SILVER JUBILEE GOVT.

COLLEGE [A], KURNOOL

DEPARTMENT OF commerce

COMPANY ANALYSIS
KENTUCKY FRIED CHICKEN (KFC)

A STUDENT RE-SEARCH PROJECT

SUBMITTED BY
MUTLURI TEJA KRISHNA
III B.Com(CA)
141020

GUIDED BY
n.Venkata krishniah,
lecturer in commerce

CERTIFICATE OF AUTHENTICITY
This is to certify that M.TEJA KRISHNA a student of III
B.COM(CA) has successfully completed the research
project on the topic KFC under the guidance of
N.VENKATA KRISHNIAH Sir,Lecturer in commerce.
This project is absolutely genuine and does not indulge in
plagiarism of any kind.

Signature(subject In charge)
Signature(examiner)
 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to

my lecturer N.VENKATA KRISHNIAH SIR as well as our principal
S.ABDUL KHADAR sir who gave me the golden opportunity to
do this wonderful project on the topic KFC which also
helped me in doing a lot of research and I came to know
about so many new things and I am really thankful to
them.
Secondly I would also like to thank my parents and
friends who helped me a lot in finalizing this project
within the limited time frame.

M.TEJA
KRISHNA

III B.Com(CA)

141020
 DECLARATION

I hereby declare that the project work entitled KFC is

submitted to the department of COMMERCE, Silver
Jubilee Govt. College [A], Rayalaseema University is a
record of an original work done us under the guidance of
N.VENKATA KRISHNIAH Sir, Lecturer in commerce.

DATE: M.TEJA
KRISHNA

III B.Com (CA)

141020
 CONTENTS
I. Executive Summary
II. Introduction
III. Structural Analysis
IV. Blue ocean strategy and competing on resources
V. Using game theory to shape strategy
VI. Playing the improvisational edge
VII. Capturing cross business synergies
VIII. Gaining advantage of the past

EXECUTIVE SUMMARY
One of the major models of analyzing a companys competitor position in the market is given by
Porter. Porters five forces comprising of threats of new entrants, bargaining power of buyers and
suppliers, threats of substitutes and the rivalry among existing competition determine the degree
to which investment in a particular industry will drive rates of return to the free market level. In
short, porters five forces determine a companys profitability and opportunities in the industry.
KFC, one of the largest chains of fast food restaurants faces all these forces and tends to
eliminate them to strengthen market position. KFC has been in the fast food industry since the
1930s. It entered Pakistan in 1907 and has carried out successful business. It is a well
established multinational offering a premium experience of value added chicken meals and other
fast food to its customers.
KFC has put up moderate barriers to entry for potential entrants. Hence, although it is not very
difficult to enter the fast food industry, it is extremely difficult to enter as KFCs competitor. Well
established brand name, high economies of scale, a moderate level of product differentiation,
high capital requirements and access to distribution channels make it a successful business
altogether and thus makes it difficult for a new entrant to enter the industry and compete with it.
Rivalry among existing competitors is moderate, since all major players have a prominent
position in the market. Price competition exists, but KFC focuses more on differentiating and
marketing efforts to raise sales than bitter price wars and advertising battles. Exit barriers for the
firm are high due to accountability to not only its loyal customers but its suppliers, employees
and the band name itself. High exit and entry barriers promise high returns but make the firm
risky at the same time. A new entrant promising KFCs special recipe at a lower price will
definitely hurt the company.
Substitute products for KFC have gained power due to renewed health and obesity concerns. In
Pakistan, issues like not using Halal chicken have seriously damaged the brand, but KFC has
overcome this by effective marketing and branding efforts. However, during the process it lost
some of the trust people placed upon it and has given space to substitutes like made to order and
ready made recipes. KFC loyal customers will however not shift to substitutes due to high
switching costs which can be both monetary and emotional.
Customers usually are given great importance and their feedback is deemed to be critical for the
companys performance. However, they do not have the power to bargain with the company
unless major issues arise which affect a group of customer for example issues of halal meat and
opera coupons. KFCs customer base is huge and although it wants to fulfill most of its
customers demands it is not inclined to fulfill each and every demand they impose.
Suppliers are a major part of KFCs value chain. Both KFC and its suppliers bring benefit to each
others brand names. Among all the suppliers, the maximum bargaining power can be said to be
with Pepsi and K n Ns. Although, both will not want to loose partnership with KFC, they have
the power to bargain to a certain extent, being as big and as successful.
The analysis, in conclusion, suggests KFCs strong position in the competitive environmental,
partly because of its differentiated marketing and operational strategies. It can work upon
decreasing exit barriers and be less liable to the stake holders and so acquire the best position in
the market.
Although not operating in the blue ocean, KFC competed majorly on its valuable resources.
These include both tangible and intangible resources. Furthermore, it keeps leveraging and
investing in them to stay ahead in the game. Also, it can use the same strategy to enter a blue
ocean by combining for instance food with amusement.
KFC also utilizes game theory to change the game to its advantage. It is also involved in creating
win-win situations for the industry. Although, most strategies are employed to be ahead than
competition, they imitated and so benefit the industry on the whole.
Furthermore, the chain focuses on competing on the edge. This is evident from its rich and
successful operational history. The organizational hierarchy is neither too structures nor chaotic.
Team play is efficient but answerable and accountable for actions. A critical mass of people is
always kept within the firm which includes both experienced and new employees. The firm also
builds upon its past concepts utilizing the concepts of modularity to gain advantage from them.

