STARBUCKS´ RISK MANAGEMENT PLAN by Evelyn Flores

TITTLE:

STURBUCKS´ RISK MANAGEMENT ASPECTS TO BE ATTENDED, DECEMBER 2nd, 2013.

I. INTRODUCTION

Planning is the foremost need of every business organization. It is done at all levels of management. No matter what type or extent of planning a manager does, the important thing is that planning takes place. Even though planning takes place and  everyone in the organization is doing their job perfectly, there will always come a time when risks enter the organization.

Managers have to make decision that will always lead to a success or a failure of the organization´s goals. Hence, Starbucks has a management plan to address some possible failures called Risk management plan.

II. RESEARCH QUESTION

What aspects in the Starbucks´ risk management plan do need attention?

II. METHODOLOGY

Risk definitions

Risk is incorporated into so many different disciplines from insurance to engineering to portfolio theory that it should come as no surprise that it is defined in different ways by each one.

Risks are usually related to probabilities, threats, positive and negative outcomes.

Risk = Probability * consequence in lost money/deaths

In contrast, risk in finance is defined in terms of variability of actual returns on an investment around and expected return, even when those returns represent positive outcomes

Types of risk

There are many different types of risk that risk management plans can mitigate, these risks can vary from business to business and there are some risks most businesses have in common like:

• ·         Compliance risks.
• ·         Employees risk.
• ·         Environmental risks
• ·         Financial risks
• ·         Health and safety risks
• ·         Political and economic risk
• ·         Strategic risk

Causes of risk

There are three basic causes:

• Physical causes, it is a tangible or material item failed in some way
• Human causes, it happen when people do something wrong or did not do something required.
• Organization causes, it is a system, process or policy that people use to make decisions in doing their work is faulty.

Why manage your risk?

An organization should have a risk management strategy because:

• ·         People are now more likely to sue. Taking the steps to reduce injuries could help in defending against a claim.
• ·         Courts are often sympathetic to injured claimants and give them the benefit of the doubt.
• ·         Organizations and individuals are held to very high standards of care.
• ·         People are more aware of the level of service to expect, and the recourse they can take if they have been wronged.
• ·         Organizations are being held liable for the actions of their employees/volunteers.
• ·         Organizations are perceived as having a lot of assets and/or high insurance policy limits.

Enterprise Risk Management (ERM)

Businesses face risk every day. In fact, without risk a business or organization would not grow and thrive.

Risk Management is the process which aims to help organizations understand, evaluate and take action on all their risks with a view to increasing the probability of their success and reducing the likelihood of failure.

Risk management gives comfort to stakeholders (shareholders, customers, employees and so on) that the business is being effectively managed and helps the organization confirm its compliance with corporate governance requirements.

A risk management plan includes strategies and techniques for recognizing and confronting these threats. Good risk management doesn’t have to be expensive or time consuming; it may be as uncomplicated as answering these three questions:

• What can go wrong?
• What will we do, both to prevent the harm from occurring and in response to the harm or loss?
• If something happens, how will we pay for it?

 An effective risk management practice does not eliminate risks. However,  having an effective and operational risk management practice shows that your organization is committed to loss reduction or prevention.

Risk management requires a detailed knowledge and understanding of the organization and the processes involved in the business.

ERM improves traditional risk management

ERM focuses on a global array of risks:

• ·         Strategic
• ·         Operational
• ·         Financial
• ·         Environmental
• ·         Human capital
• ·         Reputation
• ·         Technology
• ·         Compliance

ERM is able to improve strategic decision making by addressing: strengths, weaknesses, threats and opportunities. It integrates risk management into strategic planning process.

Deployment of ERM in strategic planning seeks to maximize value when setting goals, find optimal balance between performance goals and targets to related risks

ERM also considers how one strategic initiative might introduce risks that are counterproductive to goals associated with another strategy. It may reveal areas where organizations is being too risk averse or ineffectively responding to some of their risks.

Benefits of ERM

Enterprise Risk Management provides a clear and structured approach to identifying risks. Having a clear understanding of all risks allows an organization to measure and prioritize them and take the appropriate actions to reduce losses.

Risk management has other benefits for an organization, including:

• ·         Enhance decision makings.
• ·         Increase management accountability.
• ·         Break down business silos.
• ·         Saving resources: Time, assets, income, property and people are all valuable resources that can be saved if fewer claims occur.
• ·         Protecting the reputation and public image of the organization.
• ·         Preventing or reducing legal liability and increasing the stability of operations.
• ·         Protecting people from harm.
• ·         Protecting the environment.
• ·         Enhancing the ability to prepare for various circumstances.
• ·         Reducing liabilities.
• ·         Assisting in clearly defining insurance needs.
• ·         Develop business continuity.

