KFC and the Global Fast Food Industry - Term Paper Example

?Question a) In the context of the process of strategic thinking and strategy formation, explain the practical relevance of SWOT and Porter?s Value Chain techniques to strategic planners at Kentucky Fried Chicken Corporation SWOT ANALYSIS A SWOT analysis is a useful technique in strategic planning. It comprises of strengths, weaknesses, opportunities and threats – both internal and external to the corporation. SWOT analysis gives a bird eye view of industry, market and company’s competitors. It helps organizations in formulating a market strategy, which will in long run be beneficial for the respective company (Bohm, 2009). KFC is a leading food chain in the world. When it comes to starting a new franchise in a new market, KFC would have to evaluate and analyze number of factors in its external and internal environment. The SWOT analysis for KFC is i. Strengths International recognition Ranked highest among chicken restaurants Unique flavor and recipe ii. Weakness Declining quality due to over franchising Less focus on R&D department Lack of relationship building iii. Opportunity Demographics trends have increased the growth Increased delivery services Updating restaurant and its menu iv. Threats Rapid change in customer demands Health awareness Increased competition PORTER’S VALUE CHAIN Michael Porter has given the concept of value chain in his book “The Competitive Advantage”. According to Porter, each and every activity and operation adds value to the produced product or service. So, every operation should support each other and should work at an optimum level. Porter suggested that organizations have two kinds of activities, “primary activities” and “secondary activities” (Overbeck 2009, p.26.). Primary activities: Inbound logistics: Involves obtaining raw material from supplies. KFC should make it clear to its suppliers, regarding the quality and time of delivery. Operations: Raw materials are combined to make the final product. This is the stage, where KFC has to keep check on quality and ingredients. In this stage, KFC can bring changes in its formula. Outbound logistics: Manufactured product is delivered to market. In case of KFC, it will not go to retailer or wholesaler, rather will go directly to costumer. Marketing and Sales: Marketing should be done in accordance to the needs of the end users. KFC should open its franchise in places where there is more demand, like near residential areas or in parks. Services: The services should include after sales services. KFC should provide services like feedback and royalty cards etc. to its regular users Support Activities: Procurement: The raw material acquired by KFC, should be properly accessed by KFC in order to assure best quality at best price. Technology development: The technology use can help KFC in maintaining the inventory record, sales, employee salary and attendance, and many other things. Human resource management: KFC has to recruit best available employees for its company, in order to deliver consistent quality to its consumer. Firm infrastructure: Organization structure matters a lot when it comes to adding value to the organization. KFC has to enforce and embrace a structure and culture that favors two way communications between employer and employee. b) Use Porter?s Five Forces framework to critically evaluate the opportunities and threats that faced KFC Corporation from the mid – 1990s to the year 2000. PORTER FIVE FORCE MODEL Michael Porter’s model has focused on how the corporate strategy should meet the opportunities and threats in corporation’s external environment. Porter has given 5 forces, on the basis of which a company can analyze its industry and market competition. These five forces are as follows: (Kurtz, MacKenzie&Snow, 2009) Bargaining power of suppliers: The supplies mean every kind of input that will help the organization in providing best products and services. The bargaining power of suppliers is high when suppliers are few and have a significant market share, and when cost of switching the supplier is high. The bargaining power is weak when there are number of competitive suppliers. In 1999, KFC dominated the sales in chicken segment in America, and second were the sales of its competitor Popeye’s. At that time KFC had loyal customers. Bargaining power of customers: The extent to which the customers have the power to influence volumes and margins of product and service produced. The bargaining power of customers or buyers is high when buyers are few and have a significant market share, and when consumer buy significant portion of the produced goods or service. The bargaining power is weak when switching cost is high. Threat to new entrant: The ease with which, a new competitor can enter the market and can snatch the market share ofexisting market players. The laws regarding the entry in a market are either provided by the government or the existing market players. KFC’s market share declined by the end of year 1999; the reason was that new chicken chains were entering and were growing in the market very rapidly. Threat of substitutes: It is the threat by existing market players that can attract the market share through other substitute products. If very close alternatives of the product come into market, then people will switch to it, thus decreasing the existing product demand. The