Strategic initiative is defined as a major role which aims at helping the entire firm or an organization to meet its long-term goals and objectives. For any business to flourish and succeed in its business operation, it must focus on strategic initiative and plan. The reason behind strategic initiative is to find means of how to enhance overall business performance such as reducing cost, improving customer relations, increasing shareholders value and raising employee productivity (David, Cooke, Jenkins, 2004).
Starbucks is a global company that manufactures and sells the best coffee. Being the largest organization in its market, the management must consider the current assets and liabilities strategically. It is putting into consideration several strategic initiatives in order to overcome the financial crisis it is currently facing. Examples of the new strategic initiatives that Starbucks have implemented include, refocusing on the customer experience in the stores, new products and training for the stores employees, opening new stores and closing several underperforming stores.
The initiatives that Starbucks put have an impact on its return on equity, whereby the rate is very low as compared to other past years. This has made the company not to have sufficient finance to meet the market prospects and more especially in the store sales, total revenues, operating margins and earning per share. This as a result has reduced the market price of Starbucks stock. If the company does not successfully implement its new strategic initiatives, it will suffer from financial loss.
However, the success of the initiative is not predictable due to the current economic recession which is making most of the customers to cut down the consumption of an expensive coffee. Any initiative that the company will take will influence its financial planning in terms of cost and sales. Starbucks has a sector expansion initiative in which they want to open additional stores of approximately 21,500 by the end of fiscal 2011 and also change the locations of lower performing stores situated in various places.
It is challenging to manage such a growth and therefore it has to balance the need for flexibility with the company’s goals and objectives. Additionally, these several moderation need very large amount of capital. In order to reduce the high cost of their existing stores, these initiatives of sector expansion have confirmed to be highly effective on an overall basis (Starbucks. com, 2009). However, this initiative may not yield short-term profits but in the future they will bring in to the company additional long-term capital.
As a result of Starbucks expansion of new stores, the level of sales has rapidly increased when compared to other financial years. They have recorded big improvements in annual sales. This is a clear indication of the impact their strategic initiative had on their financial initiatives. Their quick growth recently has indicated how their strategic planning has affected their financial planning, in that their main sales objectives need to be adjusted on a regular basis. Although Starbucks strategic initiative has a recognized impact on their sales, there are business risks that are associated with this initiative.
Most of these risks are mainly financially related. Financial risks are tied to market risks and they include the frequent manipulation of interest rates and rates of foreign exchange currency. Other limitations that are related to their financial planning involve insurance and credit risks (Starbucks. com, 2009). As a result of all these aforementioned risks, Starbucks Company has undergone financial impacts in carrying out their business operations. It is well defined that threats that are linked with Starbucks strategic initiative has a large financial impact on the company’s performance.