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VOLUME 03BEACON ISSUE 12DEC 2015

ContentsABOUT US

OUR TEAM

INDUSTRY ANALYSIS

COMPANY ANALYSIS

BRAND ANALYSIS

CONCEPT OF THE MONTH:VITALITY CURVE

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OUR PRESENCE

ABOUT US

VISION

The SIMCON - SIMSREE consulting club is an initiative started in 2012 for those students in pursuit of excellence in management consulting and strategic management. Aimed at creating awareness among the students about consultancy as a discipline, the club strives to maintain strong relations with top consultancy firms and provide platform to craft highly skilled & competent consultants from SIMSREE. The club is a resource for information about consulting and a place for students to obtain real-world consulting experience.

SIMCON provides an avenue of interaction among faculty, students and alumni through competitions, live projects, guest lectures, and conclaves. For this purpose the club has also been publishing its monthly newsletter – BEACON (BE A CONSULTANT) and maintains a FACEBOOK PAGE where latest news and development in the consulting industry are posted.

MISSIONTo create awareness amongst the students about consulting industry & its latest trends.

To maintain strong relations with top consultancy firms.

To provide platform to craft highly skilled & competent consultants from SIMSREE.

To provide exposure to students via competitions, live projects, guest lectures & conclaves.

Contributions invited:To make this feature a successful effort, we seek continued involvement and contribution from our readers, that is YOU. We invite articles, research papers, and trivia on themes related to consulting. Be it industry news, consulting trends, a joke, a cartoon or feedback, we are eager to hear from you. So go ahead, do your research, pen down your thoughts and mail your entries to simcon.simsree@gmail.com.

Best Regards,SIMCON - SIMSREE CONSULTING CLUB

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`

OUR TEAM

SANANDAN DESHPANDE

NIKHIL RAO

AMEYA MAHABAL

CHITRA WANI

DEEPESH JETHWANI

PRATHMESH INDANI

SUSHIL GURAV

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OUR TEAM

ARPIT AGrAWAL

HUZEFA BODABHAIWALA

Ashay Dhuri

KARAN CHOPRA

NAMAN CHANDAK

PRACHI KORE

SARANG KULKARNI

YOGESH MOHATA

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SHIPPING INDUSTRYINDUSTRY ANALYSIS

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SHIPPING INDUSTRYINDUSTRY ANALYSIS

OverviewShipping is one of the earliest industries to come into practice in India with the earliest ports to be recorded in Lothal, Gujarat almost 4500 years back. Shipping has always been the most dominant medium for trading all over the world since those times. Today also almost 95% of India’s trade by volume and 70% of India’s trade by value is done through maritime transport.

India is a country with a coastline spanning 7500 kms., making it one of the biggest peninsulas in the world. Such an extensive coastline harbours 12 major ports and almost 200 notified minor and intermediate ports.

Major Ports: Cargo HandledName Cargo Handled

(FY2013-14)Vessel Traffic (FY2012-13)

Container Traffic

Million MT (MMT)

% in-crease

(over pre-vious FY)

Nos.

% in-crease

(over pre-vious FY)

‘000 TEUs

% in-crease

(over pre-vious FY)

Kandla 87.00 -7.06 2734 0.74 29 -75.42Paradip 68.00 20.25 1279 -4.96 9 -30.77JNPT 62.37 -3.32 2588 -11.25 4161 -2.30Mumbai 59.19 1.98 1949 -5.25 41 -14.58Vizag 58.50 -0.91 2066 -16.36 263 6.48Chennai 51.11 -4.30 1928 -5.63 1468 -4.68Kolkata 41.39 3.65 3155 -0.91 563 -6.17Manga-lore 39.37 6.29 1096 -5.11 50 4.17

Tutikorin 28.64 1.35 1292 -13.40 508 6.72Ennore 27.34 -52.85 475 23.38 - -Kochi 20.89 5.25 1367 -1.09 351 4.78Mor-mugao 11.74 -33.65 473 39.75 22 10.00

Total (India) 555.50 1.78 20402 -6.95 7465 -3.10

Source: Indian Ports Association

In the year 2015, almost 1050 MMT of cargo traffic was recorded; a tremendous growth from 555.50 MMT in 2013-14, and it is expected to further grow to 1758 MMT by 2017. The government is the most important stakeholder in this industry as shipping plays a very important role in the growth and sustenance of the country’s trade and commerce. In order to boost up the sector, government has allowed 100% FDI in port and harbour construction and maintenance projects and also exempted organisations, those who develop, maintain and operate ports, inland waterways and inland ports, from taxes for 10 years.

