Kentucky Fried Chicken & the Global Fast-Food Industry - Essay Example

Case Study – Kentucky Fried Chicken & The Global Fast-Food Industry in De Wit & Meyer (2004:909-927) Table of contents Executive Summary 3 Question One: Using the case study as the basis for your thinking, answer the following questions using your knowledge and further research in the context of KFC today: a) In the context of the process of strategic thinking and strategy formation, outline what SWOT and Porter’s Value Chain techniques are, and explain their practical relevance to strategic planners at Kentucky Fried Chicken (KFC) Corporation. 4 b) Use Porter’s Five Forces framework to critically evaluate the opportunities and threats that faced KFC Corporation in 2013 7 c) Explain the ‘pressures for global integration of activities’ and the ‘pressures for local responsiveness’ facing KFC Corporation in the context of current developments in the global fast-food industry 9 Question Two: a) In the context of strategy development, explain your understanding of Whittington’s ‘Evolutionary’ and ‘Systemic’ Schools of Thought 10 b) Critically evaluate how you might apply these two Schools of Thought to KFC in 2013. Explain and explore which school of thought you prefer, and why? 11 Question Three: “Hofstede’s (1993) theory of cultural dimensions implies that although not all the individuals within a country’s population will have exactly the same characteristics, the cultural dimensions will colour the institutional and administrative arrangements that are made within the country, and will set the norms for behaviour.” Using your understanding of Whittington’s (2000) ‘Systemic School of Thought’, critically evaluate the implications of these cultural dimensions for international strategic managers at KFC in building productive relationships with the outside world. 12 References 14 Appendices 15 Executive Summary The performance of each industry in the global market is depended on a series of factors. There are industries where competition is extremely high and where the exposure to risks can be significant. Using strategic tools and techniques can help managers to control risks for their organization even if market pressures are strong. KFC is an important competitor in the global fast food industry. The firm is owned by Yum! Brands, one of the strongest rivals of the above industry. Managers in KFC have tried to use the continuous expansion as a strategy for securing organizational growth. This practice has been proved effective, at least up to now. From 2013 onwards, changes should be made in regard to the strategic planning process used in KFC. The use of well known frameworks, such as Whittington’s ‘Evolutionary’ and ‘Systemic’ Schools of Thought could help the organization to increase the effectiveness of its strategies and to strengthen its market position. Question One: Using the case study as the basis for your thinking, answer the following questions using your knowledge and further research in the context of KFC today: a) In the context of the process of strategic thinking and strategy formation, outline what SWOT and Porter’s Value Chain techniques are, and explain their practical relevance to strategic planners at Kentucky Fried Chicken (KFC) Corporation. In order to develop effective strategies managers in modern organizations use a variety of tools. Each of these tools responds to specific needs of organizations in terms of strategic thinking and strategy formation. In any case, it has been proved that firms of all sectors cannot strengthen their position unless they align their strategies with their environment. The SWOT analysis is a tool helping managers to understand the conditions in their firms’ environment; then managers are able to identify strategies that can effectively support business operations, either in the short or the long term. SWOT analysis refers to a firm’s internal and external environment and is consisted by four elements: ‘a) strengths, b) weaknesses, c) opportunities and d) threats’ (Kushal 2011, p.59). The first of the above two elements are related to a firm’s internal environment while the other two, i.e. opportunities and threats, reflect the external environment of each organization (Kushal 2011). The above elements could be analyzed as follows: a) strengths: a firm’s key capabilities, especially those that can be considered as competitive advantage towards the firm’s rivals, b) weaknesses; the firm’s less effective functions and sections; identifying weaknesses early is critical for the standardization of organizational performance (Kushal 2011). The SWOT analysis has been related to a series of advantages: a) it can be combined with other strategic tools (such as the Balanced Scorecard) for offering credible information in regard to a firm’s environment (Pahl and Richter 2009) and b) it highlights the importance of reviewing organizational strategies as regularly as possible so that major failures are avoided (Pahl and Richter 2009). In the case of KFC the SWOT analysis could help strategic planners to identify their firm’s core competencies and weaknesses and proceed to the alteration of the firm’s existing strategies so that risks are minimized. In any case, when completing the above task managers in KFC should also take into consideration the opportunities and threats that their firm has to face in the context of the global market. Especially in regard to the opportunities and threats of the firm’s external environment, these can be identified using also other strategic tools, such as the Porter’s Five Forces model, as analyzed in the next section. The Porter’s Value Chain Analysis (VCA) technique refers to another aspect of the organization: the potential of each organization’s activities to produce value and profit (Sekhar 2009, p.115). In the context of the above analysis, organizational activities are considered as an integrate framework, a chain. The VCA technique explains how each element of the chain participates in the value creation process (Sekhar 2009, p.155), as part of the organizational operations. The value creation process is based on the offering to the public of products/ services of a particular value and the generation of specific profit (Sekhar 2009, p.155). The VCA technique is based on the following rule: the activities of each organization can be divided into two, key, categories: the primary activities and the support activities (Bidgoli 2004). The elements of each of these categories are presented in Figure 1 (Appendix). It should be noted that managers in KFC seem to emphasize on a particular strategy: the continuous expansion through franchising, avoiding PepsiCo’s strategy ‘to promote company-owned restaurants’ (KFC case study, p.920). Currently, KFC is owned by Yum! Brands, a firm that seems to prefer franchising; in this way, customers’ loyalty to each of the above firm’s brands is kept at high levels (Yum! Brands, 2011 Annual Report). At the same time, the quality of the firm’s products and the firm’s marketing practices are of high value for managers in KFC (KFC case study). The introduction of a new logo and the establishment of certain rules in regard to healthy cooking have been used by the firm’s managers in UK in order to improve the firm’s image in the particular market (KFC UK, History 2013). Similar practices could be developed for the firm’s chains in other countries, according to local culture and the resources available. It should be noted that the decisions of managers in KFC in regard to the firm’s key strategies need to be aligned with the culture of PepsiCo; the latter acquired KFC in 1986 and has a critical role in the firm’s strategic positioning in the global market (KFC case study p. 911). The VCA technique could be also used in KFC in order to increase the firm’s competitiveness. The above technique has the following advantage: the value chain, on which VCA is based, can be differentiated, in terms of its structure, securing a firm’s competitive advantage towards its rivals (Bidgoli 2004). In fact, managers in KFC could use the VCA in the following ways: a) they could decrease the costs related to its element of the chain, so that the chances for profits are increased, b) they could also emphasize on ‘the strengthening of linkages between the chain’s current elements’ (Bidgoli 2004); such practice could result to the improvement of communication and cooperation across the organization leading to the enhancement of the firm’s performance. At this point the following issue should be made clear: the firm’s current value chain may not incorporate all these elements. Managers in KFC could focus on the firm’s existing sections/ functions and develop a value chain that will be competitive towards those of other industry’s competitors. b) Use Porter’s Five Forces framework to critically evaluate the opportunities and threats that faced KFC Corporation in 2013. Porter’s Five Forces model promotes the idea that in the context of the global market each business has to face five forces: ‘suppliers, competitors/ new entrants, industry competition, substitute products and customers’ (Ahlstrom and Bruton 2009, p.131). These forces can be quite strong leading to the decrease of organizational profits (Hill and Jones 2007). Using the Porter’s Five Forces Model, the opportunities and threats that KFC currently faces could be analyzed as follows: a) Industry competition; even if KFC is based in USA its presence in the global market is quite strong; in fact, it is estimated that more than ‘50% of the firm’s restaurants are located outside of USA’ (case study, p.520). McDonald’s