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t report on the Strategic operati

Presented to Dr. Soroosh Saghiri


Module -Operations Strategy
Kingston University
London
Submitted By: Pragnya Sahoo
Student Id- K1359395
Date of Submission: 2th April 2015

Contents
Executive Summary......................................................2
Operation Strategy........................................................2
Introduction.................................................................2
Order winners and Order qualifiers.............................2
Competitive Analysis...................................................3
Delights.......................................................................3
The Importance Performance matrix.........................3
The Operation Strategy matrix....................................3
The four -stage model of operation contribution.........3
Stage -1 Internally Neutrality.................................3
Stage -2 External Neutrality...................................3
Stage -3 Internally Supportive................................3
Stage -4 Externally Supportive...............................3
Recommendations.......................................................3
Conclusion...................................................................3
REFERENCES...............................................................3
Appendices..................................................................3
Appendix-1..................................................................3
Appendix-2..................................................................3
Appendix-3..................................................................3
Appendix-4..................................................................3
Appendix-5..................................................................3
Appendix-6..................................................................3
Appendix 10................................................................3

Executive Summary
This report analyses the major operational crisis of KFC
which led to its fall of brand value and experienced a
decline in sales and profit. It critically discusses the
different aspects of operational strategy with market
requirements,
competitive
advantages
and
its
performance objective. Operating under the Yum brand,
KFC lost the trust of the customers and had faced
protest across globe.
The study shows the various areas of improvements
using various models and frameworks to renounce into
market. The importance performance matrix is applied
to KFC to understand the factors that could impact the
customers directly for aligning and organising the
resources. The operation strategy matrix helped to
discuss various decision areas in KFC by mapping the
different performance objective which contributed to
market competitiveness. The analysis also uses a fourstage model of operation contribution which describes
the various stages of improvements of KFC. The report
high lists the importance of CSR value for the brand,
enhancing the customer service and creating its brand
value. A analysis has been done by using Porters five
forces to understand the brand from all the aspects. As
the frameworks we applied, the recommendations were
simultaneously made.
The study shows the unethical usage of antibiotics
which is an alarming situation for the brand as well as
for its shareholders and stakeholders. This would have
a major impact on its sales and profits. The suggestions
in the report are made on the basis of providing various
allegations faced by the brand. Be it unethical supply
chain in china or unhygienic outlets in Australia.

The report was designed by studying and researching


various articles from newspapers and books on
operation management and operation strategy. Finally
the report ends with conclusion and a summarization of
recommendation.

Operation Strategy
Introduction
KFC, founded in the year 1930 by Harland Sanders, is
one of the leading fast food chain of restaurants,
headquartered at Louisville, Kentucky, United States. It
specializes in fried chicken and is the worlds second
largest restaurant chain. (Appendix-1). It is one of the
first fast food chain to expand internationally in a very
short span of time by opening its outlets in United
Kingdom, Canada, Jamaica and Mexico by mid of 1960s.
It was very popular brand in the American history of
culture,
KFC enjoyed promotional tie ups and corporate
sponsorships till early 2000 till, the People for the
Ethical Treatment of Animals (PETA)protested against
KFCs poultry suppliers worldwide(Wall Street Journal,
2013)(Appendix-6). This had a great impact on the
brand value and its sales.
Order winners and Order qualifiers
Order winners and order qualifiers are the competitive
features of any organization that the customers
examine before making a purchase. So it is necessary

for a company to analyse the same. The following are


the order winners and order qualifiers of KFC.

Figure -1 KFCs order winners and Order qualifiers

The order winning factors directly has a significant


contribution to the success of the business. KFCs some
order winning factors are important than others. For
instance, the unique taste of the fried chicken tops the
list and makes it an important order winner compared
to the location of restaurant.
Competitive Analysis
Though KFC stands the second largest fast food chain
in the world after McDonalds, it faces huge
competitionfrom other brands (Appendix -1). They
makea differentiation in market because of it unique
taste of spices which still remains a secret.Operating
under Yum! Brand, KFC continues the dominance
compared to its sister brands like Taco bell and pizza
hut.However, more than 275 KFC units were closed by
2011 and few outlets of sister brands were opened

(Forbes, 2013).China is one of the major consumer of


KFC but it has been facing competitive threats from
other brands like McDonalds and burger King. It has
been experiencing a strong impact on its sale from
domestic competitors like Laibibao, Zhengongfu,
Jijixiaosheng and Yonghe Bean Milk, which has been
cannibalizing the exiting KFC stores (Businessinsider,
2013). The future threats for KFC has been predicted as
KFC Won't Be 'Eating Healthy' in Future (adweek,
2013). This is an alarming threat to the company and
its various shareholders.
Delights
The order winner, order qualifiers and competitive
analysis helps to draw out a graph describing how the
delights could contribute to a companys sales, profits
and customer service. Adding value to customer
experience is considered to be very significant
component in todays business (The Guardian, 2014).
An operation starts to perform successfully in terms of
its delights, could be very significant. Delights are novel
and also adds value to the customers there by
improving customer satisfaction. However, delights
could be applied at one point of time as they are very
transparent to the competitors and could be easily
imitated.

