Kentucky Fried Chicken Corporation - Essay Example

? Kentucky Fried Chicken Corporation Table of Contents Page Executive summary 3 Introduction 4 SWOT and Porter’s value chain 5 SWOT technique 5 Porter’s value chain 6 Porter’s five forces framework 8 Pressures and the current developments in the global fast food industry 11 Pressures for global integration of activities 11 Pressures for local responsiveness 12 Whittington’s evolutionary and systematic schools of thoughts 12 Evolutionary approach 12 Systematic approach 14 School of thoughts application to KFC Corporation 15 Theory of cultural dimension and its application 16 Conclusion 18 References 19 Executive summary This paper tries to understand more about the strategic operation of KFC Corporation by incorporating various analytical concepts in strategic management. In this way, the proponent tries to integrate the basic idea about the process of strategy, strategy content and strategy context. It was found that KFC Corporation, even though it is the market leader in its industry is prone to lose its competitive advantage. This is due to the fact that the business in which KFC belongs seems to be very unpredictable considering that competition aggressively promotes different trends. Thus, it is in line with this that KFC should understand further everything about its strategy development. It should understand the necessary things it needs to know as product of its strategy process. Finally, it should be able to define and understand the specific contexts in which its strategy should be embedded. Introduction Global operation is one of the modern trends applied in modern operations strategy (Waters, 2006). This is the reason why Kentucky Fried Chicken Corporation (KFC) had become so aggressive with its global expansion strategy. This strategy enabled KFC to become the world’s largest chicken restaurant chain and in general the third largest food chain in the world (Krug, 2004). In fact, it is known to have around 14,000 restaurants in more than 100 countries including China, Japan, Canada, Great Britain, Australia, South Africa, Malaysia, Mexico, Indonesia, South Korea and Philippines. Franchise and joint ventures are integrated with the whole business system of KFC in order to allow local business people to handle since they know better the external and internal environments of their respective markets. This paper tries to understand more about the strategic operation of KFC Corporation by incorporating various analytical concepts in strategic development and management. The entire analysis is placed in the context of international fast food industry. SWOT and Porter’s value chain SWOT technique SWOT stands for strength, weaknesses, opportunity and threats in which it is a simple management technique which draws information together prior to decision-making process (Murdock et al., 2003). A SWOT analysis is composed of understanding both internal and external factors within an organization prior to knowing its major advantages and disadvantages. It is a non-complex way of identifying specific details in the business operation in order to understand the extent in which an organisation holds its competitive advantage or knowing the necessary steps to be taken further for improvement of the operation. This technique is very relevant in the case of KFC especially among its strategic planners because they will be given opportunity to outline the internal and external factors affecting the whole operation of the business. Shown in figure 1 below are internal and external factors within the present environment of KFC. This is a good evaluative technique prior to formulating effective strategies because the strategic planners in this case seek to understand both the internal and external factors affecting the business environment of KFC. Figure 1. SWOT Analysis KFC (Internal and external factors) Internal factors Strengths Weaknesses Product offering Brand image/good-tasting and highly accepted recipes Many substitute products in the market Competitive advantage High market share Not culturally sensitive to its franchising strategy Competitive strategy Aggressive global penetration through franchising and joint venture with local business people Slow to product development and innovation Management/control More liquid operation Inconsistency in control and quality service External factors Opportunities Threats Market Markets for development abroad Fierce competition among new entrants and better quality brands Economy Income growth/new rising economy (ex. China) Economic related activities Trends Positive acceptance of fast foods Increase of health-conscious customers As noticed, there is a good reason to evaluate KFC’s present performance with the use of SWOT analysis. It serves as an effective tool to enhance corporate decision-making process and a better way of understanding the necessary things needed prior to implementing the right strategic move. Porter’s value chain As shown in figure 2, Porter’s value chain is composed of primary and support activities. These are all strategic activities. The good thing about organising them as priorities is that they can be used in order to identify competitive advantage against competitors. In short, by strategically dividing activities, focus attention can be given to certain tasks which require the most important effort prior to achieving competitive advantage. Porter’s value chain is a good way to address some issues stated in the SWOT analysis of KFC especially on the weaknesses and threats. In this way, various activities have to be changed in order to categorise them according to the degree of their significance. However, such significance cannot be entirely defined without understanding what actually the company would want to achieve. Thus, there is a need to define first the necessary things to be achieved. Figure 2. Porter’s value chain (Overbeck, 2009) Porter’s five forces framework Faced with threats and opportunities in the mid-1990s and 2000, Porter’s five forces framework is a good tool to evaluate KFC’s performance in the global market. Porter’s five forces model includes specific pattern on how to exactly explain the existing competitive health in a specific market or industry (Hill and Jones, 2009). As stated earlier, KFC was faced with external factors affecting its entire business operation and these included its market, economy and ongoing trends in the global fast food chain industry. Competitive advantage is one of the bottom lines why organisations try to achieve specific competitive strategies. Porter’s generic strategies include focus, overall cost leadership and differentiation (Porter, 1990). These are the generic strategies that are believed to be effective in the achievement of competitive advantage. It is in line with this that organisations are not focusing too much into production-oriented approach in their operation, but more into stimulating needs for their product and service offerings (Kotler et al., 1999; Boone and Kurtz, 2006). It is because of this that competition has become so tough. In fact, KFC’s threats involve fierce competition among new entrants and better quality