KFC
KFC Corporation is a chain of fast food restaurants based in Louisville, Kentucky in the United
States. KFC has been a brand and operating segment, termed a concept of Yum! Brands since
1997.
KFC boosts upon having a special recipe which has not yet been imitated. This is the recipe
which the colonel used and is still used to build many products. KFC primarily
sells chicken pieces, wraps, salads and sandwiches. While its primary focus is fried chicken,
KFC also offers a line of roasted chicken products, side dishes and desserts. Outside North
America, KFC offers beef based products such as hamburgers or kebabs, pork based products
such as ribs and other regional fare. It modifies its recipes according to the local taste, while
some like the 11 herbs and spices and the zinger recipe remain universal. In Pakistan the menu
consists of mainly chicken products, including chicken pieces, burgers, sandwiches, nuggets, hot
shots, chicken wings etc. They also provide rice and some salad variants in their product line.
In 1930, Sanders opened the first ever KFC, by the name Sanders court and caf, at a gas station
in Corby, Kentucky. In 1937, the court was expanded to a motel with 142 seats. With the
introduction of the pressure cooker in 1939, colonel grew as a delicious chicken provider by
providing fresh chicken much faster. In 1952, franchising of the business started, firstly by
moving into towns by collaborating with restaurants and cooking batches of chicken for them.
By 1960, there were 140 franchisees and 400 franchise units in the United States and Canada. In
1966, the business went public as the Kentucky Fried Chicken Cooperation. In 1971, with 3500
franchisees and company owned restaurants Heublein Inc. acquires KFC. In 1980, after giving
the chain the publicity and trust it demanded to carry on business the colonel died and the
business became a subsidy of R. J. Reynolds Industries Inc. (now Nabisco Inc.) as a result of the
acquisition of Heublin Inc. In 1986, PepsiCo acquires KFC from Nabisco Inc. In 1997, PepsiCo
announced the spin-off of its quick service restaurants into Tricon Global Restaurants Inc., whose
name, in 2002, changed to YUM! Brands Inc.
KFC came to Pakistan in 1997 with its first branch in Gulsha-e-Iqbal, Karachi. It currently has
68 branches operating in 18 major cities. It is operated by a Dubai based company, Cupola,
which took it over in 1999 with 4 major outlets. Major competitors include McDonalds, Nandos,
Hardees, AFC (Al-baik fried chicken), Fri chicks, Go chicks and Dixy Chicks when talking
about similar products. As in industry, however, KFCs competitors will include all fast food
chains: McDonalds, Pizza Hut, Genos, Hardees, Cock n Bull, Subway etc.
KFC occupies a major position in the fast food industry, being the largest seller of chicken
products in Pakistan. It captures 30 percent of the total fast food market in the country. Porters
five forces analysis of KFC will further help to clarify its competitive position in the fast food
industry.

STRUCTURAL ANALYSIS
INDUSTRY

KFC operates in the fast food industry. However, for convenience of understanding and
application the group has carried out the analysis by considering KFC to be in two major
industries, the first being fast food and the second being franchise. Hence, industry analysis is
carried out by taking the industry to be fast food franchise.

