Operations and Strategy: Outback Steakhouse - Essay Example

?Operations and Strategy: Outback Steakhouse case analysis Table of Contents Operations and Strategy: Outback Steakhouse case analysis Table of Contents 2 Part A – Operations 3 Introduction 3 Key operational challenges that face the Outback Steakhouse in its bid to expand the business internationally 4 Part B – Strategy 12 Strategic plan for Outback Steakhouse 12 SWOT Analysis 13 PESTEL Analysis 15 Competitive Analysis 17 Mission Statement 19 Alternative Strategies 19 Recommendation 20 Reference 21 Bibliography 22 Part A – Operations Introduction Chris Sullivan along with Bob Basham and Tim Gannon in the early years of 1988 coming from the background of restaurant management opened two stores of Outback Steakhouse following an Australian style theme with an adventurous outdoor facility for the customers. At the beginning the company is financed by friends and family for the partnership but later during the year 1990 friends of the three entrepreneurs approached for being the franchise of Outback Steakhouse and the company started expanding into the business with joint ventures and franchise scheme. The company’s growth rate is very high as compared to other players in the market. The company is growing opened around 70 shores per year and is expected to grow even more in coming years with an estimation of 500 to 600 stores in the next 5 years. With such a fast growing rate the company very soon reached its saturation level at US market thus expansion plan are very required for the company to maintain a sustainable growth rate in the restaurant market. But with an international expansion the company will also face several challenges in different countries which are needed to be evaluate by the company in order to expand understand the suitability of the market with the company’s operation. Finding a suitable market will result in sustainable growth for the company and the company will also be able to understand the trend in different market for the type of food produced by the company. Key operational challenges that face the Outback Steakhouse in its bid to expand the business internationally There are various factors like Market demand, Cultural and social factors, raw material suppliers, infrastructure and regulations and trade restriction of the particular country are required to be evaluated with proper research to find the suitability of the country of expansion with the company’s product. Market demand Market demand is of the major factor which is needed to be evaluated by the company before entering into new market. The market demand can be understood by the company by several factors like the level of disposable income of the country, demographics, socio economical condition of the country and the life style of the people in the region. Market size, growth and potential of the market are also very important for the expansion plan of the company (Luo, 1999, p. 120). In economically developed country people are more into spending for costly foods and other entertainments available in the market. Demographics of the country are another issue which the company should look after as it can influence to great extent in finding the prospective market for the company. Outback has a great potential into market where people are not much involved into family and often have fast foods at shops and also the young generation are more into enjoying food with friends at restaurants. Thus if the company fails to understand the demographics of the country it can be big mistake for the firm and might fail to flourish its business in that particular region. Life style of the country is another aspect to determine the market demand. The preference of people in a country towards a particular cuisine and style of dining convention are different for different regions. People preferring western cuisine can be a good prospect for the company on the other hand many countries many prefer different cuisine and dining style which is needed to be evaluated by the company before entering into the market. The company may need to customize its products and even its name to match with the market demand of the country. Many companies follow this strategy to enter into the market for sustainable growth into the particular region like McDonald’s are renamed to ‘Croque McDos’ at france, ‘McArabia Koftas’ at Saudi Arabia region and the products are even modified like no beef and pork food for India and various another regions of the world (Schermerhorn, 2010, p. 220). Outback Steakhouse should also assess the markets which are suitable for the type of products offered by the company and should approach towards the market which is matching with the product portfolio of the company. Cultural and Social Factor Cultural and social activities in the international market can be another challenge for the company to explore its business in foreign market. People of every country have a specific trend and style which are due to the cultural and social influence of the country. Matching the cultural and social need of the country is very difficult for many organizations. Customers will prefer to avail the services and the menus available in the restaurant according to their taste. The ambience plays a vital role in the preference process. Restaurants designed following the culture of the country can attract huge group of customers for enjoying the special treatment from the company. Cultural tradition of the history, language barrier and regional values also acts as obstacle for the company to introduce new product in the market (Yu, 2004, p. 84). The employee management is also important for Outback. Employee from same cultural and social background will understand the customers and understand the taste and hospitality style needed for the particular country. Following the same style of business and employees from the same region can lead to miscommunication between the employees and the customers which