For the year 2014-15, all the Indian ports operated at an average 66% efficiency, handling lower cargo than their capacity showing that India is ably meeting its trade demands. The government has taken various measures to improve efficiencies of Indian ports

through mechanisation, deepening the draft and speedy evacuations and also approved an ambitious project ‘Sagarmala’ to modernize the existing ports in India.

The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, reported that the Indian ports sector received FDI worth US$ 1,637.3 million between 2000 and 2015. The ports sector was also awarded 30 projects in FY14, investing over Rs 20,000 crore (US$ 3.16 billion), which is a threefold increase over the preceding year.

Shipping Corporation of India (SCI), a Public Sector Unit (PSU) of the Indian Government, is the biggest shipping company in India with almost 80 ships. But many private players such as Essar Shipping, The Great Eastern Shipping Companies, Bharati Shipyard and so on are also playing a major role in the industry.

Cargo Profile: FY15

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Some Of The Major Players In Indian Shipping Sector

Major Play-ers About the Company

Net Sales

In Cr.

Net Profit

In Cr.

Market Cap

In Cr.The Ship-ping Cor-poration of India Ltd

It is the No.1 shipping company in India founded in 1961 by government of India. Its main business is shipping and has more than 79 vessels. It employees around 3000 people.

4310.97 200.93 4387.83

Essar Ship-ping

Also known as Essar shipping ports and logistics limited was founded in 1945. The company has around 26 vessels and carries crude oil and bulk cargo. No of employees are around 5000

791.14 -83.00 695.72

The Great Eastern Shipping Companies

It is among the largest shipping company in India. The main business of the company is shipping and offshore. It also car-ries crude oil in bulk and has more than 20 vessels. It employ-ees around 2500 people.

1734.08 317.30 5570.46

Bharati Shipyard

Bharati is India’s largest shipbuilding company. This company is only into building ships and not carrying goods like crude oil. The company was founded in 1973. The company employ-ees around 3500 people.

38.72 -864.58 171.27

ABG Ship-yard

ABG was incorporated in the year 1985. With main business of shipbuilding and designing like bharati shipyard. No of employees are around 3000

392.16 -897.70 390.91

Mercator Limited

The company is second largest private sector shipping com-pany in India in terms of tonnage transported. The company’s main business includes shipping, coal, dredging and offshore business. No of employees is around 2500

659.42 49.55 708.96

Gujarat Pipavav

The company is relatively new and was founded in year 1997. The core business of the company is ship building and they build merchant vessels, Offshore supply vessels, Pressure vessels etc. Number of employees working for the company is around 3000

867.03 387.28 7638.35

Porter’s Five Force AnalysisThreat Of New Entrant: MODERATE • With the increase in world trade and ease of norms

and barriers, it is an incentive attracting new entrants

• However the problem pertains to large capital investments in form of vessel and container procurements and risk of operating vessels.

• Many foreign players involved who have their arms extended in India

Threat Of Substitutes: LOW

• Threat of substitutes is low. But the increase in FDI is making local manufacturing popular and therefore a threat to the shipping industry.

Supplier Power: Low

• Due to the high no. of suppliers the price factor remains weak for them

• For the supplier’s perspective the switching cost is very high.

Buyer Power: HIGH

• Buyer is one of the strongest factor in shipping line business. Buyers may be in form of importer and exporter, clearing agent, freight forwarder or manufacturer of goods.

• Due to high competition the bargaining power of the buyers is high

• Buyer’s information and awareness is also moderate to high

Competitor Rivalry: HIGH

• There is large no. of competitors and therefore the competition is high. Industrial growth and new opportunities attract new entrants.