PORTERS FIVE FORCES

Porters five forces help to identify the key structural factors determining an industrys
competitive position in the market and its profitability. They highlight the strengths, weaknesses
opportunities and threats along with their significance of the industry. Analysis helps to
understand the current competitive position the industry occupies, animates positioning and
clarifies areas of improvement. It will also help determine intensity of industry competition and
the forces impacting strategy formulation.

RIVALRY

Numerous competitors operating as fast food franchises exist in the market. Some of them are
Nandos, McDonalds, Pizza Hut, AFC, Go Chicks, Dixy Chicks, Cock n Bull, Hardees, Salt and
Pepper and Subway. These continuously fight against each other for a better position in the
market. Rivalry among competitors takes place in the form of price competitions, advertising
battles, product differentiation and increased customer services. Rivalry in fast food industry can
be measured by analyzing the following.

Number of competitors and size

Fast food franchise industry in Pakistan consists of large number of firms having large variance
in size and scale. Also, they differ a lot in prices, quality and service. So, they do not have to
monitor all the firms for their actions and they can make moves without the risk of severe
retaliation. However, few large players that compete against each other have resources for
vigorous retaliation when some close competitor makes an important move. Hence, KFCs
competition is restricted to the size of the competitor. KFC will usually not consider what Cock n
Bull or AFC is doing as important as to what McDonalds or Nandos is doing. Fierce competition
might result in the form of various deals and price cuts offered specially in burgers between
McDonalds and KFC, but on the whole rivalry in the industry remains moderate due to the
existence of numerous players operating in various sizes.

Industry growth

Pakistans fast food franchise industry is still unsaturated and is in its growth phase. There is a lot
of room for firms to enter and be profitable. As barriers to entry to the industry as a whole are
low, more and more firms as well individuals are entering in this business. For past few years the
industry is growing at the rate of 10% annually. For instance, Subway successfully entered the
industry a few years ago and now Hardees has also followed suite. Due to industrys absorbent
and unsaturated nature competition for gaining market share is not bitter. Also, existing firms are
increasing their number of outlets quite fast. Moreover, firms continue to introduce products and
expand their product lines, hence, entering the new markets and targeting the new set of buyers.
Hence, because the overall profitability from the industry is high, the rivalry is not very bitter
and everyone gets its share of profits without diverging into severe price-wars and advertising
battles. However, major players in the market, mostly equal in size, do get influenced by each
others strategies and imitate quickly but that usually does not result in price wars. The rivalry
thus remains moderate.
High fixed and storage costs

For the fast food franchise industries the fixed costs are usually high due to the royalty charges
they have to pay to operate as a franchise. As for KFC, it takes the cooperation 40 million to
open a new outlet. Similarly, for its close competitors the costs are similar, as they are about
equal in scale, size and operations. High sales, however, help these firms to earn sustainable
profits. Storage costs are also high due to expiry and quality issues. This also places pressure to
increase sales hence increasing marketing efforts and cutting prices which can drive profits low.
Therefore, with the fixed and storage costs being high, the firms compete against each other
vigorously when storage and expiry issues arise. In these cases they might even indulge in severe
advertising battles. Therefore, the rivalry increases. However, this is only the case with small
franchise businesses. The firms following quality standardize do not usually face the problem of
over capacity and hence do not have to incur costs of wastage of storage materials. The rivalry
overall remains moderate.

Differentiation and switching costs

Product differentiation in the fast food industry exists but is not quite high and generally the
products are perceived as commodities so their choice largely depends on price and service so
the pressure to ensure competitive price and service escalate. Also, switching costs are quite low,
as customers do not have to incur any cost for not buying from a firm. This industrys customers
are characterized as highly price sensitive so they can easily switch to a product that is like in
quality and service but offered at lower price. Therefore, rivalry can become high. Competitors
have to enter into price and advertising wars to attract customers. However, this usually happens
in small franchises who are unable to differentiate their products either on price or quality or the
by increasing the product line. Larger firms including KFC, McDonalds, Hardees, do get
influenced by each others techniques to attract customers but always try to differentiate rather
engage into bitter rivalry for a higher share, but, since competition is there, rivalry does exist. On
the whole, the industry operates in conditions where rivalry is moderate.