Figure -2 Order winners, qualifiers and delights

KFC must focus on its delight as a part of improvement


processes. The following are the few delights
recommended to KFC:
Keep a track of Anniversary and birthday dates of
customers,
Special discount and Complementary cake on
special occasions,
Customize seating arrangements for kids and
physically challenged customers.
Return gifts on orders over particular amount.
Treating kids with small gits like balloons and
chocolates.
Surprise customers with free meal after few
number of purchases. For instance if a customer
has been visiting the store on regular basis, then
he should be given a adds on free after the tenth
meal.

The Importance Performance matrix


The importance performance matrix is applied of KFC
to compare the factors in terms its importance to
customers and performance. In Figure-3, each
contributing factor is positioned according to its scores
and rating.

Figure -3 the importance performance matrix

URGENT ACTION ZONE

This zone holds very critical factors that impacts the


consumers directly. These factors are the major aspects
of operation performance contributing to the business.
The following explains the factors set up in the urgent
action zone:

KFC has been facing challenges over its improper


usage of antibiotics in chicken (Wall Street Journal,
2013).It is an alarming situation for the brand has
an impact directly on the consumers and also on
the business and hence needs an immediate
attention.
These days, people are more health conscious and
invest a lot in healthy lifestyle. KFC uses a lot of
excessive oil in the food items (WSJ, 2014). Even
though KFC has a big brand value, it must low
down its oil usage to promote its healthy lifestyle.
KFC has franchise all over the world and these
franchise work with different suppliers for different
raw materials. KFC was highly criticized for working
with unethical suppliers who used high amount of
antibiotics in chicken.There were protest by PETA in
multiple countries like India and the US (The
telegraph, 2013). The celebrities like Pamela
Anderson, Sir Paul McCartney, His Holiness the
Dalai Lama and The Rev. Al Sharpton continue to
motivate
people
not
to
eat
from
KFC
(www.kentuckyfriedcruelty.com).This has a direct
impact on the business thereby loosing consumers
and lowering its sales. Many KFC outlets were
forced to shut down. In this scenario, KFC
immediately stop their business with such
unethical suppliers and give start contacting
suppliers who follow ethical way of farming
including organic farming.
People are converting into vegetarians to achieve
healthy way of life (Dailymail, 2014). KFC must
focus on expanding the veg menu depending upon
the region. It must start including the local cuisines
in KFC style. The vegetarians prefer McDonalds

over KFC because of the wide range of veg menu


(The economic Times, 2013).
THE IMPROVE ZONE

The factors falling in this zone are the non-urgent cases


but are necessary for the brand. The following are few
of the factors:
Improve the CSR value: The Company should
focus in increasing the CSR value to enhance its
brand value. The companies with high CSR value
has a better image rating there by contributing to
its sales and gaining new consumers. This factor is
placed at a position where it is important to the
customers and also gives a competitive advantage.
Better Layout: The outlets should be redesigned
in order to accommodate kids play zone and also
to facilitate the physically challenged consumers.
The brand should display a great amount of
hospitality towards it customers.
Organic farming: KFC must should move towards
the organic food and drinks by growing its own
organic farms or working with suppliers having
organic farms. The trend of consuming organic
food and drinks has been increasing from few
years. (The Guardian, 2014). Many fast-food
restaurants e started organic farming and are
attracting lots of health conscious consumers. This
factor indirectly impacts the consumer and hence it
is placed at a position of a comparatively high
importance to the consumers and also at
competitive advantage in the market.
Reintroduce Breakfast:KFC is located majorly on
high streets, malls and busy areas. The location is
an advantage giving it a chance to draw

customers. It should reintroduce breakfast with


healthy menu. People love to treat themselves on
breakfast that is healthy, quick and easily
accessible.
Auditing for quality check: This factor is placed
at a position of medium importance to consumers
and high rate of performance against competitors.
The auditing process should be carried out with the
suppliers as well as within the outlets to ensure
hygiene andcleanliness. It was reported that
THE APPROPRIATE ZONE

This zone is the minimum boundary zone for the


country to perform and satisfy its customers.
Factors like home delivery, drive away, take away
contribute to this factors. Also to keep in mind the leadtime of the operations does have an impact on the
customers. For instance, Dominos delivers pizza in 30
minutes and pizza hut takes more than an hour to do
the same. Consumers prefer Dominos over pizza hut for
its quick delivery.
THE EXCESS ZONE