Global OutlookThe decline in commodity prices globally especially crude oil prices is expected to boost world GDP by shifting ‘real income’ from producing to consuming nations such as the US, China and India. The US economy is growing on the advantages of a strong currency and lower commodity prices, where growth is expected to exceed 3% in 2015-16.

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The rise in global GDP growth directly affects the international trade (export and imports) and in turn affects the shipping industry as about 80% of the international trade by volume is carried out by shipping.

Opportunities

The global GDP is expected to grow at a rate more than 2.8% in 2016. This, however, is dependent on the two largest economies, US and China followed by emerging economies such as India. US is expected to grow by 3.1% in 2016, up from just 2.2% for 2015 as a whole. The outlook for Chinese economy in 2016 is mixed, with some slowdown relative to the previous year. The Chinese GDP growth is expected to remain at 6.8% in 2016, down from 7-8% growth in past many quarters mainly on the backdrop of declining industry output and falling demand. The developing Asia region is also expected to perform better in 2016 as compared to 2015 with India poised to surpass China for the first time. The low oil prices are expected to improve the economic situations of most of the emerging Asian nations supporting the basis for a prosperous economic outlook. The European and Japanese economies is expected to show modest growth in 2016.

Risk and Concerns

Geopolitical tensions, declining industry output and falling demand in China remain the major macro risks across the globe. Also the low crude oil prices have hit the economies of oil exporting countries both Middle East and Russia who in turn may be forced to cut subsidies and consequently hurt demand. The decision of the Chinese Government to increase the percentage of non-fossil fuels in its total energy mix could curtail future oil demand from the country. The crude tankers rates are also expected to remain flat during 2015-18. Similarly in the dry bulk segment, the rising interest rates in emerging economies could lead to slowing import demand. Additionally, relatively flat steel production in the developing Asia region due to weaker Indian economy remains a matter of concern. The global containerized trade growth, in the likely event of the economy not recovering, would be limited to 3.9% in 2015 managing only a 5% expansion in 2016. Lower economic growth and global demand may while pushing oil and bunker prices lower help induce further speed gains in the charter fleet and the resulting productivity gains would lead to reduction of further 1% charter fleet utilization in 2015 and 1.5% in 2016.

Recent Developments in Indian Shipping IndustryIndian shipping industry contributed 8% of the entire world trade in terms of volume, which has the contribution of nominal 1.3% in monetary terms. India and china were in the same position 30 years ago, but today china has raced ahead in the field. Of the $30bn freight market in India, only 8% of freight on Indian flagged ships is carried.

There are immense opportunities which are needed to be grabbed by the shipping company of India. Liquefies natural gas (LNG) has to be imported to harness India’s power and fertilizer projects. This plan would involve huge volume of business for shipping industry amounting to several billion dollars. Therefore, an important step for the Indian shipping companies would be to build strategic tie-ups with the foreign counterparts.

Other than the hardcore price increases and very hands-on changes in the shipping industry’s business opportunities, the industry will have to relate to the big changes going on in the world in general. The geopolitical issue is not as influential as the change in fuel prices but it is clear that with an OECD population of 1.3 billion people and a non-OECD population of 6 billion people, we will see a lot more people from all over the world being involved in the shipping industry.

The last change affecting the industry is the new and increased level of legislation. “Carriers will depend much on the industry and the industry’s ability to tell people which opportunities they have to find new technical solutions to the demands we will see through.

ConclusionIndia's shipping sector is witnessing promising growth on account of better global and domestic situation, which is reflected in the increase in the demand for infrastructure and services across the entire value chain comprising shipping, ports, ship-building and logistics. While this growth has thrown up bottlenecks in infrastructure and service provisioning across the sector, it has also opened up opportunities in each segment. Therefore, it is critical to pursue comprehensive measures at the policy, administration, and project level in each segment, so that bottlenecks are addressed and opportunities are capitalized upon, thereby ensuring that the growth momentum is sustained.