will lead to customer dissatisfaction resulting to business loss. Since Outback is mainly focused towards the franchise practice for its expansion plan internationally the company need to select the entrepreneur also according to the cultural and social trend of the country (Gillespie, Jeannet, Hennessey, 2009, p. 531). Entrepreneurial quality should be there in the management practice of the individual. This is very important as faulty practice within the organization may lead to the fall of the whole business in the expansion plan. The restaurants facilities should also match the need of the people in that market. Raw materials supplier Raw material supply is the primarily element for any business. International expansions for any food chain company need supply for food and drinks from the local market. This is one of the major barriers for any company expanding its business internationally. International traders often face problems in receiving products from suppliers in sufficient amount or of good quality. Suppliers Quality Assurance is very required to meet the demand of the customers in the market and maintain the brand image for producing quality foods in the industry (Dean, 2000, p. 127). These problems in international market may ruin the brand name for the company even in the local market. Again in international market the price are also not stable all the time which can be of immense problem for the company to maintain its price constant. Variation of price at different regions is hard to maintain for any company. Physical distance between the company and the suppliers can affect the franchise concept of Outback to great extent (Taylor & Grant, 2008, p. 7). Building relation with the suppliers is very important for any company to maintain low price for its products. Also the cost of transportation for the firm increase with more distance between the two. These problems will lead to complication in different processes like sourcing supplies, operational aspects and providing quality service from the management to the franchise. To overcome this barrier many companies implement their own supply chain management system for an easy access to raw material for the firm. Companies with owned supply chain can manage the whole system by itself and are not dependent on any other suppliers. But this convenience in business process incurs huge investment in the program. Being one of the leading brands Outback Steak can implement this strategy to enter into new market in other country. Though it involves huge investment of money and time for the proper execution but it can be strong base for the company to expand internationally with sustainable growth into the market. Having the supply chain system its own can also reduce the price of the products as the company will be able to cut down the cost of the third party middleman who are into the supply chain business for the supply of foods and drink for the company. The primary objective of using own supply chain management system is to reduce cost of product and increase profit for the firm (Keat, 2011, p. 262). Infrastructure To establish business in a foreign country proper transportation and communication system are one of the basic requirement for any company. With proper means of various utilities like power, supply of water will help the company to establish its store and manufacturing plants in the country. Countries with inadequate supply of the basic needs of the living are not a suitable option for any new business establishment for any company. Infrastructure is a complex organization of various factors like employee needs, skilled labours, import export of the country, pollution factor and land usage policies of the country. Some of these factors are uncontrollable factors which are needed to be present beforehand to establish business in that particular market (Howes, Robinson, 2005, p. 58). Before entering into the market, Outback should conduct in-depth research on the place to understand the situation of the country. Another important issue are the availability of the suppliers in the particular region. This is the most important issue the company should evaluate before entering into the expansion plan into the new country. Restaurant should have available resources near to the location otherwise transportation of food and drinks from the suppliers will increase the cost of the product which in-turn will increase the price of food for the customers. The raw materials for the preparation of food, equipments for the manufacturing process, trained employees are very essential for the development process of the new firm into a new area. With proper implementation of the same and understanding of the market can help the company to satisfy the customers of the region which is the most important criteria for Outback to flourish in the business process with new restaurant in foreign country. Regulation and trade restriction Import restriction of the country is not a very important aspect for the company to enter a new market. Most of the food products for the restaurant business are available from the local market. Very few materials are imported from outside the country. But sometimes Outback may face some problem in the import process of equipments for the restaurants and it might be expensive for the company to import goods from outside to start the process. In emerging markets there is restriction for foreign direct investments which might affect the company to enter. The even-handed tax regulation of the government may cause burden for international trade in some countries (Harrigan, 2003, p. 16). Food industry face strong problem primarily from national regulation of the country which is related to the food market and the standard of food which is supplied. Business licensing and business contracts are other issues which might affect the companies operation in a foreign country. The company should understand the rules and regulation of the country to find the