The Strategic Planning Process
In today's highly competitive business environment, budget-oriented planning or forecast-based planning methods are insufficient for a large corporation to survive and prosper. The must engage in 'Strategic Planning' that clearly defines objectives and assesses both the internal and external situation to formulate strategy, implement the strategy, evaluate the progress and make adjustments as necessary to stay on track.
Mission and objectives:
The mission statement describes the company's business vision, including the unchanging values and purpose of the firm and forward-looking visionary goals that guide the pursuit of future opportunities.
Guided by the business vision, the firm's leader can define measureable financial and strategic objectives. Financial objectives involve measures such as sales targets and earnings growth. Strategic objectives are related to firm's business position and may include measures such as market share and reputation.
The environmental scan includes the following components:
- Internal analysis of the organization
- Analysis of the organization industry (task environment)
- External microenvironment
The internal analysis can identify the organization's strength and weakness and the external environment reveals opportunities and threats. A profile of the strengths, weaknesses, opportunities and threats is generated by the means of SWOT analysis.
An industrial analysis can be performed using a framework developed by Michael Porter know as Porter's five forces. This framework evaluates entry barriers, suppliers, customers, substitute products and industry rivalry.
Given the information from the environmental scan, the firm should match its strength to the opportunities that it has identified, while addressing its weaknesses and external threats.
To attain superior profitability, the firm seeks to develop a competitive advantage over its rivals. A competitive advantage can be based on cost or differentiation. Michael Porter identify three industry-independent generic strategies from which the firm can chose.
The selected strategy is implemented by mean of programs, budgets and procedures. Implementation involves organization of the organization's resources and motivation of the staff to achieve objectives.
The way in which the strategy is implemented can have a significant impact on whether it will be successful. In large company, those who implement the strategy likely will be different people from those who formulate it. For this reason, care must be taken to communicate and the reasoning behind it. Otherwise the implementation might now succeed if the strategy is misunderstood or if lower-level managers resist its implementation because they do not understand why the particular strategy was selected.
Evaluation and Control:
The implementation of the strategy must be monitored and adjustements made as needed.
Evaluation and control consist of the following steps:
- Define parameters to be measured
- Define target values for thise parameters
- Perform measurements
- Compare measured results to pre-defined stranderds
- Make necessary changes
Generic Strategies - Michael Porter (1980):
Generic strategies were used initially in the early 1980s, and seem to be even more popular today. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage. Each of the three options are considered within the context of two aspects of the competitive environment:
The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost. Factories are built and maintained, labor is recruited and trained to deliver the lowest possible costs of production. 'cost advantage' is the focus. Costs are shaved off every element of the value chain. Products tend to be 'no frills.' However, low cost does not always lead to low price. Producers could price at competitive parity, exploiting the benefits of a bigger margin than competitors. Some organizations, such as Toyota, are very good not only at producing high quality autos at a low price, but have the brand and marketing skills to use a premium pricing policy.
Differentiated goods and services satisfy the needs of customers through a sustainable competitive advantage. This allows companies to desensitize prices and focus on value that generates a comparatively higher price and a better margin. The benefits of differentiation require producers to segment markets in order to target goods and services at specific segments, generating a higher than average price. For example, British Airways differentiates its service.
The differentiating organization will incur additional costs in creating their competitive advantage. These costs must be offset by the increase in revenue generated by sales. Costs must be recovered. There is also the chance that any differentiation could be copied by competitors. Therefore there is always an incentive to innovated and continuously improve.
Focus or Niche strategy
The focus strategy is also known as a 'niche' strategy. Where an organization can afford neither a wide scope cost leadership nor a wide scope differentiation strategy, a niche strategy could be more suitable. Here an organization focuses effort and resources on a narrow, defined segment of a market. Competitive advantage is generated specifically for the niche. A niche strategy is often used by smaller firms. A company could use either a cost focus or a differentiation focus.
With a cost focus a firm aims at being the lowest cost producer in that niche or segment. With a differentiation focus a firm creates competitive advantage through differentiation within the niche or segment. There are potentially problems with the niche approach. Small, specialist niches could disappear in the long term. Cost focus is unachievable with an industry depending upon economies of scale e.g. telecommunications.
The danger of being 'stuck in the middle.'
Make sure that you select one generic strategy. It is argued that if you select one or more approaches, and then fail to achieve them, that your organization gets stuck in the middle without a competitive advantage.
According to the strategic planning process model and Porter's generic strategies I have chosen three organizations which are of the same league are as follows:
- Pizza Hut
Let's discuss one by one the history of each organization.
McDonalds is the leading global foodservice retailer with more than 31,000 local restaurants serving more than 58 million people in 118 countries each day. More than 75% of McDonald's restaurants worldwide are owned and operated by independent local men and women.
