The uniqueness of its business rests firmly on the Colonel’s secret recipe (a blend of 11 herbs and spices) which is locked in a vault in Kentucky known by only a handful of people creating the distinctive taste of KEF. It has been able to establish as having renowned international reputation and continues to dominate the chicken segment. Cuff’s early experience operating abroad put it in a strong position to take advantage of the growing trend towards global expansion.
Its ultimate goal is to further its expansion strategy in new emerging markets (such as China, India ND Latin American countries particularly Brazil which form part of the BRIGS) where its nearest competitors are well established and gain quicker acceptance of its concept. Hence, KEF needs to devise a competitive marketing strategy in the international market to maintain its market leadership in the global fast- food industry which is forecasted to have a value of $239. 7 billion by 2014 – an increase of 19. 2% since 2009.
As pointed out by Jean Jacques Rousseau (1712-1778): French Philosopher “Follow the course opposite to custom and you will almost always do well”. However, KEF strategic planners need also to devise relevant strategy development to monitor the environment by evaluating opportunities and threats, consider both pressures for local responsiveness and for global integration of activities, undertake country risk assessment and consider cultural dimensions to build productive relationship to install a worldwide KEF culture. 329 words) Question One: a) In the context of the process of strategic thinking and strategy formation, outline what SOOT and Porter’s Value Chain techniques are, and explain their practical relevance to strategic planners at Kentucky Fried Chicken (KEF) Corporation. In today’s highly competitive business environment, forecast-based planning methods are insufficient for a multinational to survive and prosper. The company must engage in strategic planning to cope with the unexpected.
The importance of strategic thinking (determining how managers organize their thinking to achieve successful strategic reasoning process) and strategy formation (determining how managers organize their straightening activities to achieve successful strategic renewal process) are thus crucial. (See Reference 1). Both SOOT and Porters Value Chain techniques are relevant tools used in analysis of the environment in rationale model of planning. KEF SOOT Analysis SOOT analysis is an important tool for auditing the overall strategic position of a business and its environment. See Reference 2). (See Appendix 3 – supporting elements to the SOOT Analysis). Porter’s Value Chain techniques Porter’s Value Chain is a management tool used to identify key activities within an organization which forms its value-chain. It highlights nine activities and promotes goodwill and standardized image of the organization, upholds positive synergy and demonstrates that all links forms part of one whole. See Appendix 4). It is established across different processes and identifies different ways of adding value to the work.
It can be forwarded or backward. The primary activities need to have the support of the secondary ones in order to have an effective chain. One of the implications for strategy formation is that KEF has to change its approach and adjust to the interplay of its internal systems and pressures of the environment. (See Appendix 5). For example, KEF suppliers provide raw materials via daily deliveries making stock management easier and stock control less costly. Raw materials go inbound and in appropriate infrastructure which caters for handling of materials.
The Human Resources provide training to staff on how to handle materials resulting into competitive advantage via standardization of activities, ensuring thus image building. There is a proper flow in terms of input processing and output is mostly “real-time” ensuring customers’ satisfaction, loyalty and repetitive purchasing. Practical relevance of SOOT to strategic planners SOOT analysis helps thus to improve over limitations, consolidate existing strengths and identify opportunities likely to benefit the organization.
Assessing wreaths and their impact, contribute at preparing the organization to face them in case they actually occur (scenario building). Practical relevance of Value chain to strategic planners Value chain will ensure that proper relationship between KEF and franchise helps the organization to achieve competitive advantage. Strategic planners will thus ensure positive synergy, team orientation, collective management, involvement and high commitment. Whatever is said at the top will be same at the bottom. It is a team based approach via integration of activities and promotes team spirit, collective responsibility and efficiency. Use Porter’s Five forces framework to critically evaluate the opportunities and threats that faced KEF Corporation from the mid-asses to the year 2000. One of the most enduring models of analyzing a company competitors’ position in the market is given by Michael Porter’s Five Forces Framework which outlined the key features of competitive environment; bargaining power of customers, bargaining power of suppliers, threat of new entrants, threat of substitute products and intensity of competitive rivalry. The profitability of an industry is shaped by the interactions of these forces. (See Figure 1).
From an historic perspective, from 1995 to 2000, KEF was marked by some opportunities and threats mainly when PepsiCo. Inc announced the spin-off of its quick service restaurants – KEF, Taco Bell and Pizza Hut – into Triton Global restaurants. Porters Value Chain techniques Figure 1: Five competitive forces that most impact on the strategic plans of an organization Buyer’s bargaining power PepsiCo strategy to diversify in three distinct related markets (soft drinks, snack foods and fast-foods restaurants) make it become one of the world’s largest food companies with only a handful of nearest competitors.
Customers do not have power to bargain with the company unless a major issue crop up since it affected a group of clients. The more competitors a company has, the wider the range of choice and bargaining power being in the buyers’ hands. To minimize negative impact of bargaining power of buyers, KEF had to establish close relationship to ensure low mobility of customers and loyalty brand identification. Threat of substitutes Substitute products are increasing due to renewed health and obesity concerns.