The factors in this zone contribute to excessive usage


of resources which could be low importance to the
customers but has a high competitive advantage.
Chicken dominates the menu: KFC is known for the
chicken recipes which doesnt give much options to the
consumers to select. It must dilute its menu. KFC has a
benchmark for the taste of fried chicken. Its secret
spices are the main attraction. It should continue to
hold the benchmark but should also expand into other
options including regional dishes and other meet

products like egg, fish and ham. It must balance its veg
and non-veg menu.
Chicken is fried in batches: This factor is an
advantage against competitors because the fried
chicken is always available in the outlet and helps in
lowering the lead-time of the consumers. But it doesnt
do any good to the consumers as it is not freshly fried.
Volume flexibility: KFC stores the frozen chicken in
the outlets for a week .Hence there is a weekly supply
of chicken to the outlets. This gives them the ability to
provide extra capacity at short notice.
The Operation Strategy matrix
After analysing the various competitive factors of KFC,
the focus should be on the decision areas matching the
performance objectives. This is done by using the
following matrix to collaborate the decision areas,
performance
objective
gaining
the
market
competitiveness. Figure 4 displays various factors
which contributes to the intersection of decision areas
and performance objectives.

Figure
matrix

4.

The

Operation

Strategy

The four -stage model of operation contribution


The four-stage model of operation contribution,
designed by Professor Hayes and Wheelwright of
Harvard University, captures the organizational aims,
expectations and aspirations of the operations function
that contributes the ability of any operation to open up
market potentials for the organization. This model is
applied to KFC as shown in the figure 5.

Figure 5-Tthe four stage model of operations


contribution
Stage -1 Internally Neutrality
In this level, the operation is considered as a
Necessary Evil because this is the poorest level of

contribution by the operation functions. At this stage,


the organization holds back its competitive attitude.
The expectations on it are to be internally neutral, a
position where the organization corrects its mistakes.
Discontinue working with unethical suppliers
Ensure food safety and zero antibiotics in food
Stage -2 External Neutrality
At this stage, even thought the company does not
contribute to competitiveness, it adopts, the industry
bets practice and the best ideas from the rest of the
industry. This is expected to be external neutral with
operation strategy similar to its competitors.

Work with ethical suppliers


Increase the usage of organic food
Introduce breakfast and heathy food in the menu.
Grow organic farms
Better layout in stores for kids and physically
challenged customers

Stage -3 InternallySupportive
At this stage, KFC might not as good as its competitors
but he brand is broadly up to their best. The company
tries to achieve this level by clearly understanding its
market position and unambiguously the very best in the
market. They organize and develop their operations
function to be internally supportive.
Enhance customer service delights
Regional and vegetarian menu
Create better working policy and environment for
the staff
Flexible working hours.
Contract with ethical suppliers

Stage -4 ExternallySupportive
At this stage, the company sees the operations
functions as the foundation base for its future success.
From stage 3, the company has grown in high
competencies to place itself in the future market
conditions.
Wide range of products at competitive prices.
Increase CSR value
Highly responsive to the consumer demand and
taste.
Bonding with suppliers

Recommendations
On the Basis of above analysis, the following are the
important summarization of recommendations.
KFC faced lot of criticism because of its unethical
suppliers who provided them with chickens with
high antibiotics. So KFC should start working with
ethical suppliers and create bonding with them.
It could also start Master Franchise where all the
responsibilities are given to a single franchise. The
master Franchise would be solely responsible for all
the operations. This helps the brand to focus on
other issues rather than concentrating on the
supply chain network.
KFC should start growing its organic farms
Should have wide range of Veg menu along with
seasonal and regional items.
Redesigning the layout to accommodate kids play
zone
Increase CSR value

Recycling process and Technology investment to


increase efficiency of operations.
Conclusion
KFC has a big brand value though it has seen a lot of
crisis in the past 3 years. The brand needs to reestablish itself again in market and need to gain
customers trust. KFC has a great advantage over its
secret spices which gave an opportunity to still sustain
in the market. Now, it should focus on expansion menu
which is tasty and healthy. From the various models
used in this report, it can be predicted that, it is very
much realistic plan for KFC to bounce back and gain its
customers in the market.

REFERENCES

Nigel Slack & Michael Lewis (2008).Operations Strategy.2nd ed. Edinburg:


Financial Times.p65-179
Alex Hill & Terry Hill (2009). Manufacturing Operations strategy. 3rd ed. London:
Palgrave Macmillan. P73-82

Hill, A .and Hill, T.2011.Essential Operations Management. London:


Palgrave Macmillan.

Carol Matlack. (2015). Inside the KFC kitchen. Available:


http://www.bloomberg.com/news/articles/2015-03-18/why-did-kfc-let-a-tv-crewinside-its-chicken-operation-. Last accessed 21st March 2015.