Mcdonalds serve the world some of its favorite foods - World Famous Fries, Big Mac, Quarter Pounder, Chicken McNuggets and Egg McMuffin.
Mcdonalds history began with its founder, Ray Kroc. The strong foundation that he built continues today with McDonald's vision and the commitment of its talented executives to keep the shine on McDonald's Arches for years to come.
KFC (The Kentucky Fried Chicken)
KFC was founded by Colonel Harland Sanders (born on September 9, 1890) at the age of sixty-five. KFC is currently one of the largest businesses of the global food service industry and is widely known around the world as the face of Colonel Sanders.
Every year, over a billion KFC chicken dinners are served featuring the Colonel's "finger lickin' good" special recipe. The Colonel has spread his industry currently to more than eighty countries and territories globally.
After his amazing start-up in 1952, the Colonel devoted himself for the rest of his life to his chicken franchising business. To spread his famous recipe, he spanned the country in his car from his small business in Kentucky to cook his chicken for restaurant owners and their employees. If his subjects loved it like his other customers had, the Colonel made a deal with the establishment, saying that they would pay him a nickel for each chicken they sold in their restaurant. So many restaurants agreed that by 1964, the Colonel had over six hundred franchised outlets in the United States and Canada for his chicken. Also in 1964, Colonel Sanders decided to sell his interest in the United States company for small change (only $2 million) to a small faction of investors, such as John Y. Brown Jr., the governor of Kentucky from 1980 to 1984. However, Colonel Sanders continued to be the public spokesman for KFC and in 1976, he was named the world's second-most identifiable celebrity by an independent survey.
The history of Pizza hut began in 1958, when what is now the world's largest pizza franchise was born. Today the Pizza hut company is part of the Pepsi Empire, but back then two brothers's borrowed $600 from their mother and started to forge the history of Pizza hut.
Pizza Hut has subsequently branched out and developed franchises all over the world. In fact it is diversity that has made the history of pizza hut so successful. Their menus and recipes are not the same, different locations use different suppliers and different toppings, according to the demand of their clients. The building block of the history of pizza hut has been this diversity, not often present in such a large concern.
The whole history of pizza hut has been achieved through innovation, but the history of pizza hut really took off with amalgamation into the Pepsi Company and more aggressive marketing techniques especially in the take out market.
Not surprisingly over the years Pizza hut had to reinvent the pizza again and introduce a healthier style of pizza. Pizza in itself is not the unhealthiest meal, but it is laden with unnecessary calories and fats when cheese is added. Pizza hut was forced to add new taste combinations to their menus that offered a lower fat alternative. It is now possible to select between three to eight toppings depending on the prices you have paid. This lower fat alternative offers a leaner option of chicken or ham and between two and six fresh vegetables toppings.
As I have given you the brief history of these organization lets now have a look of these organization corporate, business and operational strategies through SWOT analysis.
SWOT analysis of McDonald's
"McDonald's vision is to be the world's best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile."
- Strong Brand, strong recognition
- Growth afforded by franchise model-allows McDonald's to retain control of brand while building a corporation with significant capital infusion from franchisees.
- Fast food model---standardized food prep methods ensuring standardized quality, centralized procurrement leading to higher profits,
- Perceived lower food standards due to fast food model.
- Profit margins can become slim due to the customer's expectation of "inexpensive menu" and higher food costs.
- New global markets continually opening.
- Economic downturn may force people to opt for less expensive "fast food", rather then restaurant quality.
- Nutritional issues. People are becoming more aware of the quality of the food they eat, and more people are looking for "organic", natural and vegetarian alternatives.
- Obesity Fast food is continually blamed for obesity in children and adults.
- A lengthy recession could hurt fast food chains when pricier chains begin to offer competitvely priced menus with the perception of better quality.
SWOT analysis of KFC
" To sell food in a fast, friendly environment that appeals to pride conscious, health minded consumers."
- Brand equity
- 2nd only to McDonalds in foreign sales
- Strong cashflow
- Generate around 1 billion Pounds each year
- String franchise and licence free revenues for cash flows
- Very strong internationally like UK, Middle East, China, Japan, USA etc
- Largest multibranded restaurant in the world 100 KFC and Pizza hut combos 600 KFC and taco bell combos.
- Recent drops for sales in KFC
- Failed to rank in top 20 in growth since 2000
- Same store sales decline
- Lack of point of scale scanning system
- Admitted inability to provide quality service
- Lack of knowledge about their customer
- Lack of relationship building with employees, customers and suppliers
- Question of over franchising leads to loss of control and quality
- Growth of 18-24 age demographic
- Increase in UK median income
- International beef scare from mad-cow and hoof and mouth disease
- New leadership
- Domestic market
- Updating restaurant
- Balanced menu
- Customer focus
- Rated 83 out of 100 in term of competitiveness
- Increasing wages rates directly affect menu prices
- Supermarket and new competitors threaten HRM market
- International exchange rates
- Health trend away from fried food
- Changing customer demands
- Quality of service focus
SWOT analysis of Pizza Hut
" We take pride in making a perfect pizza and providing courteous and helpful service on time all the time. Every customer says, "I'll be back!"