References EquityMaster – Shipping Sector Analysis, KPMG – Shipping Report, MoneyControl, Live Mint – Indian Shipping Market, Ship India, IBEF – Indian Shipping Ports

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GREAT EASTERN SHIPPINGCOMPANY ANALYSIS

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Company OverviewThe Great Eastern Shipping company is the largest private sector shipping company in India. It was started in 1948 by two families- the Sheths and the Bhiwandiwallas. In its Shipping business it is majorly involved withdry bulk carriers and tankers. Many International oil companies like Shell, BP, Exxonmobil, Chevron Texaco and Totalfina are using the tankers of Great Eastern Shipping for transportation of their oil.

The company started as a provider of sea logistics in its formative years and then later ventured into tramp shipping and further diversified into off shore oil field services.

Evolution Over The Years

ManagementName Designation

Mr. K. M. Sheth ChairmanMr. Bharat K. Sheth Dy. Chairman & Man-

aging DirectorMr. Ravi K. Sheth Non Executive DirectorMr. TapasIcot Executive Director &

President - ShippingMr. G Shivakumar Executive Director &

CFOMr. Berjis Desai DirectorMr. Farrokh K. Kavarana Director Ms. Rita Bhagwati DirectorMr. Cyrus J. Guzder DirectorMr. Vineet Nayyar DirectorDr. Shankar Acharya Director

Shareholding Pattern

Great Eastern Shipping Company delivers Kamsarmax Dry Bulk Carrier Jag Aakash to the buyers.2015

2008 Joint venture announced with DOF Subsea ASA, Norway

GE Shipping wins crude supply order for MRPL. GE Shipping acquires 26-pc stake in USL2005

2003

Great Eastern entered into a joint venture agreement amongst Qatar General Petroleum Corporation (QGPC) and U B Air Pvt ltd. and united Helicharters Pvt Ltd.2002

1998

Due to turbulence in Asia with the freight market,operation of the bulk carriers were adversely affected.The Company acquired 2 Aframaxtankers from Samsung Heavy Industries Co. Ltd.

1997

1994

1990

1988

The Great Eastern Shipping Company (London) Limited was created by converting the existing London branch into a wholly owned subsidiary.

1985

The company was incorporated and started providing cargo services in Indian and adjacent waters

1948

Jag Vijay, Jag Rani, Jag Rahat and Jag Kala were four new ships that were bought by the company. The very next year It also bought three more bulk carriers and renamed them m.v. Jag Ratna, m.v. Jag Vikas and m.v. Jag Ravi.Also Memorandum of Agreements were signed to purchase five Offshore Supply Vessels (OSV) with a view to cater to both ONGC and Oil India, Ltd.

The Company embarked on a ship replacement-cum-modernisation programme. As part of this programme it acquired one 1984 built handymax bulk carrier and a 1982 built product carrier and became the first Indian Company to acquire a tanker.

Due to unexpected changein government policy on sugar the trading division suffered a setback. The Company identified charter opportunities with leading multinational corporations and ordered for 4 mini bulk carriers for efficient service in coastal movement.

The Shipping Corporation of India, Varun Shipping and Great Eastern Company (Gesco) joined hands to transport liquefied petroleum gas (LPG) imported on free-on-board (FoB) basis.

Great Eastern Company bagged the lighterage contract from IOCto move crude oil on the east coast.

Key FinancialsThe tanker business accounted for around 85 % of the Company’s operating revenues and 94 % of the operating profits.The dry bulk fleet contributed around 15% of the Company’s operating revenues but just 6% of the operating profits.

FY15 (in INR Crore)

FY14(in INR

Crore)Growth

Sales Turnover 1,734.08 1,492.58 16.18%

Operating Profit 562.32 493.17 14.02%

Profit Before Tax 333.30 208.68 59.72%Reported Net Profit 317.30 204.68 55.02%

There has been a substantial growth in Net profit of the company over the previous year. The time charter rates for crude oil carriers went up by 50% during the year due to the collapse in the oil prices and the subsequent increase in its demand. This has contributed significantly to the increase in the net profits. The dry bulk market has experienced a steady decline this year except in the third quarter where there was a spike in the demand. The key factors that derailed the dry bulk freight market recovery were the relief of the grain port congestion in South America during the 2nd

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quarter, the lack of coal demand from China, the after-effect of the stockpiling ahead of the Indonesian ban on raw ore exports, disappointing Chinese growth and the continued robust fleet expansion.