KEF has strives in terms of advertising and launching of trans-fat meals which have low fat content and salads. A new product positioning is required to improve future performance via both market and product development as spelt out in Insofar Product-Market Matrix. (See Appendix 6). Substitutes for KEF are Burger King, Wendy, Node’s (grilled for healthy foods). Competition among firms From mid asses and year 2000, KEF was still pursuing an expansion strategy with a continuous increase in its number of outlets.
Due to increase maturity in US fast-food industry and intense competition and ageing of KEF and Pizza Hut restaurant bases, margins at KEF, Pizza Hut and Taco Bell fell from an average of ore than four percent in 1996. (See Reference 4). PepsiCo had to analyses competitors’ strategies and reposition itself as a Beverage and Snack Food Company. Though competition is omnipresent in the market, all major players (Mac Donaldson… ) have well established brand names. CIFS has moderate product differentiation which make the difference via price competitions.
Economies of scale, huge capital requirements and access to distribution channels make it also difficult for new entrants during the period under review to impose itself and to compete directly with KEF. After PepsiCo vesture of KEF, Taco Bell and Pizza Hut – into Triton Global restaurants, there was a better risk management in different countries where there is a demand for the product. Suppliers’ bargaining power Bargaining power is supplier based in case there is only one supplier. The ideal situation is to have a pool of optimum options since mostly all KEF suppliers are local ones.
PepsiCo, for example, supplies KEF with Pepsi soft drinks however it won’t be much affected if KEF terminates their agreement. An value added component for KEF has a lot to gain with such partnership knowing that Coca Cola is present in Mac Dona’s and other competitors’ outlets. In fact, they benefit from each other. Threat of new entrants A competitor which can bring its own technology, know-how has to recognize that new entrant will impact on its activities and need to review its strategies accordingly. Though increase in demand for fast-food, KEF has put up moderate barriers to entry for potential entrants.
During the period under review, it was very difficult for any new entrant (both local and multi-nationals) to position itself since KEF has strong foothold when it was acquired by PepsiCo. To better consolidate its basis after 80 years existence it should try to widen its product port-folio and capture other segments in the fast food industry. C) Explain the ‘pressures for global integration of activities’ and the pressures for local responsiveness’ facing KEF Corporation in the context of current developments in the global fast-food industry.
It is of paramount importance for strategic planners to screen the international environment before coming up with relevant strategies as per the country specificities. They have to assess impact of buyers and suppliers, gauge the level f flexibility in the market and identify what competitors are doing. Global integration is adopting a standardized approach to take advantage of opportunities. For example: government incentives, increase demand, use of new technology (e-buying), homogeneities of needs and taste, breaking down of trade barriers and openness of markets.
KEF offers global integration of activities in terms of best practices such as same level of service, image/brand/goodwill, training and some standardized menu everywhere. For example, KEF received requests to provide Hall food in parts of UK and as a result KEF run Hall trial thin certain communities, forming part of its global integration activities today. (See Reference 5). Any multinational are obliged to go for globalization (development and selling of products or services intended for global market, but adapted to suit local culture and behavior by considering existent pressures in the dynamic global industry). See Reference 6). KEF has had to refocus its strategy since more people are becoming health conscious and moving away from possibility of brand switching by introducing ‘Kentucky Grilled Chicken TM’ which has less calories, fat and sodium (local responsiveness). By respecting specificities of the local environment, KEF has had to adapt to new cultures and integrate local elements in the Original Recipe Chicken. In India, KEF had to change inputs in terms of raw materials to show that it was acting in socially responsible manner (recycled wrapped paper- See Appendix 7).
Moreover, KEF use home-based suppliers rather than traditional suppliers from outside to favor a win-win approach and customers feel part of the organization. In Mauritius, KEF has adapted to the local environment before developing its range locally. Cuff’s chicken supplier is Food and Allied Industry Ltd, the bread come from Golden Bakery, ingredients are home-based and spicy according to Mauritania preferences. Taste, values, attitudes and beliefs defer from place to place thus organization need to use adaptive in different countries.
In Brazil, KEF had to close down because of poor sales due to differences in consumer acceptance of fast-food concept and cultural reasons. Monitoring the environment is thus fundamental. Strategic planners have thus to examine the impact of various factors and their interplay with each other on the business. Hence PESTLE (Political, Economic, Social, Technological, Environmental ND Ethical/Legal factors) analysis should be carried out. Kettle (1998) claims that it is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. See Appendix 8). Question Two: a) In the context of strategy development at KEF Corporation, explain your understanding of Whittling’s ‘Evolutionary and ‘Systemic’ Schools of Thought. Figure 2: Schools of Thought in Strategic Management – including the Generic perspectives on strategy, Whetting (2000) Richard Whetting has identified the Classical, Processors, Evolutionary and Systemic generic approaches to Strategic Management Schools of thought as key elements of strategy formulation.