We are the employer of choice offering team members opportunities for growth, advancement, and rewarding careers in a fun, safe working environment.
We are accountable for profitability in everything we do, providing our shareholders with value growth."
- Part of the largest restaurant chain in the world
- Over 20,000 franchises around the world
- Brand leader in the UK
- Innovative range of pizzas under one roof
- Famous television advertising
- Food attracts people of various ranges from young to old.
- Sound financial situation and international turnover.
- 100% owned by yum!
- Pizza Hut sits on top of global full-service restaurant tree
- Loyal customers are feeling that the satisfaction of the pizzas is declining.
- While Novak said Pizza Hut's expansion into China is going exceedingly well, there is battling problems in New Zealand and Australia.
- There are complex computer systems and internal conflicts from franchisees.
- There is a lack of an organic pizzas, which will limit the target market
- New Pizzas with different crust sizes and flavours.
- Pizza Hut expands Indian market menu and looks to old favourite to bolster sales in the US
- Pizza Hut targets upscale products and a downscale consumer base
- Rising competition undermines Pizza Hut as consumers go for greater convenience
- Rising cheese costs threaten margins
- Threat from Dominos pizza, also from Mc Donald's who have tried to introduce a new meal that is a Pizza called: McPizza.
After SWOT analysis of these organizations we can now easily judge through their corporate, business and operational strategies that how they travel from domestic to global with the passage of time.
Now coming to other topic of the assignment which is in which sectors these organization should bring 'strategic change' in the next five years.
What I have studied so far about these organization, their history, way of going global, strategies, changing with the passage of time. All these organizations are food change and almost following the same strategies except their products and I could conclude and suggest following key elements and should bring change on these elements which are as follows:
According to study that I did all these restaurant adding franchises and opening new stores with a growth rate of almost 700-900 which seems good from business point of view but strategically giving a bad impact in their customer satisfaction. Without proper approval these organizations giving franchises to new owner who hardly maintain the standards of organization and quality of the food. Strategic change should be needed here to shorten adding stores and give franchises to proper and responsible people who meet the standards and quality.
Menu Items and prices:
Now a days with fast growing world these organizations somewhat maintain their standards and quality but with limited amount of products with them which is also one of the draw back. People in today's world need change in every possible ways and need to get change on daily basis so strategic change should be required here too to introduce new meals to customer so that customer stay with them and within an affordable prices.
This element plays a very important role in a food change industry to be successful and to do business, what I studied and learned and experienced these food chains open their stores into such places too where there is no need. Strategic change is required here for choosing proper location for the store to be opened like in shopping mall, near cinemas, in supermarkets instead of every road corner and in middle of highways. Those sites should be chosen which is convenient to customers.
Attention to Store Efficiency:
Strategic change is required for attention towards store. Currently all these companies focusing on customers satisfaction and not even one of them putting attention towards store efficiency and outlook. This is a big drawback of these companies not getting proper business. If the store is efficient and not looking attractive and welcomed for customer then how come these companies will attract customers. Customer once place the order has to wait for like ages to get served this is totally lack of efficiency of the management because the managers have not been given proper training about how to make store efficient to run. All these companies have to trained their manager properly so that they can manage stores properly and get the best out from them. And need to keep their store neat and clean too.
These food chain now a day's not advertising themselves properly which is also a back draw. They should have to advertise themselves properly so that if there is any promotion going on in the store so customer should come to know while sitting at home about new products and promotion and new packages instead of going to store to get aware of. Strategic change is required at this part as well.
Hiring Trained Staff and Communicative staff:
According to my observation and personal experiences in all these food chain proper staff is required with communication and welcoming skill, staff with smiling face is required. Staff should be paid handsome wages so that while staff comes to work they should do work properly. Change is required here too.
All these companies should respect all kind of religions so that every one get served and be happy. For example a part from Islamic countries huge amount of muslim communities living in Europe, USA, Canada, Australia, China too but the stores here are not Halal and just out of 200 products 3 or 4 are halal for muslim communities. Which is again adraw back. Strategic change is required here too. All these companies should open halal stores too so that this huge amount of community also get served and might increase around 30-40 percent annual income of all these stores.
These are so far according to my knowledge strategic changes required in all these food chains to get upto proper rhythm once again. I believe the information that I provided is best to my knowledge and observations.
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- www.kfc.com, www.kfc.co.uk
- www.pizzahut.com, www.pizzahut.co.uk