Increasing capacity in large increments

In the mentioned industry, there are expiry issues so raw material is not purchased in bulk. KFC
never purchases in large quantity that would result in overcapacity, because it has set quality
standards and KFC never compromises on that. Overcapacity can result in huge wastage of raw
materials because most of the raw materials are perishable. Hence, KFC do not face this issue so
price cutting or chronic overcapacity is not a problem. Small firms might increase capacity, but
in the long run they may suffer due to quality, health and accountability issues. Firms following
strict quality standards which the multinationals in particular do, usually do not face the problem,
thus the rivalry in the industry resulting from overcapacity remains moderate to low.
Diverse competitors and high strategic stakes

There exist diverse competitors in the fast food industry as it consists of local franchises to huge
multinationals. However, they are operating for a primary goal of making profits. So, no firm
will make a move that might harm profitability. And almost all firms operating in the industry are
profitable and no one would be willing to sacrifice high returns for some other reason.
Apparently, no one is operating for some other strategic stake. This makes rivals to operate for
single goal of profitability and hence their actions are not destructive for existing rivals.
Therefore, KFC can easily make profitable decisions. KFC competes directly with companies
like McDonalds on products like burgers and chicken variants. The products are the same, both
provide fun meals and play place for children, both provide home delivery and both occupy
prominent locations throughout the country. Rivalry thus among competitors is not bitter.
However, both have differentiated these products on the basis of quality, taste, efficiency etc to
position themselves. The strategies behind are different. Thus, the rivalry among them stays
moderate.

Exit barriers

Exit barriers are economic, strategic, and emotional factors that keep companies competing even
in times of low profits. The exit barriers for a firm in the industry remain moderate and so does
the rivalry. Exit barriers can be explained as following:

Specialized assets & fixed cost of Exit

KFC does not have highly specialized assets and the nature of assets are such that they can easily
be sold in the market. Therefore, it can easily sell its assets, as it purchases its fixed assets from
Hanny Penny from outside Pakistan, and a buyer will easily pay the price to get these. Same is
the case with other firms; assets usually do not create an exit barrier.

Strategic interrelationships
It has high strategic importance as apart from fulfilling commitment of serving delicious, fresh
and hygienic food and at the same time provides customer with the ultimate entertainment; KFC
also plays in the economics development of Pakistan. Also, it has relationships with other
companies like K&Ns and Cupola. For K&Ns, as K&Ns claims, KFC makes its products more
acceptable to people because of KFCs brand name and image. Cupola runs KFCs franchises in
Pakistan. Therefore, these strategic relationships might make it difficult for KFC to leave the
industry. Firms in the franchise industry, hence, do face an exit barrier as per strategic inter
relationships are concerned.

Emotional Barriers
KFC has high emotional barriers as presently it has provided employment to 6000 individuals
who will lose jobs in the case of KFCs exit from the industry. So, management of KFC, or any
other firm for that matter, might show unwillingness to make economically justified decisions
due to loyalty to employees and fear for their own careers. KFC Pakistan is helping the people
suffering from impaired hearing. It is helping them accelerate their career development, personal
and professional growth. Cupola does it by empowering the special persons creating role models
for the rest. KFC is providing a platform for the disabled youngsters of Pakistan. It strives to
give equal training and promotion opportunities to the disabled based on merit and work
performance. So, all these emotional ties can make it difficult for KFC to leave.

Government and Social Restrictions

This is a foreign country so government can not impose any kind of exit restrictions on KFC and
most of the multi nationals in business. However, economic effects will be negative and people
will lose jobs. Moreover, the Government of Pakistan receives over Rs.10 million per month
from KFC Pakistan as direct taxes, and 95% of all food and packing material used in KFC
Pakistan is procured locally, which sums up to a purchase of over Rs.35 million per month. So,
it might be discouraged to leave. However, there are no restrictions as such for KFC or any other
franchise to exit the industry as far as it does not have any loans it needs to pay back.

THREAT OF ENTRY

New entrants will impose a threat to the existing players in the industry. These entrants may be
potential entrants of acquisitions and will bring new capacity and resources and will lay
foundations for enhanced competition for market share. These threats to entry are determined by
barriers to entry along with expected reaction of the existing competitors. As the barriers set by
the existing players increase, the threat of new comers to enter the market will decrease.

