MGT302: Week 2 Case Analysis: Xample Manufacturing Annual Draft Operating Budget

Case Analysis: Xample Manufacturing Annual Draft Operating Budget

[WLO: 2] [CLO: 6]

Prior to beginning work on this assignment, Read A Budget Model for a Small Manufacturing Firm

Read

Writing a Case Study Analysis.

in the Writing Center.

Review the following Xample Manufacturing Case Study. Using the information and the financial data derived in the Xample case, and after reading Fleming’s article, you will create an annual budget in draft form divided into four periods (Quarter 1, Quarter 2, Quarter 3, and Quarter 4) using the provided budget

Xample Manufacturing Operating Budget Template

Xample Manufacturing Case StudyConsider the following scenario: Imagine you are a manager of a small plastic parts manufacturing contracting business, making parts under contract to the electronic consumer goods industry and defense industry companies, and you are in charge of developing a projected annual operating budget.

Your chief financial officer (CFO) has provided you with the following annual expenses:

Xample Manufacturing Expenses

Expense ElementsAmountAnnual Salaries$1.63 millionAnnual Benefits$245,000Annual Rent$760,000Annual Insurance$45,000Annual Depreciation$780,000Annual Overhead$180,000Annual Supplies$96,000Annual Raw Materials$2.6 million

In your paper,

Complete a 12-month operating budget, using the Xample Manufacturing Operating Budget Template

Include the projected net profit (or loss).

Submit your budget with the following summary.

After completing the budget template, please write a two- to three-page summary and include the following:

Explain the process for creating an operating budget and its importance.

Describe how revenues and expenses are grouped for planning and control in the financial statements.

The Case Analysis: Xample Manufacturing Annual Draft Operating Budget paper,

must be three to four double-spaced pages in length (not including title and references pages) and formatted according to

APA Style

must include a separate title page with the following in title case:

title of paper in bold font

Space should appear between the title and the rest of the information on the title page.

student’s name

name of institution (The University of Arizona Global Campus)

course name and number

instructor’s name

due date

must utilize academic voice. Review the

Academic Voice.

resource for additional guidance.

must include an introduction and conclusion paragraph.

Your introduction paragraph needs to end with a clear thesis statement that indicates the purpose of your paper.

For assistance on writing

Introductions & Conclusions

must use at least two scholarly or credible sources in addition to the course text.

The

Scholarly, Peer-Reviewed, and Other Credible Sources.

table offers additional guidance on appropriate source types. If you have questions about whether a specific source is appropriate for this assignment, please contact your instructor. Your instructor has the final say about the appropriateness of a specific source.

To assist you in completing the research required for this assignment, review this

Quick and Easy Library Research

tutorial, which introduces the University of Arizona Global Campus Library and the research process, and provides some library search tips.