competition in price and quality will start between the market players. For KFC, Boston market was a huge competitor in year 1999, because it was providing roasted chicken, which was a very close substitute of fried chicken. Rivalry: It describes the intensity of competition that exists between the market players. Moreover, increased competition can lead to changes in price, quality, design and profit margins. The rivalry basically enforces gaining a competitive edge over other competitors. KFC had Popeye’s and Church’s as its competitors back in 1990’s. Although, Church’s broadened its menu by offering wings, rice beans etc. to gain competitive edge over KFC, but still KFC had a significant market share because of the quality and taste of food, they are providing to their customers. Therefore, the taste and flavor of chicken provided by KFC was its competitive advantage. c) Explain the “pressure for global integration of activities” and the “pressure for local responsiveness” facing KFC Corporation in the context of the current developments in the global fast food industry. The pressure for global integration of activities and for local responsiveness has a direct influence in strategy formulation. The figure will explain different strategies (Aswathappa2008, p.318). Pressure for global competition Multi-domestic strategy: This strategy involves high pressure from local responsiveness and low pressure for global integration. The main focus of this strategy is meeting up the local consumer needs. KFC should keep in mind the culture and flavor that is most favorable in particular societies e.g. Veggie snackers in India only, as Indians mostly eat vegetables. Similarly, KFC is offering spicy food to Mexicans, as Mexican’s favor spice in food. KFC will be having a decentralized structure, because franchise operating in any country will be catering different needs and wants of their own local customer. So, universal or centralized system cannot be adopted by KFC.  International strategy This strategy involves low pressure for both local responsiveness and global integration. Some functions like R&D department, product development and the core competencies are under centralized control of the parent company. KFC is pursuing this strategy, because the secret recipe and changes in it are made by the parent company, which when approved, then get adopted by the other franchises. Global strategy: This strategy has high pressure for global integration but low pressure for local responsiveness. The focus of the strategy is to manufacture the goods in low-cost location; in order to decrease the cost and increase profit margins. This strategy cannot be adopted by KFC as it is offering perishable goods which are delivered to the consumer at the stop.  Transnational: This strategy has high pressure for both local responsiveness and global integration. It involves partially centralizing few departments, along with local consumer’s involvement. Pressures for global integration: Multinational customers: The multinational chains have to take care of their multinational customers. The international company’s should support their activities in terms of global context. KFC has to go for synchronizing its operations around the globe. Competitors: The multination corporations have to continuously improve themselves both in terms of national and international competition. Today, KFC is facing international competition from Burger king and Popeye’s, and national competition from AFC, RFC, and Crunchy chicken. These competitors are quite similar in terms of quality that they are providing. Investment intensity: Moreover, in order to maintain the market share, companies have to invest in their R&D department, so that they can improve with the passage of time. KFC should invest in R&D department, so that it can open new horizons for KFC in future Technology intensity: Technology helps in coordinating operations and activities, taking place in every franchise of the company around the globe. KFC should opt for Just In time inventory system, to assure its quality. Universal consumer needs: Increasing accessibility to other cultures is making life of employers easier, by generalizing the global consumer need. KFC should keep in mind the global need of consumers, by providing them the best and unique quality food. Pressures for local responsiveness Differences in consumer needs: Every country’s consumer needs differ from one another, so product and service should be designed in accordance to country’s consumer demand. KFC should keep in mind the culture and flavors that is most favorable in that particular culture e.g. Veggie snackers in India only, as Indians most eat vegetables Differences in distribution channels: The infrastructure of every country differs from the other, so the application of 4ps will also be different. The advertising done in Pakistan and that done in America for KFC’s same product will be way different. Availability of local substitutes: At times, multinationals have to produce products for which local substitute is available. The mighty zinger of KFC is not the first double burger; these kinds of burgers were available in market before. Host government demands: Countries have varying rules and regulations like taxes, import duties etc. Market structure: Every country has its own local competition in every product or service produced, so multinationals