Strategy in the evolutionary perspective has an interest in innovation as a management priority and focuses on its ability to identify changes, assess them and adapt in the environment. Besides, Systemic generic approach is a set of well planned steps and procedures which has proved its efficiency and brings competitive advantage. It defines parameters and decision based on sequencing to monitor the environment. (See Figure 2). Cuff’s ability to cope with change is an outstanding effort all across its strategy o gain competitive edge on its competitors and better position the brand in customers’ mind.
In its effort to create brand awareness and remind the population of its presence, KEF marketing specialists work out standardized concepts of TV and radio commercials and broadcast them worldwide (systemic approach). Many of them have been conceived according to the country specificities being more adaptive to the culture and changes in the environment without actually causing harm to the global image (evolutionary). Cuff’s main strategy development has been its expansion programmer through mainly franchising, merger and joint ventures.
From a sole trader restaurant business in the sass’s (classical approach), the KEF concept has grown into a multinational company present in more than 100 countries today (evolutionary). However, best practice systems and standard procedures present in its outlets follow more systemic approach to bring optimum performance. Standardized logical process is present everywhere to ensure quality in customer service, delivery, training, physical evidence (uniforms, greetings, layout of the store which are revised on a regular basis… ).
This brings a bureaucratic system enervating inter-relationship, inter-dependency, integration of activities, well defined rules and well coordinated steps. KEF has indeed learnt after each problem has cropped up by bringing new systems of work such as new computer processing system to ensure more efficiency. Systemic School of thought help strategic planners to know in advance what are expected in situation of less certainty where there is high level of predictability in a less dynamic environment. Whereas evolutionary helps strategists to be more reactive and adaptive to change in a dynamic and volatile environment.
KEF has monstrance its ability to adapt to local responsiveness and bring innovation even in period of uncertainties. This was the case when due to change in health trend, KEF reacted by proposing grilled products and reposition itself against its nearest competitor in this segment; Monads’. Both approaches were present when PepsiCo bought KEF in 1986. Due to drastic change at management level for greater control over KEF franchises, staff was reluctant to change and even lead to lay-offs of some employees.
For PepsiCo replacing KEF Managers with Pepsi Co Managers was a common practice since it as compatible with the company’s policy to move managers among its business units to further develop managerial skills of its staff. Though clear cut difference between both approaches, KEF strategic planners have in fact taken benefits of a blended approach of the two schools of thought as and when required to shape the ultimate benefit of KEF. B) Critically evaluate how you might apply the two Schools of Thought to KEF. Explain and explore which school of thought you prefer, and why?
As stated before, KEF did not use one standardized model in the context of strategy development. A blended approach was used but emphasis was more on evolutionary since it evolves in a dynamic setting and is bound to move according to environmental changes. Using past experiences for future strategies would be indeed very enlightening. KEF adopted a classical approach at the start; it seemed happy where it was in a less competitive environment but was purely profit-oriented. At that time, it did not really bother about changes. See Appendix 9). When McDonald’s and Wendy showed their willingness to further expand in Latin American countries (in Argentina and Brazil), KEF has to move with the environment (evolutionary- emergent process) though its competitors were there well before. Based on past experiences, KEF needs to come up with a competitive marketing strategy to further tap other international markets where there is great potential such as Asian countries (with local responsiveness particularly in India and China whereby market structure is locally determined).
KEF, for example, has achieved much dominance over Mac Dona’s and local rivals in China and is operating 3200 CIFS in 650 Chinese cities. Mac Dona’s already announced that it intends to double its China stores by 2013. (See Reference 7). Systemic approach also helps strategic planners to integrate their activities to local pressures. Though the standardized overall corporate strategy is set up by Cuff’s parent company, it shows flexibility by responding to local market.
The headquarters normally gets feedback regarding customers needs in terms of taste and preferences by KEF staff which are mostly local community people and from the Customer’s Comments Card. Minor changes could then be brought for example by adding local flavors though they might also keep some core standards across (Global integration). See Appendix 10). Evolutionary approach is when changes occur over a period of time, such as proposing only Hall chicken in Cuff’s outlets worldwide.
With the change in life-style and customer behavior, KEF might also consider the possibility to extend delivery service in all countries and offering free printable online coupon for obtaining discount off the full price which may turn into global integration of activities. KEF has eliminated its Styrofoam packaging and replaced it with reusable food containers for side dishes starting early in 2011 and use of plastic plates. By 2011, KEF will reduce its use of foam by 62% and total plastic use by 17% in all outlets.
As highlighted by Whetting himself, Evolutionary approach draws on the fatalistic metaphor of biological evolution, but substitutes the discipline of the market for the law of the jungle. In fact by critically evaluating both schools, I was really fascinated by the level of CIFS dexterity to use the evolutionary perspective which deals about the notion of survival, in respect of the competitive forces in the environment through adaptation, evolution, symbiosis and co-operation.
In my opinion, it is a more realistic approach for a rim like KEF which is dependent upon its environment, a living creature mingling with businesses of the same species which may fall a prey or be a predator. Question Three: “Hypotheses (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 color the institutional and administrative arrangements that are made within the country, and will set the norms for behavior.