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Thinking Strategically:
A Working Model
Chapter 2
By: Fiona Caramba-Coker
For: Dr. Fred DeMicco
OBJECTIVES
Upon completion of this chapter, you will be able to:
1. understand that strategic management is a way of thinking about the
future.
2. describe the differences among corporate, business, and functional
strategies.
3. comprehend the key concepts of strategy and their role in organizational
success.
4. utilize the strategic management model to develop effective strategies
for the future success of the hospitality enterprise.
5. Apply the concepts of this chapter to the case study.
Strategic Management is a Way of Thinking
About the Future
•
•
Before looking at each of the concepts it is important first
to recognize that strategy is not a process, it is a way of
thinking.
It includes many activities that must come together
synergistically to produce the results expected by the
stakeholders in the firm.
◦
Read pages 38-40 in your book
A Way of Thinking
http://www.youtube.com/watch?v=ogg7sQchSYc
The Relationship among Corporate, Business,
and Functional Strategies
What business(es)
should we be in?
Corporate
Strategy
What competitive methods
do we invest in to achieve
competitive advantage?
Business
Strategy
Functional
Strategy
What financial, marketing,
operations, and other
strategies will be important
to implement business
strategy?
Corporate Strategies
• Corporate Strategy is the grand design of
•
managing the entire organization.
It determines that business in which the firm will
be engaged in: industries, segments, products, and
services.
◦ Read pages 40-41 in your book
Corporate Strategies
• A Real Life Example:
◦ A small hotel firm strives to change itself from a “corner s
hop” operating in a mainly domestic market, to
p
articipation in an “electronic shopping mall” with global r
each.
◦ The firm re-evaluated its corporate strategy by assessing
what business the hotel would be in and expanding the
target market of the hotel.
• Read more about this story in Article ONE.
Business Strategies
• It is important to decipher how a firm will compete
•
within a particular industry.
Business Strategy is directed at determining the
competitive methods that companies develop to
compete in a specific domain or industry sector.
◦ Read pages 41-42 in your book
Business Strategies
• Applying it to a Concept:
◦ Porter’s “The Five Competitive Forces That Shape
Strategy” highlights the forces that strategists must
understand in order to cope with competition.
• Read Article TWO for a thorough discussion of the topic.
Business Strategies
Potential
New Entrants
Bargaining
Power
of Suppliers
Intra-Industry
Rivalry
Strategic Business Unit
Substitute
Products
and Services
Porter’s Competitive
Model
Bargaining
Power
of Buyers
Functional Strategies
• Functional Strategy focuses on resource allocation.
• Compared to the other levels of strategy, functional
strategies change quite frequently, often influenced
by competitors’ daily movements.
◦ Read pages 42-43 in your book.
Functional Strategies
• A Real Life Example:
◦ An example of this can be found in Article Three, when S
tarbucks Corp. eliminates 600 of its jobs to revive the
struggling coffee giant
• Please read Article THREE for more details on how
Starbucks reallocated its resources.
Functional Strategies
Functional Area
Elements in which strategy is developed
Finance
Asset management, capital budgeting, capital structure, financing, risk
management, financial planning, dividend decisions, forecasting, mergers and
acquisitions, control systems
Human Resources
Personnel management, organizational behavior, labor-management
relations, leadership
Marketing
Distribution, advertising and promotion, pricing, product and services offered,
customer segments, research
Administration
Insurance coverage, accounting systems, management information systems,
strategic planning, legal issues
Operations
Production management, quality control, resource acquisition and storage,
safety and security, process management
Research and
Development
Product development, customer development, new business development
Key Concepts of Strategy and Their Role in
Organizational Success
• Strategy is incorporated in the day-to-day activities
of all levels of personnel within the firm.
◦ Including frontline customer employees through to toplevel management.
◦ It focuses on how the firm should compete by anticipating
what competitive methods will lead the firm to financial
success.
◦ The four constructs of the coalignment theory give a
more detailed discussion on the importance of strategy to
an organization’s success.