Barriers to entry

If the barriers to entry are high the threat of entry is low. Here, we will be focusing on the
barriers to entry in fast food industry to which KFC belongs.
Economies of Scale
Economies of scale refer to reduction in unit price due to large volumes produced which can be a
result of efficient production, marketing, purchasing etc. Although, when food products are
produced at large scale economies of scale occur as fixed cost is spread over large volume of
products, however, due to the nature of the industry products these economies are constrained by
the volume of sales. Therefore, these economies of scale are no incentive for existing firms to
keep new entrants away. Also, there are no by products that are produced to earn incremental
revenues that means new entrant would not have to face a cost disadvantage on this account.
However, patents and established brand names provide large economies of scale as these can be
shared across all company products. That means that new entry will only have to face
disadvantage, if it wants to enter in direct competition with the established firms which are quite
few in Pakistan. There exists no vertical integration across the industry but only few established
firms like KFC itself. However, this would not keep the entrants away as the industry allows a lot
of flexibility for size and scale with which new entries can set up business. In conclusion,
economies of scale in fast food industry for established franchise business exists and may serve
as an entry barrier, and so contribute towards building a threat to potential entrants.

Product Differentiation
Product differentiation means that established firms have brand identification and customer
loyalty. In Pakistans fast-food franchise industry, product differentiation does play a role in the
growth of a business. Potential entrants will have to differentiate slightly to capture the attention
of the customers. It is hence not very easy to enter and operate profitably. KFC has differentiated
its products on the basis of Food, fun & Festivity, providing numerous variants of its special
recipe in the form of chicken meals. It also offers various deals to differentiate its products from
its competitors. Apart from the products it offers, KFC differentiates itself on the basis of the
experience it provides: the right chicken, the right place and the right celebration! Hence the
emphasis on we do chicken right. Seasonal discounts (Ramadan deals), sales promotions
(Ufone, Standard Chartered, Bareeze), birthday parties, chicky area and events organized for
social responsibility (donations for SOS and FARYAD) are all ways of differentiating what it
offers. KFC also differentiates service in the form of the dine-in experience, take away and KFC
on Wheels. Thus product differentiation is a tool utilized by most businesses but not to an extent
to enter a blue ocean. The core products offered by all remain more or less the same; hence do
not pose a high barrier to entry. Therefore, there is not a high threat to entry into the industry.
Firms come in, differentiate slightly and run businesses without competing on product
differentiation.

Capital Requirements
Capital requirements are the financial resources needed for investment to set-up the business and
to compete. It may also include R&D, human resource and marketing costs to differentiate and
overcome brand loyalty of competitors. In this industry, capital requirements for entry are high
because franchises usually require a lot of set up cost, specially the royalty they have to pay on
land. Furthermore, for penetration in the market, it might have to incur some amount on
marketing and advertisement for not only awareness but differentiation. Thus, the capital
requirements are huge: setup, plant and equipment, management and employees, suppliers,
production, marketing and promotion etc. Therefore, the capital for entering the industry is a
barrier to entry and poses a threat to new comers.

Access to distribution channels

Distribution channels include retail and wholesale firms that would help distribute products to
end users. In the franchise industry finding an appropriate place for the restaurant, sometimes
becomes an issue, but mostly it remains at a low scale. All new entrants if they have the required
capital and resources do find a place to set their business up. So, access to distribution channels
cost for new entrants is low, however, established firms go to an extent of building their strategy
on their distribution network. To come and grow as large as them is surely impossible, but to find
a place in the market as a newcomer is not very hard. Hence, the barrier remains low ad the
threat high.

Cost disadvantages independent of Scale

Competitors might have cost advantage based on several other factors independent of their size
and economies of scale.

Proprietary product technology: On the whole, the industry has got no product
technology that would make a real difference in products offered or the way they offer.
However, there exist some established firms that have patents for some recipes. For
instance, KFC has a secret recipe.

Favorable Access to raw materials: Raw materials for this industry include buns,
bread, chicken, oil, flour, spices, vegetables etc. These materials are easily available
locally. Their procurement is not a hard task.

Favorable Locations: Fast food franchise market in Pakistan is still much unsaturated
and room for finding favorable locations is high. A glance at urban areas of Pakistan and
fast food restaurants located there shows that a lot of markets are still not served. In other
words there are enough people in urban Pakistan for any restaurant to survive. New
entrants can easily secure for them a favorable location as shopping malls and markets
continue to expand. Therefore, this barrier does not necessarily serve as shield against
new entrants. Entrants can easily enter the market and find a favorable location for them.

Learning or Experience Curve: Because this is food-based industry, the more you cook
the more you master it. Moreover, those who are serving in the industry for so long have
more experience about customers taste, buying behavior, switching options etc. than new
entrants. For them, efficient production is easy; hence, unit cost also decreases. KFC has
experience of 13 years of serving in Pakistan and more than seven decades in business.
Moreover, it is the most experienced firm in chicken production. Therefore, experience
curve might provide some barrier to entry and decrease threat of entrants.