suitability of the regulations with the business process. In most of the countries the regulation of the government are much more complicated than within US market. Since the company is mainly involved into Franchisee development process for its expansion it’s very difficult to deal with the complexities in the contractual agreements between the franchisee and the franchisor. Various issues of trademark, copyright, licensing, royalty payment and quality monitoring and control are needed to be aware of for a proper implementation process. Smooth trade will facilitate the process of allocation of resources in a more efficient manner for the firm (International Institute for Environment & Development, 1995, p. 1). Employment law is also an important factor from which Outback might face a challenge in their expansion plan. Various issues like ability to dismiss or lay off employees from the organization, requirements of union or board for the bargaining process over the wages and work condition might create some problem for the company to establish its business into the new market. Operations performance objectives To improve the performance of the operational techniques of the organization it is important to improve the all the factors which have direct impact on the performance level of the firm. The main performance objectives of the firm are Speed, Cost, Dependability, Flexibility and Quality. The speed of operations at Outback Steakhouse should be maximized to drive more crowds to the shop with the queue management technique for quicker service. The cost of products available at Outback should also be lowered to attract more customers by offering lower prices than its competitors in the market. Dependability is an important issue to be evaluated by the company to improve customer trust for the company. Getting a dependable service from the company within time limit can build better image of dependability for the company in the mind of the customers. Being flexible is also needed for Outback Steakhouse to meet the demand of the market. Adjusting price and operation of the company products according to the need of the customers will benefit the company in long run though it may incur more costs for the company. The quality level of the company is also needed to be examined from time to time to understand the position of the service and the product offerings. If the employees fail to perform on surprise visits or examination the company need to improve the training process and change staffs if required for better customer services. 4Vs of Marketing The modern trend of marketing is changing at a very fast pace and from more supplier centric approach the concept s developing towards more customer centric approach with the new 4 V’s of marketing Validity, Value, Venue and Vogue. Validity Marketing of product is not only limited to the need of the market the validity of the product is needed to be understood by the company to offer products which is safe to the environment and the society. Value Cost and price are not much concerned in today’s world. Customers are more focused towards value of the products they buy. Outback need to create value for the product rather than lowering the price of the products offered. Venue Venue is not only providing a place to supply products rather its now giving the comfort to the customers to avail products with ease and convenience to buy Outback food along with other needs at the same time. Vogue Promotion is not only communicating with the customers but the promotion should be depending on the modern trend of the market. Outback should identify the advertising trend and then promote its product. Part B – Strategy Strategic plan for Outback Steakhouse The company with the winning concept of the menu and the quality of food from the company Outback Steakhouse mainly focus on the customer centric approach of the business. They believe to provide the customer with the most possible pleasant experience with their quality service and food for the customers (Sunset Spiritualist Church, 2011). The atmosphere presented by Outback attracts the customers with their unique style. With the constant growth in the market the company still implements strategy to serve with the changing need of the customers and innovate product and services according to the market choice. To offer quality service the company limits its seat capacity at different regions so that the employees are able to serve the customers with full attention towards them. This customer centric approach of the company is the most attractive quality of the firm which is needed to be carried out by the company at all locations. The quality service with high quality food is the main strategy of differentiation for the company which is needed to be maintained at all location of expansion with same standard to sustain its brand image. Along with the franchisee practice strategy the company should also look after the other expansion techniques like Foreign Direct Investment. The cost of Outback foods are also little higher than the competitors in the industry. Innovative products at low cost from the company can also attract the lower segment of the market. SWOT Analysis SWOT analysis helps the company to access its internal strength and weaknesses whereas also the opportunities and threats from the external environment (Bohm, 2009, p. 2). Analysing the environment will help the company to implement strategic decision in a more tactful manner. The strength, weakness, opportunity and threat for Outback Steakhouse can be referred as follows- Strength Outback revenue increased at a very fast pace in last five years and reached around $456 million from $25 million in five years. The company consistently over performed for the stakeholders thus have a great ground for any future financial needs from the stakeholders. The marketing strategy of the company with just providing the quality product to the customer is just unique for the customer to rely on