability while facing certain risks.
The initiatives that would be undertaken basically involve investment of money and as in any kind of investment not everything is one hundred percent sure. There are therefore certain risks which the company have acknowledged in its 2007 annual report and these include the fact that the Starbucks’ financial performance is highly dependent on its US operating segment, which consists of more than 75% of the consolidated total revenues in 2007 (Starbucks, 2008a). Thus the company admits that any substantial decline on its US operations, could adversely affect the company’s business results. Another risk is the present economic condition in the US, which is external to the company but must be considered in implementing the initiatives.
It can be concluded that this paper has discussed the relationship of strategic planning to financial planning for Starbucks and it has provided an insight into how risks could be associated with any strategic plan the company may have no matter how good-sounding the initiatives may be. Management needs still to consider the external and internal environments in the design of its strategic plan and financial plan. If financial plan, which could be affected by economic conditions, would not materialize, the same could cause the failure of the strategic plan.
Starbucks (2008) Starbucks Form 10-K. Web.
Starbucks (2008), “Starbucks Unveils New Strategic Initiatives To Transform and Innovate the Customer Experience”. Web.