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Case Analysis: Lehman Brothers Banking Institution
Jazmen Davis
The University of Arizona Global Campus
PHI 445: Personal and Organizational Ethics
Sarah Babbitt
1/7/2023
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The purpose of this argumentative essay is to discuss the ethics in business practices
through the exploration of theories. The subject for this topic will be Lehman Brother and their
business practices during the 2008 housing market crash. Lehman Brothers is a prime example of
a case analysis in the morality of banking. According to the article “Death of Ethics and Death of
Lehman Brothers”, on September 15, 2008, the banking institution filed for bankruptcy, causing
it to be the largest bankruptcy case in U.S history (Montgomery, 2019). The bankruptcy itself
was not the true cause of concern but how the company went bankrupt. What led to one of the
biggest banks in the world to collapse was their predatory and lending practices. During this
time, there was little to no regulations the home loan process. The lack of laws on mortgages
allowed members with low or no credit to apply for homes. Lehman Brothers along with other
banks were providing housing loans with adjustable rates to individuals who could not afford
homes. These loans were repackaged as what we know now as subprime “risky” loans and used
for investments into other markets. As profits increased, the loans increased causing a housing
bubble. The bubble figurately speaking eventually popped and many homeowners defaulted on
the loans because they could not afford to pay it off. When homeowners were unable to pay off
their mortgages, it caused Lehman Brothers to not pay off their investments and begin to receive
billion-dollar losses. This unethical practice of aggressive lending led to what most of us
Americans remember as the 2008 housing market crash.
The business practices of Lehman Brothers were immoral and unjustifiable. The best way
to articulate why Lehman Brothers carried out methods that were unethical is through virtue
theory. The Introduction to Business defines virtue theory as “the view of that morality is
grounded in the virtuous character traits that people acquire” (Fieser, 2015). In the text they
explain how the philosopher Aristotle describe what most virtues and vices follow under to
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include the natural desires, excess indulgence, and the ability to find middle ground. In Lehman
Brothers’ case, their virtues were more along the line of vices such as indulgence, giving out
excessive loans and not providing full transparency with the share holders of the status of the
company. The bank instead tried to hide their loses and portray them as profits. The textbook
also provided and example of virtue theory, Bernie Madoff. Madoff scammed investors out of
millions of dollars which led to an immeasurable amount of debt and the suicide of Madoff and
his family. There are a lot of similarities between Madoff’s case and Lehman Brothers, they both
exhibited vices of greed and pride. Those vices led to the malpractice and downfall of their
businesses. The cultivation of virtues and vices can stem from childhood and culture. In both
examples, their habits could have stemmed from childhood, but it was clearly a toxic work
culture that allowed both Madoff and the bank to feel comfortable enough to indulge in shady
business practices. If the Lehman Brothers carried out more virtues such as temperance and act
on the behalf of the shareholders instead of solely for themselves, the company could have
avoided bankruptcy.
The first premise on why Lehman Brothers acts were unmoral and unjustifiable was there
lack of transparency to shareholder and employees. There was intentional deceit in misleading
people to think that company was in good standing when in fact Lehman Brothers were bleeding
revenue from the inside out. According to the article “The Case Against Lehman Brothers”, more
than 26,000 employees were laid off (The Case against Lehman Brothers, n.d.). If the bank was
more transparent in the beginning, they would have given majority of those employees time to
look for other jobs or plan for layoffs. Instead, there were thousands of people who were
unexpectedly without a job and not able to provide for their families. In addition, without these
jobs and members not immediately returning to the workforce, that was less money spent in the
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economy and less dollars circulated into the markets. The article also goes into detail how the
CEO Richard Fuld knowingly falsified financial statements to have it appear that the company
was in good standing when they were consuming mass amount of debt. Fulds along with other
executives possessed virtues that consisted of selfishness and lack of integrity which ultimately
led to the layoff thousands of employees. The article also stated that investors lost millions of
dollars and were not able to recoup the losses. In another article “Toward A Model of
Organizational Mourning: The Case of Lehman Brothers Bankers” it details how the used they
used Lehman Brother as a case study to focus on how better treat employees after a company
goes under (Crosina, Et Al). The act of few affected countless lives with last longing affects that
could have been avoided if they had better virtues. Based on the article “The Crisis Hits Year
Five” is showcased the long terms affect of the housing market crash. The article stated that even
at 2011, the employment rate was still at an all time high at alarming 9%. Thousands of
employees displaced and still are not able to find stable jobs year later (Wolf, 2012).
The second premise on the lack of morality of Lehman Brothers were the virtue of greed
when it came to predatory lending. During this time, the bank was providing loans more than the
