BUSSPP 0020 Exam 1 Study Guide Lectures 1 5 Lecture 1 January 8 Starbuck s Success Attributed to I II general revenue income regardless of rate revenue and income have grown substantially a Revenue per dollar income revenue has increased from about 4 cents to about 7 cents expansion has been massive a defined the market both domestically and internationally b market share domestically and internationally has only expanded III only 1 5 spent on marketing also expanded at their level before much social media IV CSR pioneers in their early reporting of sustainability diversity responsible supplying c paying more than market price for premium coffee to improve conditions of coffee farmers d reasons business reasons reputation some form of appropriate charity V HR wages benefits a Strategically set out to make coffee drinking an experience make a caf a destination b Created an entire industry Lecture 2 January 13 I What s happening to Starbucks A If Starbucks has had financial success a strong handle on market share a successful CSR and excellent HR why is stock price falling 1 Ideas a Maybe CSR policy is too aggressive etc b competition increasing c company splits increase in stock decrease in price d already expanded so possible that growth of stores has stunted i e market is maturing everyone that wanted the product already got it e new concepts f high dairy costs II Conclusion about Starbucks stock A Let s back it up for a second 1 What two things in our lifetimes have been getting RIDICULOUSLY EXPENSIVE a Tuition b Healthcare i Starbucks spent 200 million in healthcare expenses in 2007 that s about half of revenue this looks like a time bomb B Coffee comes from a semi tropical band of the world 1 What processes does coffee go through a Picking washing etc b Roasting i Starbucks roasts its own coffee ii McDonald s and other competitors do not iii Retailing and roasting are two separate industries 2 Starbucks has 5 roasting plants 4 in the US and 1 in Holland a Starbucks RETAILS all over the world b so one batch of coffee may come from Sumatra be shipped to Seattle to be roasted and then shipped back to Australia to retail i Now we re including massive shipping and tax costs ii Coffee is an agricultural product it s going to spoil at some point iii Dealing with currency exchange massive risk iv Selling in AUD convert that back to USD you re making 81 cents on the 1 3 Starbucks is investing in WEIRD STUFF Music a It s 2007 illegal downloading has peaked b Now producing 3 groups artists Paul McCartney Joni Mitchell Dave Matthews i This music isn t selling to Starbucks target market ii Starbucks what the heck are you doing 4 So why is stock price going down a Demand is going down b It s a reasonable guess that Starbucks economic profit going forward is not going to increase and will most likely decrease Takeaway o From a rational point of view a reasonable assumption would be that economic profit going forward is suspect to the reduction of stock price o The performance of a company is multidimensional o There are multiple levels of measure qualitative and quantitative data o There is no reason to believe that these data will provide consistent results o We can predict future performance based off of future bets expectations o History is no predictor of performance in and of itself just because it has been successful in the past but this does not mean that future performance will be the same o Data is not always as obvious as just surface reading must make inferences Lecture 3 January 15 I Organizations Firms A Basic Characteristics 1 Boundaries 2 Goals 3 Deliberately Structured sets of activities 4 Social Inventions B Additional Characteristics of Firms besides those of organizations 1 Legal existence and Identity a US Legal definition is at the state level b Many different types of legal existence 9 i In all states Corporations sole proprietorships and partnerships sole proprietorship owned by one person One in the same entity Person dies firm is gone Firm is sued owner has unlimited liability Partnerships very complex depending on state law Similar to a sole proprietorship but with multiple owners Unlimited liability of all owners Corporations Legally separate entity from it s owners Can outlive any one of its owners Unless criminal activity is involved owners have limited liability suit against firm is not a suit against the owners ii LLC limited liability company Benefits of sole proprietorship easy to set up administer Legal protection against owners May outlive owners c Not concerned with maximizing wealth but you need enough to stay operating i Think of student organizations raising money they don t seek to maximize profit just stay running and cover costs d Some Firms i public private IPO initial price offering process of making stock publicly available If it is public it s definitely not a sole proprietorship Corporations do not have to be public ii For profit not for profit not for profit firms make profit but recycle it back into operation exempt from many taxes eligible for reduced taxes 2 Rights and responsibilities 3 Some concern with the creation of wealth a wealth the accumulation of profit over time profit instantaneous change II Environments A Everything that is not within the boundaries of the firm is its environment B Properties 1 Unique a Every firm has a different environment at the most basic level 2 Environments are constantly in flux a Trends i Long term Speed at which technology advances Deregulation some flux in short term De centralization of government control Russia China India added 2 3 of the world to the market Globalization ii Short term some may transform into long term tremendous migration to e commerce Within this mobile commerce b Conceptual Drivers Simple Dynamics Small Change Large Change Complicated Dynamics Complex environment Intermediately Complex Environment Intermediately complex environment VERY COMPLEX ENVIRONMENT i Change assuming these are independent magnitude rate predictability systematic random ii Drivers few to huge Dynamics what drives the drivers Politics lobbying Social Trends Economics c Why is all of this important i If things change on a relatively constant basis the future is increasingly difficult to predict Implications existing firms will fail New opportunities can be pursued by existing firms and also new businesses II Concepts of Management A Authority 1 Who has what right to make what decision 2 Who has what right