DEBBIE CAI and NATHALIE TADENA. (2013). Yum's China Sales Fall 20% as It
Tries to Win Back KFC Customers. Available:

http://www.wsj.com/articles/SB100014241278873242810045783547715183858
86. Last accessed 21st March 2015
Trevor Jensen. (2013). KFC Won't Be 'Eating Healthy' in Future. Available:
http://www.adweek.com/news/advertising/kfc-wont-be-eating-healthy-future70651. Last accessed 21st March 2015

Sandra Mu. (2013). Fast-Food Wars: The 10 Big Chains That are Closing
Restaurants. Available: http://www.forbes.com/pictures/feji45eeee/kfc/. Last
accessed 22nd Mar 2015.

Ashley Lutz. (2012). KFC's Gravy Train In China Could Be Ending Soon. Available:
http://www.businessinsider.com/kfc-facing-competition-in-china-201210#ixzz3W7Bxd1u5. Available: http://www.businessinsider.com/kfc-facingcompetition-in-china-2012-10?IR=T. Last accessed 19th Mar 2015.

Reuters. (2014). KFC admits excessive antibiotics were used in its


chicken. Available: http://www.wantchinatimes.com/news-subclass-cnt.aspx?
id=20130101000006&cid=1103. Last accessed 25th Mar 2015

Reuters. (2013). KFC Parent Suffers After China Scandal. Available:


http://www.nytimes.com/2013/02/06/business/global/kfc-parent-suffers-afterchina-scandal.html?_r=1. Last accessed 22nd Mar 2015.

WANG HONGYI. (2012). KFC supplier used excessive additives in chicken


feed. Available: http://www.chinadaily.com.cn/business/201212/21/content_16038309.htm. Last accessed 14th Mar 2015

COLUM MURPHY. (2013). KFC Criticized Over Suppliers in China. Available:


http://www.wsj.com/articles/SB100014241278873247313045781892907989017
54. Last accessed 20th March 2015.

KFC. (2014). our-story. Available: http://www.kfc.co.uk/about-us/our-story/. Last


accessed 21st March 2015
Lara Morgan. (2014). Five steps to developing an effective sales
strategy. Available: http://www.theguardian.com/small-businessnetwork/2013/nov/11/five-steps-developing-effective-sales-strategy. Last
accessed 19th Mar 2015

Reuters. (2013). PETA's Campaign against KFC. Available:


http://www.kentuckyfriedcruelty.com/. Last accessed 21st March 2015.

Trevor Porter. (2013). KFC animal rights campaigner abandons protest after being
pelted with chicken wings. Available:
http://www.telegraph.co.uk/foodanddrink/foodanddrinknews/9787462/KFCanimal-rights-campaigner-abandons-protest-after-being-pelted-with-chickenwings.html. Last accessed 18th Mar 2015

Jenny Hope. (2013). Are vegetarian diets secret to long life? .Available:
http://www.dailymail.co.uk/health/article-2335444/Are-vegetarian-diets-secretlong-life-People-avoid-meat-better-health-lower-blood-pressure.html. Last
accessed 25th Mar 2015
Writankar Mukherjee. (2014). McDonald's India ready to open first vegetarianonly outlet in Vaishno Dev. Available:
http://articles.economictimes.indiatimes.com/2012-0904/news/33582020_1_restaurant-chain-vikram-bakshi-mcdonald-s-india. Last
accessed 21st March 2015.

Appendices
Appendix-1

Fast Food Brand share


14.00

3.70

3.20

2.70

2.70

1.60
2013

1.20

1.20

1.00

McDonald's

KFC

Subway

7-Eleven

Burger King

Wendy's

Taco Bell

Dunkin' Donuts

Tim Hortons

Chick-fil-A

0.80

Source: Consumer Foodservice: Euro monitor from trade sources/national statistics

Appendix-2

World
2013

0.90

2012

0.90

2011

0.80

2010

0.80

2009

0.80

2008

0.80

0.74

0.76

0.78

0.80

0.82

0.84

0.86

0.88

0.90

0.92

Source: Consumer Foodservice: Euro monitor from trade sources/national statistics

Appendix-3

World
3.70

3.60

3.60

3.60

2008

2009

2010

3.70

3.60

2011

2012

2013

Source: Consumer Foodservice: Euro monitor from trade sources/national statistics

Appendix-4

KFC Brand share


14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00

2008

2009

2010

2011

2012

2013

Source: Consumer Foodservice: Euro monitor from trade sources/national statistics

Appendix-5
China Fast Food KFC (Yum! Brands Inc) Yum! Brands Inc
6.40
5.90
5.20

5.10

5.20

2008

2009

2010

5.10

2011

2012

2013

Source: Consumer Foodservice: Euro monitor from trade sources/national statistics

Appendix-6

Appendix 10

Porters five forces