brands. This is a specific force that contributes to the existing rivalry in the food chain industry. KFC can actually combat this threat by trying to continue its aggressive effort in globalising its operation. In fact, in a global strategy there is a good chance to hold the economies of scale, experience product replication and serve global customers, make use of international resources, and access and integrate knowledge from multiple locations (Grant, 2010; Johnson et al., 2008). This is the very reason why KFC attempted to rely on franchising effort with local business people in the positive hope to minimise its effort in the operation management. However, this may not stand for so long considering that there are new entrants and even high quality brands that try to compete against KFC. In other words, KFC needs to assess its competitive strategy as far as the threat of new entrants is concerned. Considering that there are new entrants that are most likely to offer alternative products, the bargaining power of customers is therefore high. Thus, this is a corresponding threat to KFC’s potential revenue even if there is a good opportunity for its business especially in countries with rising economy. In reality, the income effect and substitution effect create an important impact on the entire nature of a certain good’s demand (McConnell and Brue, 1993). In short, even if customers can afford to buy an offering at a higher price, the presence of alternative goods as substitutes is always a possibility for significant threat. On the other hand, even if there is a positive acceptance for fast foods, increase in number of health-conscious customers is evident. In fact, fast food chain restaurants try to produce healthy offerings as a way to adhere with the latest trend and innovation in the fast food industry (Kurtz et al., 2009; Dixon, 2002). In line with this trend, suppliers for fruits and vegetables may benefit from this trend. As a result, they can have a strong market power to demand for higher price for their offerings. The competitive rivalry in the fast food industry is therefore shaped not only by the specific response of the market, but how exactly influential are the efforts used to stimulate needs for variety of product offerings. In short, the competitive rivalry has become a complex process for KFC considering that there are more competitors and even new entrants willing to take their competitive advantage. There are many key players in which their determination has been focused to achieving specific market share and eventually to become a cut above the other. Figure 3. Porter’s five forces model (Hill and Jones, 2009) Pressures and the current developments in the global fast-food industry Pressures for global integration of activities KFC Corporation without question is faced with pressures for global integration of activities. The very nature of its business relies on franchising and local joint ventures. This means that it has no specific strong stand point on many aspects of its global business operation. This primarily includes its not being culturally sensitive when it comes to its franchising strategy. It allows its franchising local business men to operate in their own for the reason that KFC tries to give them freedom due to the basic assumption that these people know more about the market. This resulted further to poor control in quality service and management. This seems to be opposing to the earlier stated benefits of globalising operation. However, what seems to be lacking with KFC’s generic strategy is to integrate in it the importance of human resource management and a widely defined internal business process with its local franchisers. It is in line with this that KFC is pressured to create specific attempt in producing internally controlled company spreading across international coverage. Pressure for local responsiveness In order for KFC’s global expansion strategy, there is a need to look in detail the responsiveness of local actions to the entire global activities. In short, there is a need to look the development at the micro level. It is noted earlier that KFC is aggressive with its global penetration through franchising and joint venture with local businessmen. However, it is also noted to be slow to product development and innovation. In line with this, there is a need to be more responsive with the prevailing need in the local food industry. Considering that KFC is putting too much trust on its local business ventures, there is a strong lacking portion from its part when it comes to innovation purposes. It is not therefore enough to focus on the know-how of its local business counterparts, but the entire operation needs to be globalised and then to be integrated within the local working system that could create potential competitive advantage. Whittington’s ‘Evolutionary’ and ‘Systematic’ schools of thoughts Evolutionary approach In the context of strategy development at KFC Corporation, under Whittington’s evolutionary approach, flexibility is important to ensure adaptation and survival because of predominating environmental forces (Fayolle, 2005). Under evolutionary approach, Whittington elaborated that organisations generally are unable to predict environmental change in advance. This is the reason why there is a need to come up with flexibility in line with strategy development so as to always be ready in times of predominant changes in the business environment in the future. The evolutionary approach is a specific way to create a buffer that eventually will be able to create adjustments. This is to say that the entire strategy development of KFC Corporation should not be fully closed to future possibilities especially in a changing business environment. In line with this approach, KFC Corporation should be able to consider alternative courses of actions that could eventually stand as relevant choices especially in constantly changing trends in the international fast food industry. The advent of competition results to formulation of specific strategies that after all are relevant in the existing rivalry in fast food industry. This cannot be entirely predictable considering that the nature of competition always ensures something new in the process just like in the case of differentiation strategy of Porter. In addition, the advent of competition creates competitive forces that are entirely unpredictable considering that the nature of competition is based on the concept of stimulating needs especially in the modern fast food industry. After all, as stated earlier, the existing competition in most industries involves stimulating needs for product and service offerings. Thus, competition usually ends up beneficial among customers because of many existing choices. This after all makes the entire process complicated. Thus, under evolutionary approach, a certain company especially KFC Corporation should always be open to different possibilities when it comes to its strategy development. Systematic approach On the other hand, in the context of strategy development at KFC Corporation, under Whittington’s systematic approach, it is important to take into account the importance