• Read pages 44-51 in your book
Exhibit 2.4
Strategic Management Model
Domain Definition(2)
Geographic market area
Segment
Primary competition
Target Market
Long term
objectives (6)
Performance measure
Competitive Methods (3)
Environmental
Events (1)
Remote
P1
S2
Strengths and (5)
weakness analysis
Action plan
Resources needed
Evaluation timetable
P2
S2
Task
P3
S3
Functional
Firm
Mission Statement (4)
Nature of business
Target customer
Products/services
Core values
Means to
accomplish above
Core competencies
Responsibility
Resource allocation
processes
Contextual variables
Process variables
Functional analysis
Financial position
Structural analysis
Physical assets
Labor force
Risk
Competitiveness
Accountability
Rational
Short term
objectives (7)
Evaluation (8)
Strategic Management Model and Effective Strategies
For the Future Success of the Hospitality Industry
• Although strategic management is a way of thinking,
•
strategy formulation is a process.
Strategy formulation is the activity that management
engages in to establish the direction of the firm’s
future.
◦ The coalignment model is a reflection of the normal flow
of activities that take place in the strategy formulation
process.
Strategic Management Model and Effective Strategies
For the Future Success of the Hospitality Industry
• Segment, a sub-section of Domain Definition is
defining the mission statements of hospitality firms
today.
◦ Customers are becoming defined more individualistically,
also referred to as the segment of one.
◦ They are demanding more customized products and
services to meet their needs and will make purchase
decisions based on the products and services that most
directly meet these needs.
• Read pages 51-53 in your book.
Strategic Management Model and Effective Strategies
For the Future Success of the Hospitality Industry
• A Real Life Example:
◦ SYSCO uses Business Intelligence Software, Business
Objects, to make better use of the information generated
by its operations to serve its customers better.
• Read Article FOUR for more details on how SYSCO moved
forward with this strategy.
What Now???
• Now that you have gone through the chapter, lets t
est your knowledge….
Multiple Choice
The competitive methods of a company should reflect its management philosophy, which calls for
A. consistent allocation of the resources.
B. its core competencies.
C. anticipatory action in the face of rapid
change.
D. none of the above.
Indicate the item that does not reflect the essence of strategy.
A. Strategy includes many activities that come together synergistically to produce the results expected by the
shareholders in the firm.
B. Strategy should be defined as a consistent pattern of resource allocation directed to those competitive methods.
C. Strategy demands high levels of energy and an orientation to the future.
D. In order to achieve the results expected by the stakeholders in the firm, strategy should be done every three
years.
True or False??
Once the corporate strategy determines what businesses the firm will be engaged in, the decision must
then be made on acquiring another or building a new business.
True
False
Corporate decisions can be influenced by institutional investors, environmental groups, employee groups,
and regulatory bodies.
True
False
Strategies can occur at all levels of an organization: corporate, business, and functional. The corporate
strategies usually reflect a time frame of one to five years, while the functional strategies cover a time
frame of no longer than one year.
True
False
Short Answer Response
• What is the Essence of the Co-alignment principle?
• What are the requirements for thinking Strategically?
• What are the four major concepts of strategy making?
• In order to identify threats and opportunities in the future,
what categories of the environment of the business should
be scanned and assessed by a firm?
Case Study
Strategy for Mature Life Cycle: Yum! Brands
1. How has the role of the life cycle changed for the
restaurant industry from the 1970’s to the present time?
2. Why is multibranding a strategy to pursue in the mature
quick service industry? What are the claimed benefits?
What are the challenges? What are the pros and cons for
cobranding or multibranding in the foodservice industry?
Discuss the issues from the perspective of operations,
marketing, and customers.
3. What environment events led to Yum! Brands’ decision to a
dopt the multibranding strategy?
4. Besides cobranding, what are the other viable strategies
that would allow for survival and prosperity in a maturing
industry?
Supplemental Readings
• Article ONE: From Corner Shop to Electronic Shopping
Mall?
◦ Alison Morrison and Antony Harrison
• Article TWO: The Five Competitive Forces That Shape
Strategy
◦ Michael E. Porter
• Article THREE: Starbucks Cuts 600 Positions
◦ The Wall Street Journal - Janet Adamy
• Article FOUR: Business Intelligence Software at SYSCO
◦ Andrew Mcafee and Alison Berkley Wagonfeld
• Answer Key: For the Chapter Case Study
Answer Key: Case Study
1. To survive and prosper in a maturing industry,
o
perators are forced to rethink their strategies to s
atisfy the changing demands of the customers. T
hey have developed new, differentiated, and
eff
ective strategies. One of the strategies was mul
ti branding. The multi-brand concept has taken pla
ce as the quick service restaurant industry
dev
elops and it is becoming more and more
com
mon for companies in order to compete with the
others.
Answer Key: Case Study
2.