amount that the average homebuyer could afford and in return repackage these subprime
mortgages towards investments. The logic behind this method was that they would see a return
on their investments before it was time collect the loans. Homebuyers begin to receive adjustable
rates to compensate for the loans and saw a drastic increase in their mortgage causing them to
not make payments. Homebuyers began to default on their loans in droves, which caused banks
like Lehman Brothers to not back their investments and end up with a mass amount of debt
which led to their bankruptcy. Lehman Brothers greed allowed them to prey and take advantage
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of people who could not afford homes which not only affected the company but the economy
with record breaking foreclosures, once again affecting so many lives.
For every argumentative essay there is an objection component. The objection for this
case analysis is to play the devils advocate and question whether Lehman practices were
unethical. The bank does not deserve all of the responsibility for their collapse in 2008. The
customers such as the homeowners should not have taken out loans that they could not afford
which wouldn’t enable the bank to give out so many loans. The investors could have done more
thorough research and realize that the bank was investing their money in volatile bonds that were
of low quality and not as stable as other security investments. If everyone, not just the bank
practice better virtues such as conservative spending practices and investment strategies it could
of mitigated or prevented the bank from filing for bankruptcy and possible housing market crash
all together.
The rebuttal for the objection is that although everyone could have played a role
in the collapse of Lehman Brothers, the active role that the company played to be misleading to
shareholders and customers falls on the extreme end of the scale of what is considered
unethichal. The company intentionally and maliciously practiced predatory lending and
misleading shareholders where is the average family who wanted to purchase their first home
were naïve in their decisions on purchasing a home that they could not afford. The company has
a duty to act in the best interest of the consumers while still finding balance of increasing profits.
The practices that this bank has displayed showed that they were acting in the best interests of of
the company with no regard to what will happen to its customers and employees.
The 2008 Great Recession was a lesson learned for the government and many banking
institutions including Lehman Brothers. Since then, the Securities and Exchange Commission
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has changed how they regulated home loans and accounting practices. Since then, according to
“Long Range Dependence in Neutral Risk Measure for the Market of Lehman Brothers
Collapse” there has been analytics to detect collapses of companies sooner to help alleviate
hardship. Based on their data, they would have identified Lehman Brothers filing for bankruptcy
a month sooner (Kim, 2016). Although there are institutions in place to prevent another great
recession from happening again, it is up to the companies themselves to provide a culture where
integrity is a top priority and not second thought. This is why deontology is important to practice
within the workplace and should be embedded into the culture. The idea of having an obligation
to those around you instead of yourself will create an environment where people will second
guess on acts of dishonesty and forgery. If Lehman Brothers along with other banks acted out of
duty to their employees, shareholders, and customers, the housing market crash would have
never happened or at the very least wouldn’t have been as severe. That is why it is important to
have ethics within business practices to prevent such financial tragedies taking place.
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References
MONTGOMERY, A. (2019). The Dearth of Ethics and the Death of Lehman Brothers.
Sevenpillarsinstitute.org. https://sevenpillarsinstitute.org/case-studies/the-dearth-of-ethics-andthe-death-of-lehman-brothers/
Fieser, J. (2015). Introduction to business ethics [Electronic version]. Retrieved from
https://content.uagc.edu/
The case against Lehman Brothers. (n.d.). Www.cbsnews.com.
https://www.cbsnews.com/news/the-case-against-lehman-brothers-23-04-2012/
EBSCOhost Login. (n.d.). Search.ebscohost.com. Retrieved January 6, 2023, from
https://eds.p.ebscohost.com/eds/detail/detail?vid=4&sid=807a0eee-8fc3-40cd-968d8a065b7c27b4%40redis&bdata=JkF1dGhUeXBlPXNoaWImc2l0ZT1lZHMtbGl2ZSZzY
29wZT1zaXRl#AN=edsbig.A577136491&db=edsbig
EBSCOhost Login. (n.d.). Search.ebscohost.com. Retrieved January 6, 2023, from
https://eds.p.ebscohost.com/eds/detail/detail?vid=2&sid=dd603e9f-1731-47ca-a89c1ca623449e1b%40redis&bdata=JkF1dGhUeXBlPXNoaWImc2l0ZT1lZHMtbGl2ZSZzY
29wZT1zaXRl#AN=120423862&db=bsh
EBSCOhost Login. (n.d.). Search.ebscohost.com. Retrieved January 6, 2023, from
https://eds.p.ebscohost.com/eds/pdfviewer/pdfviewer?vid=3&sid=14b94710-d650-43dcb898-efa163590610%40redis
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EBSCOhost Login. (n.d.). Search.ebscohost.com. Retrieved January 6, 2023, from
https://eds.p.ebscohost.com/eds/pdfviewer/pdfviewer?vid=2&sid=8b7ea956-d290-40b8a6f0-80861113c27e%40redis
Xample Manufacturing
Operating Budget Template
(2019)
Revenue
Quarter 1
Quarter 2
Quarter 3
Quarter 4
TOTAL (add
across)
Quarter 1
Quarter 2
Quarter 3
Quarter 4
TOTAL (add
across)
Sony Contract
Boeing Contract
Ratheon Contract
Other Income
PROJECTED
TOTAL INCOME
Costs and Expenses
Salaries
Benefits
Rent
Insurance
Depreciation
Overhead
Supplies
Raw Materials
PROJECTED
TOTAL
EXPENSES
PROJECTED NET
PROFIT/(LOSS)
