BUSSPP 0020Exam # 1 Study Guide Lectures: 1 - 5Lecture 1 (January 8)Starbuck’s Success Attributed to: I. 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 centsII. expansion has been massive a. defined the market both domestically and internationallyb. market share domestically and internationally has only expandedIII. only 1.5% spent on marketing, also expanded at their level before much social mediaIV. CSR – pioneers in their early reporting of sustainability, diversity, responsible supplyingc. paying more than market price for premium coffee to improve conditions of coffee farmersd. reasons: business reasons, reputation, some form of appropriate charity V. HR – wages, benefitsa. Strategically: set out to make coffee-drinking an experience (make a café 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 costsII. 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 $13. 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)- Takeawayo From a rational point of view a reasonable assumption would be that economic profit going forward is suspect to the reduction of stock priceo The performance of a company is multidimensionalo There are multiple levels of measure (qualitative and quantitative) datao There is no reason to believe that these data will provide consistent resultso 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 inferencesLecture 3 (January 15)I. Organizations & FirmsA. Basic Characteristics: 1. Boundaries 2. Goals 3. Deliberately Structured sets of activities4. Social Inventions B. Additional Characteristics of Firms (besides those of organizations):1. Legal existence and Identity a. US – Legal definition is at the state levelb. Many different types of legal existence 9i. 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 ownersc. 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. EnvironmentsA. Everything that is not within the boundaries of the firm is its environment B. Properties 1. Uniquea. Every firm has a different environment at the most basic level 2. Environments are constantly in fluxa. Trendsi. 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)-Globalizationii. Short-term (some may transform into long-term)-tremendous migration to e-commerce - Within this: mobile commerce b. Conceptual Drivers Simple Dynamics Complicated DynamicsSmall ChangeLarge Changei. Change (assuming these are independent):