Multiple branding is a strategy in which a firm puts more than one of its
brands into the same restaurant in hopes of raising sales and improving
operating efficiency. Multi branding of this kind is not a new idea.
R
estaurants have been using that for years. While the intent of this
st
rategy is to raise menu variety and daypart sales, some operators
h
ave tried and abandoned the strategy, and others are not rushing to b
undle their brands, except in special markets. Nevertheless, cob
randing has been embraced by Yum! Brands and is central to its long- te
rm strategy. According to Aylwin Lewis, president and chief multibr
anding and operating officer, co-branding gives them a competitive ad
vantage in the marketplace by allowing them to penetrate markets
th
at are cost prohibitive or do not have the population density to support a
single concept. Many industry leaders believe that multi-branding is li
kely to be a part of the future for all of the major players as they ret
hink their strategies. Sidney Feltenstein, chairman of the International F
ranchise Association, for example, has claimed that this strategy will b
e a major driver of growth in the QSR segment.
Answer Key: Case Study
2.Continued
Beginning in 1992 with its first multi-branded restaurant, YUM! Brands now
operate more than twenty-two hundred multi-branded units in the United
States, accounting for almost 14 percent of profits. This Fortune 300 Company
is able to execute a multi-branding strategy easily because it operates the
following well-known brands: A&W All-American Food, Kentucky Fried
Chicken (KFC), Long John Silver's, Pizza Hut, and Taco Bell. Overall system s
ales totaled $24.2 billion in 2002, up from $22.3 billion in 2001. In contrast, t
he McDonald's strategy has heretofore been to develop its brands separately,
although it could capitalize on co-branding in the future.
Higher unit volumes are at the heart of the corporate multi-branding strategy.
For years McDonald's has been the envy of the industry, with restaurants that
enjoy twice the volume of the typical KFC or Taco Bell outlet. According to
Dave Deno, chief financial officer at Yum!, “the biggest thing that multibranding offers is the chance to leverage our existing assets that have lower
volumes than, say, a McDonald's. Early efforts at co-branding were combinations of KFC with Taco Bell and Taco Bell with Pizza Hut. The net result of t
hese efforts was the addition of between $100,000 and $400,000 per unit in a
verage sales. One franchisee, Larry Durrett, president of Southern Multif
oods, which opened the first cobranded Taco Bell and Long John Silver's,
e
xplained why multi-branding is such a powerful idea for him as a franchisee.
Answer Key: Case Study
2. Continued
Multi-branding has a dramatic impact on the customer. It's a barrier
breaker for families, meaning that sometimes kids like to eat different
things than adults. Globally, though, if you have a KFC--Taco Bell, you
might get someone who wants a taco one day and who will come back
the next day lot chicken. When we add volume to these restaurants
through multi-branding, they add incremental profits that they could not
have gotten any other way.
Multi-branding is a strategy to pursue in the quick service industry. The
philosophy underneath is that “two brands are better than one” which
leads to higher unit volumes. The goal of adopting this strategy is to
reduce advertisement costs and avoiding the cost of opening new
locations. Central administration is an advantage for multi-branding
because most of the changes made to one brand are easily applicable
to others.
Answer Key: Case Study
2. Continued
Advantages :
- Borrowing expertise from sibling brands
- Sharing employees
- Purchasing power
- Shared training, parking lot, etc.
- Leveraging combined brand equity
- Reducing production costs
- Expanding brand meaning
- Increasing consumer access points
- Increasing unit revenues
Disadvantages :
- Not every franchisee has the infrastructure to deal with different brands
- Franchisees must adhere to two separate contracts in one store
- Two different sets of menu items and operating procedures can cause
confusion among managers and employees
- Slow down in production and service time
Answer Key: Case Study
3. It is a result of years of research and the development of its customer base. Demographics, real
estate costs, traffic, and competition are the
e
vents that led Yum! to adopt multi-branding. It is v
ery important to observe the environment with d
etails. Yum! had done that.
Answer Key: Case Study
4. New Products
New Markets
International Markets
Minimizing movement and churn of employees out of the
organization is another strategic imperative. The feedback
process helps with retention, creating more stable
management teams and ultimately, more successful
restaurants.
Development programs such as double staffing and cross
training of management enable detailed bench planning at
the restaurant level and are used to build individual
capability, ensuring the organization is able to have the
people capability to meet both their current needs as well
as their growth needs.
Answer Key: Case Study
Figure 1
• This concludes Chapter 2