0

1

2

3

4

5

6

7

8

ROCE

RONW

Mar '15Mar '14Mar '13Mar '12Mar '11

4.84 5.07

2.79

5.15

2.92

4.484.25

5.54

6.436.95

Pro�tability %

The return on capital employed has been improving year on year. It was 4.25% last year and now has improved to 6.43%.Also the return on Net Worth has increased from 5.54% to 6.95% when compared to the previous year.

0.0

0.7

1.4

2.1

2.8

3.5

Cur

Mar' 15Mar' 14Mar' 13Mar' 12Mar' 11

2.86

2.51

0.981.13 1.11

Current Ratio

The company has maintained a good current ratio over the years. Though it suggests that company does have enough liquid funds to take care of its short term liabilities but still it must improve on this account as it is simply able to meet the exact requirement and has no wiggle room.

The earnings per share have also improved significantly over the previous year due to a substantial increase in the net profits. On this account of improved performance the company has offered increased dividend of Rs 11/- per share instead of Rs9/- per share.

Competitor Profiles1. Shipping Corporation of India

The Shipping Corporation of India was established in 1961, by collaboration of Eastern Shipping Corporation & Western Shipping Corporation. SCI started with a marginal liner shipping company but today it is India’s biggest shipping company. SCI’s owned fleet includes bulk barriers, crude oil tankers, product tankers, container vessels, passenger-cum-cargo vessels, chemical carriers and offshore supply vessels.

SWOT Analysis

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2. Shreyas Shipping & Logistics LimitedShreyas Shipping & Logistics Limited was incorporated as a private limited company in 1988. Company is a part of Transworld Group of Companies, which is promoted by Late R. Sivaswamy. This group has over 35 years of experience in shipping industry.

The primary business of the company is to own and operate vessels between Indian ports and internationally renowned container trans-shipment ports.

3. Essar ShippingEssar Shipping is an Indian shipping corporation for the global energy business. Essar Shipping is a part of Essar Group. It was started in 1945 but it was incorporated in 2010. Company currently has a fleet of 26 vessels, with additional 12 more ships on order. Company also provides crude oil and product transportation services

Competitor Analysis

Company Market Cap.

Sales Turnover

Net Profit

Total Assets

Great Eastern Shipping

5518.44 1734.08 317.30 7499.66

Guajrat Pipavav Port Limited

6898.69 867.03 387.28 1790.80

Shipping Corpo-ration of India

4455.37 4130.97 200.93 12138.5

Shreyas Shipping & Logistics Limited

876.22 290.75 53.28 267.08

(All values in INR Crores)

By looking at the competitor analysis, we can say that net profit margin of Great Eastern Shipping is 18.3% where as net profit margin of Shipping Corporation of India is 4.86% and net profit margin of Shreyas Shipping & Logistics Limited is 18.32%. From this it can be concluded that profitability of Shipping Corporation of India is less secured than GE shipping and Shreyas Shipping & Logistics Limited. Though sales turnover of both companies is less than Shipping Corporation of India their management of expenses is better than Shipping Corporation of India. Shipping Corporation of India and Essar Shipping, both have invested heavily in fixed assets. This investment is done because returns expected by both the companies are over a long period. But, Great Eastern Shipping has focused both areas that are operating efficiency & long term returns. Shreyas Shipping & Logistics Ltd

and Essar Shipping have a weak profile as compared to other competitors.

Future OutlookIn the year 2014-15, though the oil prices were decreasing, company witnessed a slow start. But, in the last quarter of the year oil prices just collapsed and sudden increase in demand was seen. This incident helped company to get its business back on track & business has seen a substantial growth. Oil prices are expected to remain low in future and one of the reasons for it is the introduction of shale gas by USA therefore business of the company is expected to grow at a higher rate. Commodities other than oil always have demand in the world so that business is also expected to grow. Growing competitors can be threat to a company.