and Wendy’s are considered as the firm’s most important competitors. For 2012, the fast food industry’s revenues globally was estimated to $706.7 billion (IBIS World 2012), rather impressive performance if taking into consideration the financial pressures in the international market. Up to 2017, the industry’s performance is expected to be further increased (IBIS World 2012). Managers in KFC should introduce strategies for increasing the firm’s competitiveness in the global market, not just in the Latin American market, the area highlighted in the case study; b) Customers; McDonald’s is the strongest competitor in the global fast food industry, with restaurants in about 117 countries worldwide (Portnoy 2011). Increasing its customer base could be a major challenge for KFC. Managers in Yum! Brands, the firm that owns KFC, promote a strategy of continuous expansion, focusing on emerging markets, such as the Chinese market (Portnoy 2011). In 2012 Yum! Brands opened ‘949 new restaurants, both KFC and Pizza Hut’ (Yum! Brands, Restaurants International 2013). For 2013 the firm’s customer base could be decreased due to a food-safety scandal in the firm’s restaurants in China (The New York Times 2013); c) Substitute Products; as already noted, KFC focuses on specific products, especially fried chicken and food of similar type, i.e. grilled chicken in various forms (KFC History 2013). The firm’s major competitors, McDonald’s and Wendy’s have similar products but not of the same range as KFC (Portnoy 2011); therefore, no managers in KFC, and Yum! Brands, should not worry for potential pressures from substitute products; d) Competitors; the fast food industry is quite competitive; the industry is characterized by the dominance of specific firms such as McDonald’s, Yum! Brands and Wendy’s (Portnoy 2011); new entrants even if they would appear they would focus locally; the position of the firm’s major competitors in the global market could not be threatened; in 2012 KFC entered the academic field, establishing a sponsorship for a degree in business management (Thomas 2012) in cooperation with a British University; in this way, the firm’s managers expect to further increase organizational competitiveness; e) Suppliers; In the fast food industry failures in regard to the materials delivered by suppliers can harm organizational performance; reference can be made, as an example, to the firm’s recent involvement in food safety scandal in China (The New York Times 2013); the material used in the firm’s recipes need to meet specific standards otherwise the image of the organization could be severely harmed; suppliers in the fast food industry are many but their ability to meet the standards mentioned above needs to be carefully checked before establishing a relevant agreement. c) Explain the ‘pressures for global integration of activities’ and the ‘pressures for local responsiveness’ facing KFC Corporation in the context of current developments in the global fast-food industry. As already explained, the competition in the global fast food industry is quite strong. Firms that are already well established in this industry need to continue update their processes so that their profits are kept high. Of particular importance is the issue of the ‘global integration of activities’, a term used for reflecting the need for integrate strategic framework for firms participating in the global market. For example, as long KFC was an independent firm, there was no need for its strategies to be checked, as of their expected benefits. However, this status made the firm more vulnerable to the pressures from other competitors that were more prepared to face the challenges of the global market. Today, KFC is owned by Yum! Brands, a quite powerful organization, with brands worldwide (Portnoy 2011). Yum! Brands can support, in terms of the resources required, the global integration of its activities, establishing standards and rules that need to be respected by all its brands, including KFC. At the same time, the operations of KFC need to be reviewed, so that they respond to the needs of local markets, or else to pressures for local responsiveness, i.e.to pressures for responding to consumer preferences in each market, as these preferences may be differentiated from those of consumers in other markets. Wendy’s and Burger King, two key competitors in the global fast food industry, have managed to increase their global presence by changing their menus so that a high range of food products is available and by emphasizing on continuous expansion (Report Linker 2012). The change of menu in the above case has been based on local consumer preferences, as identified through appropriate market research (Report Linker 2012). The above two practices have been so critical that they led to the limitation