Pacific Coffee Balanced Scorecard:
Operationalizing Strategies
Your role will be that of a management consultant. You will analyse the case and prepare
a report for the board of directors/ senior leadership of the organisation addressing the
following questions/ concerns:
Case questions:
1. Outline the challenges Pacific Coffee is facing.
2. What are the strategies Pacific Coffee can apply to address these challenges.
3. At the corporate level for the Hong Kong business, develop a Balanced Scorecard
(BSC) that links Pacific Coffee’s strategy to its critical success factors (i.e. drivers/
lead indicators) and ultimately key performance indicators (KPIs, i.e., lag indicators).
These may be grouped into the following categories/ perspectives: Customer,
Internal Business Process, Innovation and Growth, and Financial.
4. Develop a BSC for the store managers that would be used as part of their individual
performance appraisal. How would this compare and contrast with the BSC at the
corporate level?
[For each perspective of your BSCs, you need to have relevant objectives (logically drawn
from Pacific’s strategies) and closely replated measures.]
Note from the CE:
The following questions have been raised by some teams:
1. How can we make recommendations based on the above? They are just four
questions to which we need to find answers..
2. How do we use scholarly journal articles? Just
ainstorming solutions after reading
the case seems to be enough..
Reply to Q1: Your assignment will be in the form of a management consulting report [so the
questions/ concerns would be addressed in an integrated fashion seamlessly within the
eport], not just a sequential answering of them like in an exam script. The
ecommendations will arise out of the analyses made to address the questions. The final
ecommendation section should only include the most crucial recommendations (i.e., the
key ones) that are clearly practical, actionable and can be written in bullet points [no long
discussions expected here; analyses and discussions were part of the main body of the
eport].
If you think carefully, except for question 1 above, you are actually making suggestions/
ecommendations in the other three questions.
Reply to Q2: Remember, as management consultants, your product is your report and you
‘gotta’ sell it; build enough reputation around it so that you get other ‘projects’ from the
same client in the future. That’s why, while your ideas are great, they need to be backed up/
substantiated by solid research that demonstrates your depth of knowledge and
oader
awareness of the topic area.
Pacific Coffee Balanced Scorecard: Operationalizing Strategies
Balanced Scorecard: Operationalizing Strategies
Am
ose Tong prepared this case under the supervision of Professor Thian Chew solely as a basis for class discussion. The authors
have disguised certain data to protect confidentiality. Cases are written in the past tense; this is not meant to imply that all practices,
organizations, people, places or facts mentioned in the case no longer occur, exist or apply. Cases are not intended to serve as
endorsements, sources of primary data, or illustration of effective or ineffective handling of a business situation.
Inquiry on ordering and permission to reproduce the case and its materials, write to XXXXXXXXXX or visit cbcs.ust.hk
© 2014 by The Hong Kong University of Science and Technology. This publication shall not be digitized, photocopied or
otherwise reproduced, posted, or transmitted without the permission of the Hong Kong University of Science and
Technology.
Last edited: 8 April 2019
THIAN CHEW
AMBROSE TONG
Pacific Coffee Balanced Scorecard:
Operationalizing Strategies
Since China Resource Enterprise Ltd. (CRE) acquired a majority stake in Pacific Coffee in 2010, the
coffee chain had experience tremendous expansion particularly in mainland China (See Appendix for
ackground information). Yet, Hong Kong remained the core part of the business, and Pacific Coffee could
not afford to lose its leadership position in its home base. On top of this, the competitive environment had
ecome more intense whilst the Hong Kong coffee consumers became more sophisticated.
Jonathan Somerville, CEO of Pacific Coffee, realized that while he needed to stay involved and on top
of the business in Hong Kong, he no longer had the capacity to be involved day to day, when his “gut feeling”
of what was happening in the business could explain what he saw in the financial reports he was getting. At
the same time, he needed to motivate his Hong Kong team and give them direction when implementing
strategies.