should have to deal with the local in accordance to the local market structure. Question 2  a) In the context of strategy development at KFC Corporation, explain your understanding of Whittington’s “Evolutionary” and “Systemic” Schools of Thought. Whittington has given four approaches for strategy which are Classical, Evolutionary, and Systemic (Ungson & Wong 2008, pp.100). Every school has its own way of thinking. Evolutionary School of thought: According to Evolutionary school of thought, constant struggle for survival is the only way to overcome the competitors. The main focus of this school of thought is the survival, neglecting the concept of profit maximization (Skaik, 2009). The concept of survival of the fittest applies in this case. Organizations that are unable to anticipate the environmental changes and to react accordingly, have to leave the market. At first, the survival in market was KFC‘s strategy. It even had to face a number of downturns due to increased competition. Moreover, initially KFC was focusing more on company owned organizations rather than going for franchises. KFC faced fierce competition from Burger King, Taco bells, Popeye’s and many others. The downfall occurred because KFC had not anticipated the changes in demographic trends that were increase in fast food demand; KFC competitors had taken maximum benefit from changing trends and increased their market share. Systemic School of thought: According to this Systemic school of thought, efficiency of sociological factor is required in order to understand the company’s environment. Moreover, economic and social activities should not be separated, in order to ensure success. The behavior is totally influenced by the network of families, profession and other social networking. The foreign investment and trade has a direct influence on the culture of the respective country. This school is very optimistic and it recognizes that the influence of culture has a significant role in developing strategy (Galliers & Baker, 1995). Furthermore, later KFC opted for opening franchises rather than company owned organizations. The idea behind franchises was that these outlets will deliver in accordance to respective culture. Like, Mexican KFC franchise has lots of sauces, as Mexicans likes spicy food; similarly veggie snackers available at Indian KFC franchise, as most Indian people don’t eat non- veg. b) Critically evaluate how you might apply the two schools of thought to KFC. Explain and explore which school of thought you prefer, and why? Evolutionary School of thought: The evolutionary school of thought enlightens the concept of survival of the fittest. As highlighted before, KFC had to face many downturns in the market owning to increasing competition in the market sphere. The downfall occurred because KFC had not anticipated the changes in demographic trends that caused an increase in fast food demand and the KFC competitors had taken maximum benefit from changing trends and increased their market share. Although, the unique recipe of KFC had competitive edge over others, but in order to succeed in this changing environment, organizations themselves have to change. Initially KFC did not approve of the franchise approach and hence, focused on more company owned organizations. KFC faced fierce competition with Burger King, Taco bells, Popeye’s and many others. Systemic School of thought: The systemic School of thought was more about linking strategy to culture. Today, only those organizations can succeed which can portray culture through their products and services. Furthermore, later KFC opted for opening franchises. The idea behind franchises was that these outlets will deliver in accordance to respective culture as in the examples of Mexico and India. Moreover, advertising done for same product in different countries would vary according to respective country’s culture. Critical analysis Both the schools have their own importance and if organization wants to succeed, they have to come up with amalgamation of both schools. In today’s dynamic environment it is essential for organizations to respond accordingly. In addition to that, culture and strategy synchronization is very necessary; if the synchronization is there then this is considered the best strategy. Moreover, today “Customer is King” concept is prevailing, that is customer needs are given the highest importance. Culture should be reflected from the products and services that organization is offering. Today, every organization’s success is residing on fulfilling consumer’s need, of which the most important is depiction of culture through products and services. So, Systemic school of thought is considered better in my perspective. Question 3  Using your understanding of Whittington’s (2000) “Systemic School of Thought”, critically evaluate the implications of these cultural dimensions (Hofstede) for strategic managers at KFC in building productive relationships with outside world. Today, if any organization wants to go global, it would have to acquire a detail insight of other country’s culture. Ever individual culture is differentiable from others. So, if any organization wants to succeed globally, then it has do extensive homework of the country’s culture that it wants to expand into. Culture of country includes religion, behaviors, taste and attitude, along with many other things. Geert Hofstede's research