of McDonald’s power as a global competitor and to the improvement of the position of Wendy’s and Burger King in the global fast food industry (Report Linker 2012). KFC should follow a similar practice, taking into consideration the fact that the performance of the industry’s firms is at average levels (Figure 2, Appendix), probably under the influence of the ‘uncertain market conditions’ (Sipahi 2010, p.78). Question Two: a) In the context of strategy development, explain your understanding of Whittington’s ‘Evolutionary’ and ‘Systemic’ Schools of Thought. In the context of Whittington’s ‘Evolutionary’ School of Thought, the strategies of organizations should focus on ‘profitability and efficiency’ (Analaoui and Karami 2003, p.52). This means that high profits can influence each firm’s strategies more than other elements of the organizational environment, such as the threat for new entrants or the level of competition. However, such practice could lead to the development of strategies that may not be effective in the long term. It should be noted that the ‘Evolutionary’ school of thought promotes the idea that organizational environment is ‘high unpredictable’ (Analaoui and Karami 2003, p.52). In such environment, the effectiveness of all business strategies can be doubted (Ungson and Wong 2008). In other words, using the above school of thought a firm’s strategic planners should emphasize on strategies which may result to high profits but their performance under any market turbulence cannot be predicted; the risks of such approach are clear. As for the ‘Systemic’ school of thought, this is based on a different view: strategies need to be aligned with the social environment, including ‘the cultural rules of society’ (Ungson and Wong 2008, p.101). This means that profits are not set as a priority when developing a business strategy; rather the social environment of the organization, in terms of ethics, culture and social beliefs, is set as the basis for the parts of each strategy, even if the latter refers to a commercial organization. b) Critically evaluate how you might apply these two Schools of Thought to KFC in 2013. Explain and explore which school of thought you prefer, and why? The strategy of KFC in 2013 could be affected by both schools of thought. In the context of the Evolutionary school of thought, strategic planners in KFC should focus on the identification of strategies that can guarantee a specific level of profitability, even in the long term. The achievement by KFC of a specific level of annual growth, as a target, within the next 5 years would be an example showing the interaction of the Evolutionary school of thought with the business strategy. The systemic school of thought would also influence the firm’s strategy at the following point: the firm’s strategy should promote the interests of stakeholders, i.e. of the firm’s social environment. Moreover, the firm’s strategies in its branches internationally would be aligned with local culture and ethics, as this practice is already used by competitors, as Wendy’s and Burger King (Report Linker 2012). Between the two schools of thought I prefer the Systemic school of thought since it emphasizes on the relationship between the firm and its social environment and does not promote the idea of business as a machine for generating profits, as implied by the Evolutionary school of thought. It should be noted that the Systemic school of thought seems to be also preferred in practice, especially in large firms the activities of which can affect local societies. This view is verified through the following fact: all the strategic frameworks of large organizations incorporate a ‘corporate social responsibility statement’ for explaining the terms under which their strategies have been aligned with the needs of their social environment. Question Three: “Hofstede’s (1993) theory of cultural dimensions implies that although not all the individuals within a country’s population will have exactly the same characteristics, the cultural dimensions will colour the institutional and administrative arrangements that are made within the country, and will set the norms for behaviour.” Using your understanding of Whittington’s (2000) ‘Systemic School of Thought’, critically evaluate the implications of these cultural dimensions for international strategic managers at KFC in building productive relationships with the outside world. The theory of cultural dimensions, as developed by Hofstede, is based on the following view: the culture of societies worldwide is not similar; rather, they are five dimensions that seem ‘to be differentiated according to the cultural characteristics of each society’ (Dainton 2010, p.182). These dimensions can be summarized as follows: ‘a) social orientation, b) power orientation, c) uncertainty