ERM creates Value

Governance + Innovation +  Financial viability = Value

ERM six steps approach

Risk culture

Risk culture is the attitude taking on risk in relation to the appetite and tolerance level of the organization.

Risk appetite is the manner in which an organization and its stakeholders collectively perceive, assess and treat risk

Risk tolerance requires a company to consider, in quantitative terms, exactly how much capital it is prepared to put at risk.

IV.  STARBUCKS´ RISK MANAGEMENT PLAN

Introduction to Starbucks Crisis Management Plan:

The purpose of a Starbucks Crisis Management Plan is to communicate the needs of the company to important members of the Starbucks organization as well as members of the community. A crisis can consist of a variety of occurrences and can come on suddenly with no warning. The crisis plan will guide our organization and its partners in the event of a crisis to allow for the quickest recovery with the least amount of damage done to the organization, the brand and the community.

The crisis plan is used not only to deal with a crisis but also to help prevent and avoid any such crisis from ever occurring.

 The following crisis management plan contains the company’s course of action for the three most likely scenarios. The scenarios can apply to situations beyond their circumstance and are used as guidelines based on industry research. As with any crisis, good judgment is needed in order to tackle crisis that occur. In the event of any crisis, regardless of its nature, the following principles should always be upheld when addressing the media, stockholders, consumers, and employees.

 Starbucks Principles: 

• Provide customer service that develops satisfying relationships with our customers.

• Embrace the changing ways of our community and strive to impact the environment in a positive way. 

• Maintain a level of commitment to our brand that creates a successful organization.

Starbucks Company Goal:  

Mission: “to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.”

Here at Starbucks, it is all about quality. Starbucks strives for excellence and taste in roasting the highest quality Arabica bean and Robusta coffee in the world. The company's passion is expressed throughout its products and being the best part of the day for its customers, from the very first sip.

As a global company, Starbucks goal is to make sure each location is part of the neighborhood in which it is. Starbucks is a place for people to gather and offer a “cup of coffee with an outstretched hand.” Since Starbucks first opened, its responsibility is to make a positive impact with its coffee in each neighborhood in which its customers reside. As brand growth has become so exponential, the company hopes it can use the increase in growth to make everyone thrive.

On a global scale the company hopes to energize its partners and stakeholders along with its customers, suppliers, and non-profit partnerships. Starbucks also hopes to keep expanding in new directions in 2013.

 To maximize its growth and potential, the Starbucks brand also hopes to minimize its environmental footprint and help its farmers and independent suppliers run their businesses in an environmentally friendly way. Starbucks’ global responsibility report was to reflect on the impact it made on 2012, and hopes to continue to make a difference within the future.

Liabilities

 Starbucks strives for immediate action and outreach to all parties that may be affected should a crisis occur within the company. Starbucks focuses on people who are both directly and indirectly affected by a given crisis and centers its strategy within the limits of the company and with the goal of minimal backlash.

Starbucks places the utmost importance on the safety and well being of its partners, which is the brand’s top concern during an emergency situation. The company strives to send live information throughout its departments as soon as possible to reassure its partners that they are the heart of each operation within the Starbucks brand.

 • Direct knowledge and regulate accurate information flow

• Communication systems are of key importance

• Email blasts and newsletters

• Social media

• Starbucks meetings with partners and crisis team

Starbucks customers are advised to remain calm as the company works to take immediate, appropriate and effective steps to protect its customers and the business. Starbucks manages information to flow at a quick and effective rate, to address any concerns or questions that its customers may have in order to keep fear and panic levels at a minimum.

We work to assure the community the following:

 • Accurate knowledge of the event.

• A commitment to control & containment of any issue or crisis.

• A truthful report to news media.

 Confidentiality

 All employees and partners may come in contact with sensitive information in regards to the Starbucks brand. All information is for the use of performing duties in line with the employment agreement and individuals privileged should exercise caution when discussing daily or delicate matters with any members of the public or media.

 Certain information is only to be used to perform daily tasks and duties. Only designated personnel should be handing communication to the media or any outside person/s. No employee of Starbucks should ever take it upon oneself to contact members of the media in regards to activities or information that one is privy to through employment.

Risk & Vulnerabilities

 Based on industry research the following studies show possible vulnerabilities in the areas the crisis management team has deemed “potential threats” most likely to apply to the Starbucks organization.

