Risks and financial effects of Starbucks' strategic initiative in 2011

Starbucks

The initiative described by Starbucks is the company's charitable works. The company engages in community service programs, fund-raising efforts, and establishes funds for certain causes, for example a fund it created in 2011 for Japanese earthquake relief. The company's charitable works do not generate income directly, but they do generate goodwill in the community, something that Starbucks tries to cultivate at the best of times. The company's implementation of "community" stores in Crenshaw and Harlem are held as examples of such community stores.

There are a few risks associated with the company's charitable initiatives. One such risk is that the company either will not see any financial benefit from the goodwill it generates, or will be unable to quantify any benefit that it does receive. According to agency theory, the managers of the company should only pursue those activities that increase shareholder wealth, and in this instance the company will need to be able to measure the financial benefit of its charitable works in order to demonstrate such positive outcomes to the shareholders.

Another risk for Starbucks in this program is that associated with opportunity cost. According to the 2011 Annual Report, there are a tremendous number of growth opportunities around the world, especially in high-growth nations like China. For the company to spend money on charity when it could be building out its presence in the world's growth markets represents a risk, because more focused competitors could enter these markets and put pressure on Starbucks.

Additionally, there are operational risks. Starbucks is good at making and selling coffee; it is not as good at pursuing charitable works. So not only could the company distract itself with such endeavors, but there is the risk that the company could make a mistake with its charitable works, eroding the goodwill that it is attempting to build.

Financially, the dollar cost of the initiatives is not likely very high, but the cost in terms of time and distraction could be. Starbucks is not only focused on international growth in the coming years, but also in other products like retail brands, the K-cup, and other innovations to improve revenue streams. Each of these efforts will require the company to put forth the maximum effort. Thus, this initiative to focus on charitable efforts could cost the company millions in terms of manpower and energy, not to mention managerial focus. A loss of share in any given market could be worth millions, and a minor market share loss is not an unreasonable possibility given how much energy the company is putting into its charitable works.