A budget model for a small manufacturing firm
An operational budget is a plan of action stated in monetary terms and usually for a period of a year.
The advantages of a well prepared budget are numerous. No company, regardless of size, should
operate without a budget. A firm does not have one budget, rather it has a series of budgets which
are coordinated into a package called the master budget. Although much has been written about the
advantages of zero-based budgeting, a small firm will usually rely heavily on past years’ performance
as the basis for its estimates. Before detailed preparation of the budget begins, top management
must establish the firm’s primary goals, ranked in order of importance. If possible, these goals
should be measurable. From the goals set for the budget year, the sales manager projects and
breaks the sales figures into the various types of products, time-phased by months. The sales
budget is now forwarded to the production manager who is responsible for several budgets,
including: 1. production quantity budget, 2. inventory budget, and 3. direct material budget. All of the
budgets are then forwarded to the controller who has the responsibility of coordinating them.
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Budgeting is one of the most important planning and control tools used by managers of small firms.
Without some form of formal budgeting, managers spend too much of their time solving daily
problems instead of focusing on the future. In addition to a short-term budget, firms should have a
long-term budget (3 to 10 years), with the most current year being this period’s operating budget.
But what is an operating budget? Basically, it is a plan of action stated in monetary terms and
usually for a period of a year. Yearly budgets are often detailed by months or quarters. These
budgets are based on agreed-upon objectives that have the approval of managers and higher
authority. Eventually, actual performance is compared with the budget, and variances are computed
and analyzed to determine the cause. If warranted, corrective action is immediately undertaken.
The advantages of a well prepared budget are numerous. Budgets provide a disciplined approach to
managing because they force managers to plan ahead and coordinate their activities with those of
other managers, and with the firm’s goals and objectives. In addition, budgets pinpoint potential
weaknesses and bottlenecks before they occur, forcing managers to address problem areas. They
also help in directing capital and effort into a company’s most profitable products. As a result, an
atmosphere of cost-consciousness and profit-mindedness is developed. A comparison of actual
costs with budget provides valuable information and helps determine where efficiencies as well as
inefficiencies occur. The latter can be corrected, thus avoiding future unnecessary costs. A well
managed budgeting system also motivates managers and employees to optimize performance, and
can serve as a basis for distributing rewards. Clearly, however, budgets do not eliminate the
administrative role of managers since budgets are not meant to be a rigid dictator of behavior. They
serve only as a plan to achieve corporate goals.
No company, regardless of size, should operate without a budget. Obviously, the budget should have
the solid backing of top management and be taken seriously by all employees. Large companies
frequently have budget committees whose responsibilities include overseeing budget preparation
and coordination. Such firms are likely to have the resources for sophisticated budgeting
procedures, sound accounting and reporting, and corrective action programs, all time-phased and
integrated in their overall planning and control system. Even though small firms may be lacking in
resources, it is imperative that they also have a sound budgeting system. Therefore, the following is
a relatively simple, low-cost budgeting model that a small manufacturing firm can utilize as a
planning and control system.
Master budget
A firm does not have one budget, rather it has a series of budgets which are coordinated into a
package called the master budget. The master budget for a hypothetical firm is presented in Figure
1.(Figure 1 omitted) This schematic demonstrates how the budgeting process begins with sales and
ends with projected financial statements. All aspects of the individual budgets are tied together and
coordinated with each other. Hence, even though some of the detail might be in units, the bottom
line of each individual budget must be in dollars.
To the extent feasible, it is usually preferable for non-management employees to participate in
establishing the budgets. Participative budgeting is based on the philosophy that motivation and
acceptance of budgets are higher when individuals participate in the budgeting process. Still, the
small firm CEO must resist the temptation of over-emphasizing participation, as the time, costs, and
complexities of budget preparation can increase.
Review of current year’s operation
Although much has been written about the advantages of zero-based budgeting, a small firm will
usually rely heavily on past years’ performance (including the current year) as the basis for its
estimates. Since a two-to four-month time frame is needed to prepare a master budget, it is
necessary to include in the year-to-date actual figures, a forecast for the remainder of the current
year. Inefficiencies and non-recurring costs should be eliminated from past performance, and
anticipated variables included before these numbers are appropriate for projection into the future.
The update of the current period expectations should terminate with the three basic financial
statements–Statement of Financial Position, Statement of Income, and Cash Flow Statement–in
order that the firm has a close estimate of its expected position at year end.
