Standards are a fact of life. You met the admission standards for the school you are attending. The vehicle that you drive had to meet certain governmental emissions standards. The hamburgers and salads that you eat in a restaurant have to meet certain health and nutritional standards before they can be sold. As described in our Feature Story, Starbucks has standards for the costs of its materials, labor, and overhead. The reason for standards in these cases is very simple: They help to ensure that overall product quality is high while keeping costs under control.
In this chapter, we continue the study of controlling costs. You will learn how to evaluate performance using standard costs and a balanced scorecard.
80,000 Different Caffeinated Combinations
When Howard Schultz purchased a small Seattle coffee‐roasting business in 1987, he set out to create a new kind of company. He thought the company should sell coffee by the cup in its store, in addition to the bags of roasted beans it already sold. He also saw the store as a place where you could order a beverage, custom‐made to your unique tastes, in an environment that would give you the sense that you had escaped, if only momentarily, from the chaos we call life. Finally, Schultz believed that the company would prosper if employees shared in its success.
In a little more than 20 years, Howard Schultz’s company, Starbucks, grew from that one store to over 17,000 locations in 54 countries. That is an incredible rate of growth, and it didn’t happen by accident. While Starbucks does everything it can to maximize the customer’s experience, behind the scenes it needs to control costs. Consider the almost infinite options of beverage combinations and variations at Starbucks. The company must determine the most efficient way to make each beverage, it must communicate these methods in the form of standards to its employees, and it must then evaluate whether those standards are being met.
Schultz’s book, Onward: How Starbucks Fought for Its Life Without Losing Its Soul, describes a painful period in which Starbucks had to close 600 stores and lay off thousands of employees. However, when a prominent shareholder suggested that the company eliminate its employee healthcare plan, as so many other companies had done, Schultz refused. The healthcare plan represented one of the company’s most tangible commitments to employee well‐being as well as to corporate social responsibility. Schultz feels strongly that providing health care to the company’s employees is an essential part of the standard cost of a cup of Starbucks’ coffee.