gives us the basic knowledge on basis of which cultures can be analyzed. If organization analyses the country’s culture properly, then level of frustration and degree of loss can be reduced and breakeven point can be achieved in no time. The cultural dimensions proposed by Hofsteds are (Robbins2010, pp. 35); Power Distance Index (PDI): The degree to which members of organization feel that power is distributed unequally. However, distribution of power is prevailing to a more or less extent in every country. This power inequality is not formed due to the leader only, but equal involvement from the followers as well. KFC’s strategic managers should study the power distance of the country in which it is thinking to enter. If KFC wants to go into a country that is high in power distance, that is where inequality exists both in power and wealth; here KFC would have to provide food of different price ranges so that everyone can enjoy it. However, KFC if going in low power distance country then have to provide same menu and without remarkable difference in prices. Individualism (IDV): The concept of individualist society is that the extent to which the individuals prefer independent living. American and European societies have individualistic approach. On the other hand, collectivism concept focuses on the extent of dependent living, which is living with family. Pakistan and India have collectivistic society, where family is considered most important, and throughout the life, parents have control over their children. KFC going to individualist societies have to come up with more personal deals rather family deals. KFC entering collectivistic societies have come up with family deals, along with family dine –in place and many other similar things. Masculinity (MAS): It basically refers to distribution of roles and responsibility in the society, where men and women have different roles, and men are considered to be dominating bodies of society. On the other hand, femininity means that very little gap is there between roles and responsibility of men and women that is almost every role is interchangeably performed by men and women. KFC entering masculine society would have to take care in its advertisements along with the sales persons, to be more focused on men. However, if entering feminine society, then KFC is free to do whatever it wants to, along with avoiding gender and color discrimination. Uncertainty Avoidance Index (UAI): The degree to which, a country avoids unstructured situations in the environment. Individuals are basically risk averse that is they avoid risk and want no changes and complexities in their lives. KFC, if entering a country that is high in uncertainty avoidance, would have to first create awareness regarding its franchise and as any change in menu might distress the customers so that would also need to be kept in mind. However, countries like America and Canada, which are considered to be the risk takers, if KFC wants to enter this market then it would have to bring something unique, new and innovative for acceptance. Moreover, it would have to continuously bring something new to the menu, which is innovative and never tried by any other franchise. Long-Term Orientation (LTO) It basically focuses on the long term goals and the future value of the product or service. On the other hand, short term orientation will focus on short term goals and value change in product and service. KFC entering a market where there is more stress on short term orientation would have to continuously upgrade and make changes. However, in terms of long term orientation, KFC would have to assure long term goals to the public, in order to gain acceptance in a particular country. Conclusion KFC would have to study a lot about before entering a particular market. For instance, if KFC introduces pig burgers in every franchise around the world, then it would have to face setbacks, because there are countries where pig is considered bad and is not allowed from religious perspective. So, going for a universal menu is not at all a good strategy. Likewise, having extra spice in each and every food item will again serve as a setback for KFC. Because countries like America, UK, India and many others don’t like spicy food; they prefer mild spices in food. So, if they are presented with extra spice food, it will be rejected by them. Hence, if KFC wants to build a good will in a market for itself, then it would have to get deep insights regarding the culture of entering country. REFERENCES 1. Aswathappa, 2008. International Business. Delhi: Tata McGraw-Hill Education, pp. 318. 2. Bohm, A., 2009. The SWOT Analysis. Germany: GRIN Verlag. 3. Galliers, R. D. and Baker, B. S. H., 1995. An approach to business process reengineering: The contribution of socio-technical and soft OR concepts. [Online] Available at [Accessed on 21st March 2011]. 4. Kurtz, D.L., MacKenzie, H.F. and Snow, K., 2009. Contemporary Marketing. USA:Cengage Learning. 5. Overbeck, S., 2009. Supply Chain Management - A Critical Analysis. Germany: GRIN Verlag, pp. 26. 6. Robbins, S.P., 2010. Essentials Of Organizational Behavior.10th ed. India: Pearson Education, pp.35. 7. Skaik, S.H., 2009.Implementing strategic management in construction. [Online] Available at [Accessed on 21st March 2011]. 8. Ungson, G.R. and Wong, Y.Y., 2008. Global strategic management. USA: M.E. Sharpe. p. 100. Read More