Goals and strategies
Before detailed preparation of the budget begins, top management must establish the firm’s primary
goals, ranked in order of importance. If possible, these goals should be measurable. For example, a
goal might be to increase sales by 3 percent. At the end of the period, a comparison of actual with
budgeted sales will confirm if the 3 percent goal was met.
Next, strategies must be developed. How is the firm going to increase sales? Possible answers
include price cutting, adding new customers, increasing promotions, and improving quality. Clearly,
the strategies must be feasible and consistent with the managers’ capabilities and the firm’s
environment.
Assumptions that support the goals and strategies must also be identified. These include such
factors as: inflation rate; wage and material cost increases; lead time from suppliers; income tax
rate; cost of borrowing; and collection and payment time periods. The goals, strategies, and
assumptions should be agreed upon, or at least accepted as reasonable, by all those involved in the
budgeting process. Now, work can commence with the individual budgets, starting with sales.
Sales department
From the goals and strategies set for the budget year, the sales manager projects total sales and
breaks the sales figures into the various types of products (by dollars and quantity), time-phased by
months. The product mix is evaluated in order to achieve monthly targets as well as annual goals. In
lieu of an arbitrary division of the annual sales goal by twelve months, cyclical sales patterns must
be taken into consideration so that each month’s sales figures reflect expected reality.
The sales manager is also responsible for the annual and monthly marketing expense budget. This
schedule of expense attributable to the sales department includes such expenses as travel and
lodging, promotions, auto expenses, delivery charges, entertainment, and advertising. Of course,
such projections must agree with the strategies adopted to achieve sales goals.
Production department
The sales budget is now forwarded to the production manager who is responsible for the following
budgets:
* Production quantity budget–number of units to be produced by product.
* Inventory budget–estimated ending inventory requirements for each type of inventory.
* Direct material budget–units and cost of raw material necessary to meet production demands.
* Direct labor budget–hours and rates necessary to meet production demands.
* Manufacturing overhead budget–indirect cost of production.
Small firms may or may not have separate engineering and purchasing departments, or these
functions may be under the production manager. If separate, the purchasing manager would prepare
the inventory and direct material budgets. If purchasing and engineering are under the production
manager, their managers can still lend expertise to appropriate portions of the budget.
From the sales budget, the production manager can determine the number of units of each product
that must be produced monthly. Review labor to determine if current personnel can meet the
necessary production levels. If not, a strategy must be adopted, such as adding additional personnel,
working overtime, or outside contracting. Similarly, production must ascertain if existing production
facilities can meet production requirements, and if raw material will be available as needed.
Ideally, the manufacturing overhead budget is organized by variable and fixed costs. Variable cost
can be calculated on a base, such as direct labor dollars, or it can be projected as the number of
units to be manufactured times an estimated variable overhead cost per unit. Fixed costs do not
change with output. As a result, these costs can be projected for the year and assumed to be stable
for each month.
Administration department
All of the above budgets are then forwarded to the controller who has the responsibility of
coordinating them and reviewing for errors and incompatibilities. In addition, the controller prepares
the administrative expense budget, which is probably limited to expected cost by account. From the
five budgets forwarded by production, a cost of goods sold budget can be prepared. Data for the
projected statement of income is either lifted from one of the individual budgets or calculated. For
example:
1. Sales is taken from the sales budget;
2. Cost of goods sold is forwarded from the cost of goods sold budget;
3. Administrative expenses come from the administrative expense budget; and
4. Marketing expense is transferred from the marketing expense budget.
The controller should be aware of any anticipated miscellaneous income or expense. Depreciation
expense is calculated on expected capital assets, and income tax expense is computed on budgeted
profit before tax, utilizing the income tax rates assumed when strategies were established.
The capital expenditure budget is based on the input of sales, production, and engineering in so far
as what new capital acquisitions or expenditures will be necessary to meet production demands. As
with other cost budgets, the capital expenditure budget must conclude with the timing of the cash
outflow dollars. When capital expenditures are expected to be high, consideration must be given to
how the firm expects to raise the cash necessary to pay for them. The cash outflow portion will be
included in the cash budget, whereas cash obtained through borrowing or the sale of equity
securities will also be reflected on the statement of financial position.
The cash budget is critical because it helps management utilize the scarce resource of cash to
optimal advantage. Cash shortages should be avoided so that bills can be paid on time. A firm’s
good credit rating remains intact, and required borrowings can be projected to minimize interest
cost. On the other hand, a high cash surplus should be invested in high-yield securities until needed,