orientation, d) goal orientation and e) time orientation’ (Goddard 2006, p.213). Managers in KFC could combine these dimensions with the Systemic school of thought, as developed by Whittington, so that they can improve the relationship of the organization with its environment. The above target would be achieved through a strategic framework that could be quite flexible so that it can be changed easily according to the culture and the social ethics of each market worldwide; reference is made to the markets in which KFC restaurants have been established. The particular strategic framework would be developed according to the following rule: the strategies used in the firm’s branches worldwide should be differentiated on the basis of the cultural dimensions of each society; for example, in certain countries, where the firm operates, emphasis should be given on cooperation between employees while in other countries emphasis should be given on the personal development of employees/ or the rewarding; in the above example, the perceptions of individual action, as opposed to the collective action, would be taken into consideration (social orientation). In addition, in certain branches of the firm, the increased power of the leaders of each branch should be made clear to employees where to the branches established in other countries, such practice could not be tolerated (power orientation). Moreover, there may be markets where KFC could use an aggressive market plan while in other markets such initiative would lead to a failure (goal orientation). From another point of view, the efforts of the firm’s managers to use totally new menus could be welcomed in certain countries while in others such practices would lead to the radical decrease of organizational profits (uncertainty orientation). Finally, the time framework for achieving the targets set by the firm’s strategy can be either short or long, according to the characteristics of the target market (time orientation). For example, in a developed market where innovation is highly welcomed, such as the Japanese market, a short deadline could be set for the achievement of a particular level of profits in regard to a totally new menu. It should be noted that the responses of the market to the firm’s strategies, as aligned with the cultural dimensions framework, can only be estimated according to findings of research in regard to past initiatives of similar type. References Ahlstrom, D. and Bruton, G., 2009. International Management: Strategy and Culture in the Emerging World. Belmont: Cengage Learning. Analoui, F. and Karami, A., 2003. Strategic Management: In Small and Medium Enterprises. Belmont: Cengage Learning. Bidgoli, H., 2004. The Internet Encyclopedia. Hoboken: John Wiley & Sons. Dainton, M., 2010. Applying Communication Theory for Professional Life: A Practical Introduction. London: SAGE. Goddard, J., 2006. International Business: Theory and Practice. New York: M.E. Sharpe. Hafford-Letchfield, T., 2011. Social Care Management, Strategy and Business Planning. London: Jessica Kingsley Publishers. Hill, C. and Jones, G., 2007. Strategic Management: An Integrated Approach. Belmont: Cengage Learning. 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Available at http://www.reportlinker.com/news/2012/11/Fast-Food-Industry-Update-McDonald-s-Sales-Slip-For-First-Time-Since-2003-826 Sekhar, S., 2009. Business Policy And Strategic Management. New Delhi: I. K. International Pvt Ltd. Sipahi, S., 2010. Expanding Operations in Fast-Food Industry under Uncertain Market Conditions. International Journal of Trade, Economics and Finance, Vol 1, No 1, pp.74-79. Available at http://www.ijtef.org/papers/14-C172.pdf Tan, K. and Matthews, R., 2009. Operations Strategy in Action: A Guide to the Theory and Practice of Implementation. Cheltenham: Edward Elgar Publishing. The Economist, 2010. The changes facing fast food. June 17, 2010. Available at http://www.economist.com/node/16380043 The New York Times, 2013. KFC Parent Suffers After China Scandal. February 5, 2013. Available at http://www.nytimes.com/2013/02/06/business/global/kfc-parent-suffers-after-china-scandal.html?_r=0 Thomas, N., 2012. Kentucky Fried Chicken launches finger lickin degree. July 22, 2012. The Telegraph. Available at http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9418728/Kentucky-Fried-Chicken-launches-finger-lickin-degree.html Ungson, G. and Wong, Y., 2008. Global Strategic Management. New York: M.E. Sharpe. Wittmann, R. and Reuter, M., 2008. Strategic Planning: How to Deliver Maximum Value Through Effective Business Strategy. London: Kogan Page Publishers. Appendices Figure 1 – Porter’s Value Chain Analysis (Source: Mind Tools 2013) Figure 2 – Changes in fast-food restaurants in selected markets for 2009 (Source: The Economist 2010) Read More