ReferencesMoneyControl – Great Eastern Shipping Company, GreatShip.com

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STARBUCKSBRAND ANALYSIS

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STARBUCKSBRAND ANALYSIS

OverviewStarbucks Corporation is an American global coffee based in Seattle, Washington. It is the largest coffee-house company in the world with 23,391 stores in 62 countries.The first Starbucks opened in Seattle, Washington, on March 30, 1971, by three partners who met while they were students at the University of San Francisco:  English teacher  Jerry Baldwin, history teacher  Zev Siegl, and writer  Gordon Bowker. The three were inspired to sell high-quality coffee beans and equipment by coffee roasting entrepreneur Alfred Peet after he taught them his style of roasting beans. In 1987, the original owners sold the Starbucks chain to former employee Howard Schultz (present President and CEO), who rebranded his Il Giornale coffee outlets as Starbucks and quickly began to expand.Starbucks first became profitable in Seattle in the

Great Eastern Shipping Company delivers Kamsarmax Dry Bulk Carrier Jag Aakash to the buyers.2015

2008 Joint venture announced with DOF Subsea ASA, Norway

GE Shipping wins crude supply order for MRPL. GE Shipping acquires 26-pc stake in USL2012

2012

Celebrates 40th anniversary.2011

1993

Starbucks Company goes public.1992

1987

1985

1983

Schultz joins the Starbucks team.1982

Starbucks founded by Jerry Baldwin, Zev Siegal and Gordon Bowker as a single store in Seattle’s Pike Place Market.

1971

While travelling in Italy, Schultz experiences Italian Coffee bars and inspires him.

Schultz leaves Starbucks to open II Giornale, a company serving espresso drinks using Starbucks coffee beans.

Schultz purchases Starbucks from the founders and begins to expand throughout the US.

Opens first roasting plant in Washington.

Schultz leaves Starbucks to open II Giornale, a company serving espresso drinks using Starbucks coffee beans.

early 1980s, and despite an initial economic downturn with its expansion into the Midwest and  British Columbia in the late 1980s, the company experienced revitalized prosperity with its entry into California in the early 1990s.  The first Starbucks location outside North America opened in  Tokyo  in 1996; overseas properties now constitute almost one third of its stores. The company had opened an average of two new locations daily between 1987 and 2007.Company History

ProductsCoffee: More than 30 blends and single‐origin premium Arabica coffees.

Handcrafted Beverages: Fresh‐brewed coffee, hot and iced espresso beverages, coffee and non‐coffee blended beverages, Vivanno™ smoothies and Tazo® teas.

Merchandise: Coffee‐ and tea‐brewing equipment, mugs and accessories, packaged goods, music, books and gift items.

Fresh Food: Baked pastries, sandwiches, salads, oatmeal, yogurt parfaits and fruit cups.

Consumer Products: Products in 13 countries (Austria, Canada, China, Denmark, Germany, Ireland, Japan, Korea, Mexico, Norway, Spain, UK and U.S.) in three categories:1. Coffee and Tea: Whole bean and ground (Starbucks

and Seattle’s Best Coffee brands), Starbucks VIA® Ready Brew, Tazo® tea filter bags and tea latte concentrates.

2. Ready‐to‐Drink (RTD): Starbucks® bottled Frappuccino® coffee drinks, Starbucks Discoveries® chilled cup coffees, Starbucks Doubleshot® espresso drinks, Starbucks Doubleshot® Energy+Coffee drinks; Seattle’s Best Coffee® Iced Lattes, Tazo® bottled iced and juiced teas.

3. Starbucks® Ice Cream: Super‐premium coffee and coffee‐free flavours.

Marketing Strategy1. Segmentation• Every age group.

• Tech savvy individuals.

• Men and women.

• High disposable income.

• Brand focused.

• Savvy and avid coffee lovers who enjoy the “Starbucks Experience”.

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2. Target Customer• Starbucks targets commuters and captive

consumers.