or distributed to the stockholders.
Utilizing input from the previous budgets, financial statements, and established ratios (i.e., number
of days in accounts receivable, current ratio and debt equity), the statement of financial position is
prepared. For example, cash can be traced to the cash budget. Inventories are based on the
inventory budget. Plant assets are increased by the amount of the capital expenditure budget and
decreased by expected dispositions. Accumulated depreciation includes the depreciation expense
previously calculated for the statement of income, minus that attributable to items expected to be
disposed of during the forthcoming year. Retained earnings reflects the projected profit, or loss,
from the statement of income minus planned dividends, if any. The final statement to be prepared is
the statement of changes in cash.
Review and approval
As mentioned previously, the controller is responsible for reviewing all work for accuracy and
plausibility. This includes checking the individual schedules for mathematical accuracy and
reconciling with figures presented on supporting statements. An additional function of the controller
is to prepare comments on the various statements. Topics include, but are not limited to, the
feasibility of the figures as presented, the extent to which the company’s goals will be met, and
suggestions on how to better achieve stated objectives.
The entire draft budget package is now returned to each manager for review; giving managers an
opportunity to write their own comments and questions for use during a budget meeting. During this
meeting, the managers discuss the individual budgets in the same order prepared. This allows
managers a better insight into the preparation process and the rationale used in preparing each
budget. Each manager is given an opportunity to agree or disagree with any portion of the budget.
Items that are disagreed on are discussed in greater detail, including the reasons for the
disagreement. Try to eliminate or reduce disagreement. This might result in a possible modification
of portions of the budgets. Changes to individual budgets are made by the responsible manager.
The revised departmental budgets are then returned to the controller for revision of the entire master
budget.
It may be desirable to repeat the above process if substantial changes are necessary. Still,
considerable effort should be expended to reduce the number of times the budget travels through
the chain of command, since too many times will increase the budget preparation period, boost cost,
encourage haphazard budgeting, deteriorate morale, and reinforce the notion that budgeting is not
to be taken seriously. It is important that managers control the system, rather than vice-versa.
After all revisions have been made, the master budget is approved by top management. A copy of
the entire final budget package is given to all managers for implementation in their respective areas.
Managers are expected to use the budget to help make decisions and track their own plans and
performance. The firm’s reward system may or may not be tied in to meeting the budget.
Financial statements based on actual dollars are prepared by accounting. Monthly and year-to-date
actual figures are reported against the budgeted figures and variances computed. Key ratios and a
comparison of targets to actuals are included in the performance reports along with the controller’s
comments. Individual managers are asked to explain large variances as well as suggest and
implement procedures to correct recurring inefficiencies.
Conclusion
The essential ingredients for success are to keep the budgetary process as simple as possible, to
render relevant, accurate, and timely reports, and to provide strong management support.
Consistency of budget contents, applications, and implementations provides a strong foundation
upon which managers can base their decisions. Such a system can substantially reduce risk, stress,
and human insecurities.
Longevity of a small firm is dependent upon its ability to plan and control operations. Planning is
future oriented and forms the foundation of control. Control is established through calculation and
analysis of variances, that is, the difference between budgeted costs and actual costs. This analysis
is extremely important because it either suggests corrective action, a revision of objectives, and/or a
modification of plans.
A well-prepared master budget approved and supported by top manager is essential. Effort should
be made to establish the budget at a reasonable level of performance since extremely tight budgets
discourage managers and subordinates. On the other hand, loose budgets do not motivate
employees. Care must be taken about when to hold employees responsible for meeting or failing to
meet budgets. If meeting budgets means success or failure to the employee, the budget may be
looked upon as something to be feared. Employees may retaliate by ignoring it, suffering anxiety,
becoming disgruntled, or putting slack in their budgets. An atmosphere of trust and support for one
another can do much toward alleviating pressure and establishing budgeting as a sound tool for
planning and control decisions.
Mary M.K. Fleming, CPA, CMA, is a professor of accounting at California State University, Fullerton.
She has a DBA degree from the University of Southern California.
Word count: 2454
Copyright Institute of Industrial Engineers, Inc. Mar/Apr 1995
https://www.proquest.com/docview/211616391?accountid=32521&forcedol=true&forcedol=true&
sourcetype=Trade%20Journals
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What is a Case Study?
A case study analysis requires you to investigate a business problem, examine the alternative
solutions, and propose the most effective solution using supportive evidence.