of social roles and political constraints prior to the success of managerial development strategies (Fayolle, 2005). It is without question that an organisation’s strategic actions are influenced by the business environment. One of the most obvious and creating significant impact on business are social and political factors. Under social consideration, KFC Corporation must not only ensure the achievement of its corporate objectives, but the inclusion of cultural and other social-related concerns. After, all the entire business process is working in the social context with the inclusion of human resource, customer relationship, corporate social responsibility, culture, demographics and other business components that involve human factors and interaction. In other words, the social context plays a significant role in order to come up with systematic approach in business. Unlike the other components in evolutionary approach, the social context is predictable and objective because of the presence of references and availability of perceived interaction. Thus, based on the systematic approach applying the context of social roles, it is just easy to depict the ability of KFC to take extra control on the ongoing trends for the needs of customers and cultural sensitivity. The political constraint on the other hand is another important component in Whittington’s systematic approach. According to Porter, government has to play significant role especially in maximising the business potential of an organisation (Porter, 1990). However, this specific level of maximisation includes specific level of influence and power. These two usually are working harmoniously in order to achieve the specific strength of political force. Thus, under systematic approach, it is easy to predict the success of a certain business with stable political force. Thus, it is without question that KFC was able to consider beforehand the political stability of a nation as far as its global expansion strategy is concerned. School of thought application to KFC Corporation Under evolutionary approach, it is important that KFC Corporation needs to come up with generic strategies that are not rigid. This means that the strategy must be open to possibility of being change if necessary. This is to ensure that whatever trends are adapted by the market, KFC will be able to create effective strategies without thinking too much of the possibilities of failure. In this case, the differentiation strategy of Porter will be able to enhance the slow response of KFC when it comes to product development and innovation. On the other hand, the systematic approach will help ensure KFC Corporation to objectively understand its market potential. In this approach, it is no longer needed to come up with flexible strategic plans considering that information can be perceived, gathered and even there is no need to predict them beforehand. After all, what it takes for this specific approach is to be able to come up with details of information from the context of social and political environment. Unlike the evolutionary approach, the systematic approach is the first major consideration of KFC as the basic foundation for its strategic actions Theory of cultural dimension and its application 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 instituational and administrative arrangements that are made within the country, and will set the norms for behaviour. Building productive relationship with the outside world is one of the major considerations of KFC in its global expansion strategy. Its franchising strategy requires important relationship with franchisers and at the same time careful monitoring of them so as to ensure the image, quality and other intrinsic values of its product and service offerings protected, and consistently upgraded in the event that the evolutionary approach is necessary. In other words, the only way in which KFC will become flexible in its strategy development is to be able to define the essential factors in the social context of its business operation. The cultural dimension of Hofstede’s implies that KFC will be able to create flexibility in its strategic development through understanding the basic and prevailing norms and behaviour in the fast food industry. In short, there is a definite defined norm and behaviours among consumers that are easy understand. Through this, KFC will be able to consider in great detail the probable trend in the fast food industry without compromising its instituted strategic development plans. In other words, KFC will be able to maximise its market advantage considering that the basic about social or political considerations are taken into account in detail. Thus, incorporating the evolutionary and systematic approach of Whittington becomes less complex and in a way, will be able to generate productive output. It is therefore implied that the social context of systematic approach of the school of thought is not a waste of time for KFC. The basic foundation that KFC must be able to understand is the business environment. In the nature of its business, there is a strong implication of understanding cultural sensitivity in which this is one of the most essential components that it lacks in its operations. Thus, the idea of cultural dimension is a living guarantee that norms and behaviours are defined by experience. Considering that experience is associated with individual’s social background based on the theory of cultural dimension, KFC will make a good start for its product development and innovation strategy through understanding the social and political contexts of the business environment. This further leads to its high level of flexibility when it comes to its strategy development for its competitive advantage. Conclusion KFC Corporation is therefore a certain organisation that needs to enhance productivity through understanding the specific level of strategy formulation. It is not only enough on its part to consider global expansion in general, but there is good reason to understand the level on how it starts its strategy, who will take charge of it and when to eventually start everything about it. The business in which KFC belongs seems to be very unpredictable considering that competition aggressively promotes different trends. Thus, it is in line with this that KFC should understand further everything about its strategy development. It should understand the necessary things it needs to know as product of its strategy process. Finally, it should be able to define and understand the specific contexts in which its strategy should be embedded. References Dixon, J. (2002) The changing chicken: chooks, cooks and culinary culture. Sydney New South Wales: UNSW Press. Fayolle, A. (2005) Entrepreneurship research in Europe: outcomes and perspectives. Massachusetts: Edward Elgar Publishing. Grant, R. M. (2010) Contemporary Strategy Analysis. 7th ed. Oxford: John Wiley and Sons. Hill, C. and Jones, G. (2009) Strategic Management Theory: An Integrated Approach. Ohio: Cengage Learning. Hofstede, G. (1993) ‘Cultural constraints in management theories’, in B. De Wit, and R. 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