• Commuters consist of people heading to or from work or people on their lunch break.

• Captive consumers consist of those who are stuck in a campus environment.

Eg: High school & college students, corporate campuses.

3. Positioning• Starbucks has positioned itself as an upscale brand

which provide rich experience.

• It is obvious from the mission statement that they are trying to make it the best for socializing.

• Starbucks is trying to reposition itself as a “third place” for its customers.

Marketing CampaignsBlonde RoastTo promote its new blonde roast back in 2011 Starbucks did a coffee giveaway that was promoted through its social channels. One of the central features was a Facebook app that allowed people to learn about the new product, claim a free cup of blonde roast and send e-cards to their friends.Starbucks also tweeted about the new brew and product giveaway, with some posts directing people back towards the Facebook app, but it wasn’t all organic content. Starbucks also invested in Facebook ads and Twitter ads that were targeted at certain cities to make them more personalised.

In this case Starbucks was actually promoting the return of its pumpkin spice latte by giving people the chance to have the flavour available in their town a week before the rest of the US.Behind The ScenesThough not necessarily a specific campaign, Starbucks’ use of Instagram deserves a mention as it has been used as part of a brilliant branding exercise.Starbucks doesn’t rely on any competition hashtags or gimmicks, but simply posts interesting images that give people a view behind the scenes of the company. Starbucks also reposts photos taken by fans that show its coffee cups in different locations.This simple idea is a great way of creating a closer relationship with customers and softening the company image by showing the people behind the product. 

Pumpkin LatteStarbucks in one of those brands that has the luxury of passionate, loyal customers, so that means it can generate huge excitement around the launch of new products.

And One Social FailAs a PR stunt Starbucks displayed Twitter messages that used the hashtag #spreadthecheer on a big screen next to an ice rink at the Natural History Museum in London, but forgot to actually monitor what was being posted.Coming hot on the heels of the scandal over Starbucks’ UK taxes, the wall unsurprisingly became a prime target for angry taxpayers.

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Success Formula• Motivated employees & superior customer service

is the key success factor of Starbucks.

• Starbucks focuses on recruiting and developing right people.

• Attractive compensation policies.

Corporate Social ResponsibilityEthical sourcingTo develop strong, long-term relationships with farmers to ensure that they buy the high-quality coffee their customers expect. They aim at growing coffee using ethical trading and responsible growing practices.Environmental Stewardship100% of cups will be reusable or recyclable and reduce our environmental footprint through energy and water conservation, recycling and green conservation is the current target of the company.Community InvolvementFrom the neighborhoods where their stores are located to the ones where their coffee is grown - Starbucks believe in being involved in the communities we are part of-bringing people together, inspiring change and making a difference in peoples’ lives.Five Facts• Starbucks has added an average 15 stores on a daily

basis since 1987.

• The average Starbucks customer visits the store 6 times per month while loyal 20% of customers visit 16 times.

• There are over 87000 drink combinations at Starbucks.

• The Starbucks cinnamon chip scone has more calories than a McDonald’s quarter pounder with 480 calories.

• Starbucks uses 93 million gallons of milk and 2.3 billion paper cups per year.

Starbucks Company RecognitionSome of the recent awards and recognitions are1. “No. 1 Best Coffee,” Fast Food and Quick

Refreshment categories

Zagat’s Survey of National Chain Restaurants – 2009‐2010

2. “No. 1 Most Popular Quick Refreshment Chain”

Zagat’s Survey of National Chain Restaurants – 2009‐2010

3. One of the “World’s Most Ethical Companies”

Ethisphere – 2007‐2010

4. “Most Ethical Company, European Coffee Industry”

Allegra Strategies – 2009‐2010

5. “Best Coffee House, Germany”

Deutschland Institute for Service Quality – 2010

6. One of the “100 Best Corporate Citizens”

Corporate Responsibility Officer/Business Ethics – 2000‐2010

7. One of the “Global 100 Most Sustainable Corporations in the World”

Corporate Knights – 2010

8. One of “The 100 Best Companies to Work For”

FORTUNE – 1998–2000, 2002–2010

9. One of the “Most Admired Companies in America”

FORTUNE – 2003–2010

10.One of the “Best Places to Work for LGBT Equality”