A case study should include background information on the specific topic, an analysis of the case
under student showing problems or effective strategies, as well as recommendations.
A case study can focus on a business or entire industry, a specific project or program, or a person.
Format your paper according to your assignment instructions.
The following sample includes APA-style citations and references.
*Adapted by the UAGC Writing Center from original paper by Aimee Garten. Used by permission.
The introduction of your case study should introduce the business, industry,
project, or person that is represented in your study.
2
An Analysis of Human Resources Practices at Starbucks Coffee Company
The thesis should state the
Organizations must perform at reliable and successful levels to stay inproposed
business.
solution to the
problem you have determined or
One indicator of organizational performance is its human resources outcomes.
be assessment of
state theTo
general
the case being studied.
competitive in a global marketplace, a large multinational organization should manage
human resources as strategically as any other division or department. Starbucks is an
example of strong human resources strategy coupled with logistical planning and effective
management. It serves as a strong example for all large organizations to model human
resources upon.
Overall Human Resources Strategies
Human capital is a large investment for any organization. Management of this
capital is a necessary task to ensure strong return on the investment. Human resource
Section 1:
The first section of the case study should
management
strong strategy to effectively and efficiently achieve goals,
discuss the background
of therequires
organization,
industry, or program.
objectives, and – in turn – better performance. The strategy, management program, and all
other human resource activity are then required to determine relevant dimensions of
performance and the impact on the company’s success (Cania, 2014).
Starbucks, a Seattle-based global coffee company, follows a mission to “inspire and
nurture the human spirit: one person, one cup, and one neighborhood at a time” (Starbucks,
2015, para. 4). The company fulfils this mission through ethical sourcing of product,
environmentally friendly processes and recycling practices, and employee service in the
community. After the era of Great Recession, the company launched a new motto: “Great
Coffee Everywhere” and grew to include international locations and at-home products
(Noe et. al, 2013). This growth also included the acquisition of the La Boulange, Seattle’s
Best Coffee, Tazo, Evolution Fresh, and Teavana brands. With large competitors like
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Dunkin’ Donuts and new start-up Joyride, Starbucks is poised to be a leader in the next
generation of coffee shops or be left behind as an outdated relic (Sacks, 2014).
Unlike most large companies, employees of Starbucks are called “partners” and
are encouraged to join young and build a career with the organization. Human resources
are handled by Starbucks’ “Partner Resources Department” with 500 employees serving
roles in staffing, learning and development, compensation and benefits, organizational
development, and partner services (Starbucks, n.d.). Researchers Korschun et al. (2014)
describe the engaged employee’s impact on the brand as follows:
Employees who identify with the organization will adopt suggested
workplace behaviors and be motivated to support the company’s products
and brands. Yet prior research also prompts us to suggest that this effect
will be mediated by the employee’s customer orientation. Identification is
known to encourage behaviors that benefit the collective. Thus, the more
an employee identifies with the organization, the more he or she will seek
opportunities to contribute to company performance. Because serving
customers’ needs is a key way that frontline employees help the company
maintain and deepen relationships with those customers, such employees
may view their own efforts to contribute to customer loyalty as helping
drive long-term organizational success (p. 24).
To remain competitive in the coffee and food-and-beverage marketplace, Starbucks needs
to keep its partners happy and the public coming back for more.
Here, the author ties her evaluations of the case to
theories or research. What theory can you use as
support to show that your case study has a problem,
or is an effective practice?
It isn’t enough to simply state what is working or
what is not working. You need to support this with
evidence from theories, experts, or examples.
Sections 2-4:
4 the writer
In the following three sections,
focuses on several key points or operations
about the case.
Recruiting Practices
Recruitment processes are an important part of any human resources strategy.
Economic crisis, market booms, natural disasters, and other unforeseen occurrences should
not send the hiring and firing process into a tailspin. Instead, organizations should have
strong plans to weather any literal or metaphorical storm. Long-term vision should include
anticipation of the need for new hires, job specificity, strong candidate pools, logical
assessment of candidates, securing the best talent, integrating new hires, and reviewing
processes for efficiency and efficacy (Fernandez-Araoz et al., 2009).
Though Starbucks
responded to the recent recession with slashed jobs and closed locations, later efforts
focused on long-term goals and recruitment strategy. The “Starbucks College Achievement
Be sure to include
an evaluation of
Plan” was recently launched, offering free college education through Arizona State
each key point of
University Online to all partners, including part-time employees (Starbucks, n.d.).
Training Structure
Business failures can sometimes be solved through training to develop new skills,