At the same time, there was an increasing saturation of coffee houses and intensified competition in
Hong Kong, alongside a far more sophisticated and demanding customer base. Jonathan needed to develop a
strategy to address these new challenges, and then operationalize these. He realized one got what one
measured, and needed both a baseline as well as target metrics aligning to Pacific Coffee’s overall strategy
and critical success factors to get there.
He had previously come across the Balanced Business Scorecard as an effective tool to link and align
a company’s strategy to its operations: the scorecard considered customers, internal business processes,
innovation, and growth, as well as financial factors when determining the health of a company and how it
tracked its strategic priorities. By balancing financial and non-financial, as well as leading and lagging
indicators, in one framework, Jonathan felt that this would be an effective tool to help his management team
focus on what was important to achieve in the Hong Kong business going forward, as well as cascade these
priorities down the organization.
HBP Product ID: ST78
UST078
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UST078 XXXXXXXXXXPacific Coffee Balanced Scorecard: Operationalizing Strategies
Appendix: Pacific Coffee, Pioneering Coffee Culture in Hong Kong
Pacific Coffee Company Limited, a Hong Kong-based coffeehouse chain, experienced a major change
of ownership in September 2010. The new majority-shareholder of Pacific Coffee had been investing
significant effort to establish and extend the
and and network in China. In the meantime, the management
team had to maintain its leading position in the highly competitive Hong Kong market.
The Coffee Industry in Hong Kong
1980–2000: The Early Years
In the eighties and until the early nineties, it was difficult to get a decent cup of coffee in Hong Kong.
While local tea houses served coffee, it was a far cry from the coffee served in Europe and the United States.
The only places that served proper coffee were the occasional Western restaurant and the upscale hotels. At
the same time, a trendy coffee drinking culture, led by Sta
ucks, was taking off in the U.S. Lifestyle-themed
coffeehouses started to proliferate across North America as holding a cup of such coffee became fashionable.
Recognizing this unique opportunity, several American expatriates started setting up American-style
coffeehouses in Hong Kong. These stores were characterized by quality service, comfortable lounge chairs, a
elaxing ambience, and provision of useful media such as the latest editions of newspapers and magazines. As
there was no Western-style coffee culture among local people, these first stores primarily targeted expatriates
and tourists. They could be found in and around Central, the key business district of Hong Kong. Similar
coffeehouses were seen in prime shopping areas frequented by tourists, such as Tsim Sha Tsui and Causeway
Bay. Residential areas with a high number of expatriate residents like Discovery Bay also were popular store
locations.
By the mid-nineties, these coffeehouses started to flourish as more local residents became familiar with
this relaxed and cozy Western coffee culture. Hong Kong, with its high population density, was characterized
y small apartments and an intense work culture. The coffeehouses offered a welcome respite from the
crowdedness and stress. In the U.S., anecdotal experience indicated that as much as 80% of a coffeehouse’s
usiness was derived from takeout customers, whereas the trend in Hong Kong was the opposite. Most
customers in Hong Kong chose to take coffee
eaks inside the stores. As coffeehouses gained in popularity,
additional players entered the market. By the start of the century there were only a few coffeehouse chains,
each with no more than 15 stores. Most Western-style coffeehouses were limited to a single location operating
in a “mom and pop” style.
XXXXXXXXXX: Emergence of Coffee Culture and Competition
From 2000 on, Hong Kong experienced a surge in coffee stores driven by both local and global coffee
players. The U.S. and European coffee culture took hold in Hong Kong. But with this success and popularity,
intense competition emerged and almost every prime location in Hong Kong had multiple coffeehouses. As
the industry grew, a few chains emerged that dominated the industry. By early 2019, Pacific Coffee, Sta
ucks,
and McCafé collectively operated around 400 stores in Hong Kong. Still, new
ands and offerings continued
to emerge and to challenge their dominance.
This document is authorized for use only in Dr Ahmad Sujan's ACC/ACF3200 at Monash University from Aug 2019 to Feb 2020.
HKUST Business School