The Human Rights Campaign – 2009‐2010

ReferencesInfogr – Starbucks, Starbucks.com, Harvard Scholar – Starbucks Case

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VITALITY CURVECONCEPT OF THE MONTH

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VITALITY CURVECONCEPT OF THE MONTH

Vitality curve is a concept in which the employees of an organization are graded based on their individual productivity. It is also called as rank and yank, forced distribution, stack ranking, stack ranking and forced ranking. It is based on the Pareto principle. This method is used about 60% of US Fortune 500 corporations. But some companies have stopped using this method due to the criticism that it has drawn.

The vitality model that was developed by Jack Welch has been described as a “20-70-10” system. It says that top 20% of the workforce is most effective. The next 70% work at a satisfactory level followed by bottom 10% who are not at all productive and should be fired. The organizations in which this system implemented, have shown an increase in revenues and earnings.

Welch says that top executives should be divided into “A”, “B” and “C” players. The characteristics of these players are as follows:

“A” Players1. Full of passion

2. Believe in completing tasks

3. Open to ideas

4. Have charisma

5. Can make business productive as well as enjoyable

6. Exhibit high energy levels

“B” PlayersThese are the people who work at a satisfactory level. As they are majority of the workforce, they are important for the organization even though they might not depict the skillset of “A” players.

“C” PlayersThese are the non-productive players. They show procrastination and very often fail to fulfil their promises. They slow down the rate of progress of the organization.

Advantages1. Under this system managers are forced to rate the

employees which would otherwise would not have been possible if such a system was not in place.

2. The organization is able to recognize its worst performers and thus take appropriate actions to improve the overall performance of the organization.

3. It has allowed HR’s to be completely transparent about compensation.

Disadvantages1. According to Welsh, “A” players should be rewarded

and promoted in the organization while the “C” players should be fired. However it must be noted that when an “A” player is promoted, he will be a top performer at the current job level. But when promoted, he may keep on working on the same level. This level may not meet the expectations and hence the employee may become “B” player. If the compensation received for “B” player at the higher level is lower than that received by “A” player at a lower level, it may result in reduction in overall compensation of the employee and ultimately refusal of promotion.

2. When employees are involved in hiring their peers, they may prefer to avoid the best candidates with

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the fear that if the best candidates are selected, they may face more competition at the “A” end of the curve. It would thus lead to the hired people to fit into the “C” category.

Companies Using This PhilosophyManagement ConsultingManagement consulting firms, including the Big Four generally have this system. Specifically in PricewaterhouseCoopers and Accenture, an approach is used where if an employee is not promoted after a certain length of time, then the employee is fired from the organization but on generous terms. The employees of Accenture are rated based on their performance twice a year.

GEGE was the first and the most famous organization to implement this system. However after the departure of Jack Welch from the organization, the system has become less important and focus is places to improve the bottom placed players.

EnronEnron showcased the cons of using this system. The employees of Enron, with the fear of being fired, inflated the results and this ultimately lead to the downfall of the organization.

MotorolaMotorola implemented the plan named IDE (Individual Dignity Entitlement) in mid-90’s which was similar to vitality curve. The name of the plan was changes to PM (Performance Management). This lead to about 50000 employees of Motorola, globally, losing their jobs.

Dow ChemicalCurve program is used by Dow Chemical as part of its Performance Management. The program was started in 2005 and has been delivering mixed results.

IBMIBM uses a vitality curve program known as Personal Business Commitments (PBC). The PBC process involves managers have to give a limited number of favorable rankings to the employees. An employee’s rating is not only dependent on manager’s opinion, but also on opinion of the 2nd line manager on 1st line manager.

YahooQPR (Quarterly Performance Review) system was institutes in Yahoo by CEO Marissa Mayer in 2012. This system, just like vitality curve divided employees under various categories.

References Economist – Ranked and Yanked, Strategy Business – The Folly of Forced Ranking, Rediff – Business – The Rank and YankAppraisal System