the company. The strong brand image of the company for the quality and theme based service is very much preferred by the customers for its cheerful experience and ambience. Another strong reason for the growth and strong base of the company is due to the presence of the Entrepreneurial leaders at Outback Steakhouse with over 60 years of experience in restaurant industry. The corporate culture of giving equal importance to all the departments of the firm and maintaining an easy flow of information within gives a great advantage for the employee to interact and share ideas with the co-workers for more innovative approach towards customer satisfaction (Standard & Poor's Industry Surveys, 1994, p. 6-8). Weaknesses The company suffered a loss in cash which reduces the firm’s capability to invest into new business processes. This will affect the company’s long term cash need for growth in future. Product differentiation according to the target market is not yet present at Outback menu. The company’s plan to expand internationally with its ethnocentric view may fail in global market. Another weakness for Outback is, the company don’t have its own distribution system in international market which can act as a hindrance for the company to reach to customers in an effective manner. Opportunities The main opportunities for Outback Steakhouse are it’s yet to be reached market in domestic environment. The company brand image in domestic market is very strong thus it has great potential in international market also. Thus growth strategy at international market can have great prospect for the firm. International franchising can be very helpful for the firm to reach international market. Growing international need for quality restaurants provides great potential for Outback Steakhouse to expand globally. Threats The main threats for the company are the direct rivals in the industry. The socio-cultural difference in the global market can also act as possible threat for the company. Declining market growth due to saturation in domestic market will affect the business of Outback in recent future. Also the new entrants in international market can also act be a threat for the company in the expansion plan. PESTEL Analysis In order to understand the environmental effect on an organizational activity PESTEL analysis is conducted. This help the manager of the company a vivid idea of the external environment of the firm in which the expansion plans are conducted (Grant, 2005, p. 68). These factors of evaluation are as follows: Political The political issues of the country are an important aspect that the company should take care of. The taxation policies of the government and foreign trade restrictions are the major barriers for any expansion plan for any company (Donnelly, Harrison, Megicks, 2009, p. 82). Outback should evaluate these policies to understand the sustainability of the product in the particular market. Economical Economical condition of the country is another aspect of evaluation. The interest rate prevailing in the market, inflation and unemployment are major issues of the economy of the country which has an adverse effect on expansion plan for the company (Coles & Porter, 2008, p. 146). Social Various socio-cultural factors like population, income level of the people of the country, and the lifestyle of the people are important characteristic to access the sustainability of the Outback products. The company should concentrate towards the western country as it matches more with the company products and also should modify its product to suit the socio-cultural trend of the company (Henry, 2008, p. 56). Technological In food industry the company should use new technologies in their business and manufacturing process. Use of technologically developed equipments can reduce the price of food for the company along with high quality food for the customers. Environmental The environmental law and waste disposal techniques available in the country must be well equipped in the target country. Being responsible to the environment is one of the major steps for a sustainable growth in the competitive environment of the industry. Legal The legal facet of the country is also needed to be understood by the company to find the suitability with the company’s operation with the employment law, competitive law and health and safety law of the country. Competitive Analysis To understand the competitive environment company use the Porter’s five forces model to evaluate the five factors which might affect the company in their business process (Hill & Jones, 2009, p. 42). These five forces are substitute products in the market, potential threat from new entrants, suppliers bargaining power, bargaining power of customers and the competitors in the market who are already prevailing in the industry (Roy, 2011, p. 26). Figure 1: Porter's Five Force Model (Source: Kurtz, MacKenZie, Snow, 2009, p. 56) Substitute products in the market Substitute products for Outback steakhouse can be ready made food products which are available at supermarkets and retails. Foods available for home consumption can give the flexibility to the person to avail food at home comfort. But this acts a weak factor of threat for the company due to the rising household income and growing trend to avail food at restaurant. Threats from New Entrants Gaining a market share at domestic market from the existing players is difficult for any new entrants. Even the domestic market is saturated for the particular industry. Thus at domestic level the threat is low as compared to that at foreign countries. Internationally there are huge untapped markets which are yet to be captured thus providing great opportunity for the firms to expand and creating moderate to strong threats for Outback in overseas market. Suppliers bargaining power There is enough number of suppliers in the market to supply materials for large restaurant chains. And also the domestic market has reached to saturation level thus