refine efficiency, and instruct staff on new policies, procedures, and tools. Issues
frequently trigger training but training efforts should always trigger business results
(Castaldi, 2012). When a large mistake, error, or need for improvement arises, not every
company is prepared to make improvements. As a large successful company, Starbucks
has more resources available to take staff out of their daily work and place them in
training sessions. Investment in training needs assessment and training sessions
themselves may be daunting for small companies; however, an organization operating in
more flexible environments can reap the rewards (van Eerde, Tang, & Talbot, 2008). As
the case.
5
an example of a luxurious training session, Starbucks took their entire work force off the
line for a three-hour barista training event, focused on making perfect espresso, in the
middle of the economic meltdown of 2008 (MacDonald, 2008). Most retail outlets would
Here again, the author is presenting an
steer clear of a door-closing event during busy open hours. Starbucks,
however,
evaluation
of thisdeemed
particular practice of
the reward to be greater than the risk.
Organizational Effectiveness
this company. The author also uses
theory or research to support her
evaluation.
Starbucks has a strong human resources strategy and management system. This
has led to high organizational effectiveness in the industry, stemming in part from
successful employee engagement. Positive employee engagement leads to a
psychological climate, cultural attitude, and set of employee behaviors that positively
impact an organization from top to bottom (Kataria, Rastogi & Garg, 2013). Therefore, it
is safe to say that Starbucks’ Partner Resources has had positive effect on the
organization as a whole.
Solutions
If your case study focuses on a
problem within the company or
project, you would include a section
In a recent article, food editor Bret Thorn (2014) described the
on your proposed solution.
Solutions
“starbucksification” of Dunkin’ Donuts. While a donut shop is not, specifically,
Be sure to both present your solution
and to also present theory or research
to support your solution.
competition for a coffee shop, customers are loyal to the coffees made by each
establishment. This includes the spread of Dunkin’ Donuts to wider regions across the
United States with larger retailing of their coffee products. Like Starbucks, Dunkin’
Donuts offers K-Cup and ground coffee in supermarkets and convenience stores around
the world.
In this section, the writer is
showing a comparison of her case
study to a case study from a
competitor.
6
Like Starbucks, Dunkin’ Donuts (n.d.) recruits online, focusing on entry-level
employees who seek career mobility. Unlike Starbucks, Dunkin’ Donuts has only 7,500
storefronts in just 40 states. Each location is a franchise with unique local business
owners running daily operations. Dunkin’ Brands, Inc. is the corporate entity and also
owns the Baskin Robbins ice cream shop chain. Corporate headquarters boasts free
coffee, donuts, and ice cream at corporate offices along with fitness centers, electric car
charging stations, and half-day Fridays (Dunkin’ Donuts). This cannot be said for
employees of franchised locations.
Without the central mission, homogenous culture, and overall size of Starbucks,
Dunkin’ Donuts cannot provide a bold and uniform human resources management system
for all employees. This gives Starbucks the competitive edge for recruiting from the
common pool of potential employees. With more money to spend, Starbucks has more to
offer in terms of investment in human capital. Thus, Starbucks has the edge.
Conclusion
Employers ask employees to work hard, be pleasant, and show results. The
investment of time and money into human resources can, and will, pay off in positive
organization outcomes if a strategic management system is in place and well-used.
Seattle-based Starbucks has been an example of success through strategic human
resource management through good times and bad. Its practices, though occasionally
flawed, show an overwhelmingly successful model of large company investment in
human capital.
The conclusion is where you wrap up your takeaway points for your reader. Here, you may also
present the significance of your case study. Why
is this valuable?
7
References
Cania, L. (2014). The Impact of Strategic Human Resource Management on
Organizational Performance. Economia: Seria Management 17(2), 373-383.
Castaldi, J. (2012). Constructing a Business Case for Training: Cause, Coincidence, or
Correlation?. T+D, 66(6), 32-34.
Dunkin’ Donuts. (n.d.) Come Run with Dunkin’.
http://www.dunkindonuts.com/content/dunkindonuts/en/ddcareers.html
Fernández-Aráoz, C., Groysberg, B., & Nohria, N. (2009). The Definitive Guide to
Recruiting in Good Times and Bad. Harvard Business Review, 87(5), 74-84.
Kataria, A., Rastogi, R., & Garg, P. (2013). Organizational Effectiveness as a Function of
Employee Engagement. South Asian Journal of Management, 20(4), 56-73.
Korschun, D., Bhattacharya, C. B., & Swain, S. D. (2014). Corporate Social
Responsibility, Customer Orientation, and the Job Performance of Frontline
Employees. Journal of Marketing, 78(3), 20-37.
https://doi.org/10.1509/jm.11.0245
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http://globalassets.starbucks.com/assets/4286be0614af48b6bf2e17ffcede5ab7.pdf
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Starbucks. (n.d.). Supplier Diversity Program.
http://www.starbucks.com/responsibility/sourcing/suppliers
Starbucks Career Center. (2015). Career Center: Working at Starbucks, Military &
Spouses – Serve with Us, Starbucks College Achievement Plan, Our Brands.
http://www.starbucks.com/careers
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van Eerde, W., Tang, K. S., & Talbot, G. (2008). The mediating role of training utility in
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