 Starbucks strives to maintain a positive brand image within the community. Assessment by the crisis management team has placed excess vulnerability, within the Starbucks brand and in large-scale companies providing perishable and non-perishable consumer goods, has led Starbucks to place the greatest risk in the following areas: 

1. Food Mislabeling 

Any and all food-mislabeling crisis that represents a threat to public safety will be announced to the media as soon as the threat is confirmed. Starbuck’s will do everything in its power to reach any and everyone that could be potentially put at risk.

 2. Government Regulation:

 Starbucks will adhere to the laws and regulations set forth by the government. Starbucks will continue to provide the highest quality goods and services to its loyal consumers; however, the needs and wants of the consumers may not fall in line with the needs and wants of the government. Starbucks will adhere to regulations while doing its very best to still maintain the consistent quality that the consumers are accustomed to when associated with the Starbucks brand.

3. Disgruntled Employees:

The hiring process at Starbucks is strict and thorough. We provide extensive training to ensure that employees of the Starbucks Corporation are happy and treated with respect. We want employees to represent the brand with honesty, integrity and in a manner that is consistent with our mission statement and company goals. The company cannot control the actions of employees and understands that the attitudes and actions of those representing Starbucks can harm the brand and promote a negative image to the public. The prevention of these situations is a high priority. Starbucks, in the event of a crisis, will take action against any employee that attempts to harm the brand. 

Starbucks is constantly scanning the environment for risk and goes to great lengths to ensure that all employees and corporate staff are prepared to handle any type of emergency.

Crisis:  Food Mislabeling

 Starbucks strives to meet the highest standards when serving food and beverages to its clients. The trust of our loyal consumers is of the utmost importance to our success and future success as a brand. We are dedicated to providing all necessary information about our ingredients to consumers. The crisis management team scanned the industry patterns for food mishandling and determined the following goals and objectives for the Starbucks brand to maintain in the event a crisis of this nature occurs:

Goal:

To the best of its ability, Starbucks is dedicated to providing information that is accurate and timely when ingredients and products that are of sub-par quality or condition have reached or were at risk of reaching any consumer.

Objectives:

 • To follow the guidelines Starbucks sets to deliver quality products that meet safety and standard FDA food regulations.

• To contain the crisis or contamination, if one should occur, to limit or prevent the number of consumers affected by any such contamination.

• To notify the public in the event of a crisis as soon as the details of the crisis are confirmed.

Case Study:

Starbuck’s Uses Food Coloring Containing Beetles

Problem:

The dye used in food and beverage items at Starbucks to give a brightly colored reddish hue is derived from tiny crushed beetles. The dye, known as cochineal dye, is used in many other products such as lipstick, yogurt and shampoo. The use of this dye makes the consumption of these food or beverage items not vegan-friendly. A petition started on Change.org that prompted Starbucks to reformulate the products containing this dye with a replacement using lycopene, which is derived from tomatoes.

 Strategy:

 Starbucks acknowledged that the dye used in certain products contained the cochineal dye. However, the dye is used frequently in many companies and products so Starbucks did not apologize for the use of this ingredient but reported that the company underwent a thorough evaluation and decided to remove it from the ingredient list. The Change.org petition had received a lot of attention and with over 6,000 signatures gathered, which was the main motivation for Starbucks to make the change. Starbucks, in keeping accordance with their mission statement and drive to be environmentally friendly, decided to head the potential crisis head on and rectify the problem before it received any more negative attention from consumers or the media. Starbucks acknowledged the issue and then used bolstering and corrective action to move forward with the change.

 Solution:

 Starbucks identified a specific time frame in which the new reformulated beverages can be expected in store- June 2013. The Starbucks Company took notice of the influx of negative feedback for the use of cochineal dye and announced the change on their company blog. The evaluation and consideration of feedback from loyal consumers prevents the issue from becoming a crisis or creating any negative media attention.

The Wall Street Journal reported that the company's U.S. president, Cliff Burrows, said that "after a thorough, yet fastidious, evaluation, I am pleased to report that we are reformulating the affected products to assure the highest quality possible.

V. CONCLUSION

The result of this research shows that all risk aspects are considered in the Risk Plan of starbucks and the organization is prepared to face the risks that will come with the outcome of a decision.  

SOURCES

http://people.stern.nyu.edu/adamodar/pdfiles/valrisk/ch1.pdf

http://bpeabody.weebly.com/uploads/1/4/5/4/14548866/finalstarbucks.pdf

http://www.studymode.com/essays/Starbucks-Risk-Management-1579677.html

http://www.erm-strategies.com/blog/wp-content/uploads/2012/07/The-Value-of-Enterprise-Risk-Management.pdf