the bargaining power of supplier are relatively low especially with long term relations with Outback. Bargaining power of customers Due to the existence of many restaurants in the market who are established for many years the customers are well informed about the food quality and services of the companies. Thus bargaining power of customer is relatively high as compared to other industries in the market. Rivals in the market With many players in the market in restaurant chain there is moderate to high competition for Outback Steakhouse to capture the market share. This competition is growing even more and with more rivalry it will intensify further in recent years. Outback was ranked 29th amongst 50 US restaurants present with around 0.53 percent of the total food service market of US (Standard & Poor's Industry Surveys, 1994, p. 9-10). Mission Statement Being the leader in US market in restaurant industry the company should have a mission statement as follows- “To provide best in class quality food worldwide for the customer in their own way with the immense experience and tools from the leading entrepreneurs in the restaurant industry” Alternative Strategies Domestic strategy application abroad Applying domestic strategies abroad will help the company to reduce its cost in implementation of new strategies in foreign countries. New strategies can also fail in new market as there is no experience for the company to implement that before and thus might fell short of expectation of the company. Following a single strategy of quality food and service will reduce the complexities in the business for the company. Applying domestic strategy will also help the company to maintain its existing style and structure of the organization thus resulting in decrease of associated cost with expansion plan. But this implementation of same strategy is not very simple for the company in different market. Redirecting Investment Plans Investment plans with diversified products can also be an alternate strategy for the company. The company may invest into bar or alcohol centre as an extension of the existing restaurants or a completely separate business unit. On successful implementation the company will be able to understand the entrepreneurial ability of an individual along with growth in the separate unit. While deciding the alternate strategies the Outback Steakhouse should also evaluate the risk involved with the expansion plan along with the growth and profit prospect from the expansion internationally. Recommendation Outback Steakhouse should possess a growth strategy comprising of both domestic and international expansion plans. Though the company might face strong hindrance in international market due to new entrants but the core competencies and entrepreneurial quality of the members of the organization with successful business model in domestic market can support the growth to great extent. The domestic market can even be explored by the firm with a different thematic approach other than the prevailing Australian style to grab the market with a new flavour of business. Reference Bohm, A. (2009). The SWOT Analysis. GRIN Verlag. Coles, L. & Porter, E. (2008). Public health skills: a practical guide for nurses and public health practitioners. John Wiley and Sons. Dean, T. (2000). Food intolerance and the food industry. Woodhead Publishing. Donnelly, R. Harrison, G. Megicks, P. (2009). CIM Coursebook: The Marketing Planning Process. Butterworth-Heinemann. Gillespie, K., Jeannet, J., Hennessey, H. (2009). Global Marketing, 2009 Ed. Dreamtech Press. Grant, R. (2005). Contemporary strategy analysis. Wiley-Blackwell. Harrigan, J. (2003). Handbook of international trade, Volume 1. Wiley-Blackwell. Henry, A. (2008). Understanding Strategic Management. Oxford University Press. Hill, C. & Jones, G. (2009). Strategic Management Theory: An Integrated Approach. Cengage Learning. Howes, R., Robinson, H. (2005). Infrastructure for the built environment: global procurement strategies. Butterworth-Heinemann. International Institute for Environment & Development. (1995). Environmental Regulations As Trade Barriers for Developing Countries: Eco-Labelling and the Dutch Cut Flower Industry - 8121iied. IIED. Keat, G. (2011). Managerial Economics: Economic Tools For Today S Decision Makers, 6/E. Pearson Education India. Kurtz, D. MacKenZie, H. Snow, K. (2009). Contemporary Marketing. Cengage Learning. Luo, Y. (1999). Entry and cooperative strategies in international business expansion. Greenwood Publishing Group. Roy, D. (2011). Strategic Foresight and Porter’s Five Forces: Towards a Synthesis. GRIN Verlag. Schermerhorn, J. (2010). Management. John Wiley and Sons. Standard & Poor's Industry Surveys. (1994). Outback Steakhouse, Inc.[Pdf] Available at: http://faculty.citadel.edu/betterton/BADM635/Sample_Team_Case_Outback.pdf. [Accessed on: July 20th 2011]. Sunset Spiritualist Church. (2011). Outback Steakhouse. [Online]. Available at: http://www.sunsetcamp.org/feeders/outback-steakhouse.htm. [Accessed on: July 20th 2011]. Taylor, M. & Grant, R. (2008). Outback Steakhouse. Yu, X. (2004). Cultural factors in international relations. CRVP. Bibliography Barney, J.B. and Hesterly, W.S., (2006). Competitive Management and Competitive Advantage. Pearson Prentice Hall. Hamel, G. and Prahalad, C.K., (1994). Competing for the Future Harvard. Business Press. Hill, T. (2005). Operations Management (2nd Edition). Palgrave Macmillan. Jarazabkowski, P, (2005) Strategy as Practice. Sage. Jick & Peiperl (2002). Managing Change, Text & Cases (2nd Edition). McGraw Hill. Johnston & Clark (2008). Service Operations Management (3rd Edition). Pearson Education. Kay, J. A., (1993). Foundations of Corporate Success: How Business Strategies Add Value. Oxford University Press. Lynch, R., (2003). Corporate Strategy. FT Prentice Hall. Stevenson, W (2008). Operations Management (10th Edition). McGraw Hill. Van Looy et al (2003). Services Management (2nd Edition). Pitman Publishing. Read More