Government Policy
There are certain government regulations pertaining to the fast food franchise industry in
Pakistan. Some of the requirements include Halal food production and selling, Corporate Social
Responsibility, standardization checks, a test to prove quality before entering the market,
renovation after every 8 to 10 years as mentioned per contract, tax duty and numerous other
certifications, especially if operating on a large scale. In general, this barrier is moderate, since
nearly all the companies in Pakistan produce Halal food and contribute to some extent to the
local sales, they also fulfill other requirements since entering the franchise industry. Therefore,
entry is not highly difficult, and new firms can enter the industry making the competition fierce
and increasing the threat of entry. KFC complies with both of the requirements and provides
Halal food and contributes to the local sales up to 95%. Food and packing material used in KFC
Pakistan is procured locally, which sums up to a purchase of over Rs.35 million per month.

Expected retaliation

In past, retaliation shown by established firm has been quite low. For instance, recent entries like
JFC, AFC, Subway and Hardees show the ease with which they entered. Also, no major moves
against them have been observed from existing firms, because they are already well established
or reaping profits. No doubt, all firms will compete against each other to grab the better share in
the market, but sever retaliation has not been usually observed. Hence, expected retaliation is
low and threat of entry is high.

Entry-deterring price

The prevailing price structure of huge companies like KFC is a balance of the value provided
with the associated cost. Entrants will either have to come up with a similar structure, which
suggests providing quality product for a high price. However, most products already exist in the
market and so anything provided by the entrant would have to be well differentiated to motivate
customers to pay the high price. Since KFC had in house baking facility and an efficient value
chain network, it can afford to offer products at a reasonable price; now targeting the middle
class as well. In contrast a developing business can not afford to offer similar prices for equally
good products, hence will suffer a loss. The entry deterring price is thus high and imposes a
major barrier to entry. The threat of entry hence becomes low.

BARGAINING POWER OF BUYERS

KFC as a buyer or the customers of KFC can compete in the industry by forcing down prices or
demanding higher quality and more incentives. The following factors determine the bargaining
power housed by the buyers.

Concentration of buyers

KFC has a large customer base. Its revenues are not dependent upon the buying power of a single
customer. Hence, the customer buying power is low unless a major action of the company causes
distress to a group of buyers like the incident of opera coupons, where the customers got upset by
the non-functioning of the coupons and KFC has to reimburse them along with a public apology.
Buyers always hold sufficient power to bargain with the firm. However, if the customer base in
large, the sales and profitability is not affected by retaliation by a small group. If the group is
large however, the bargaining power increases.

Price sensitivity

The population in Pakistan is price sensitive; people would rather go for similar product selling
for fewer prices than buying an expensive one. Also, there are lots of alternatives to within and
outside the fast food industry as a whole. While a brand loyal customer may pay whatever price
KFC asks for a customer looking for just good fast food would go to a place where his need is
satisfied with the least amount of cost incurred. Hence, price sensitivity gives a lot of power in
the hands of the buyers.

Products are undifferentiated

Products in the fast food remain undifferentiated, as discussed before. Marketing efforts help
differentiate the products a bit and build brand awareness; it does not help customers lock up
with the firm as they can find similar products elsewhere. There are some firms offering a
different range of products, like Subway, who have managed to differentiate their products from
the rest of the industry, targeting the health conscious people. However, if we talk only about
KFC and other chicken specialists, the products remain more or less the same. Taste, in the
Pakistani market does matter, but the prospect is not strong enough to stop people from
switching. Everyone is willing to go and try food from a new comer. Therefore, as the
differentiation itself, the bargaining power also remains moderate.

Switching costs or substitution costs

There is no monetary cost associated with switching from KFC. As discussed earlier, switching
costs depend upon buyer behavior: their extent of price sensitivity or inclination towards
preferred taste etc. Those emotionally connected with it might suffer switching cost of
psychological nature concerning their emotional attachment with the brand. However, that does
not necessarily decrease their bargaining power as they still can switch to other brand at their
discretion.

Therefore, the bargaining power of a single buyer is not much, but on the whole they have got
bargaining power based on their buying behavior, price sensitivity and low switching cost.

PRESSURE FROM SUBSTITUTES

Substitutes are the products that can perform the same function as the industry product. For fast
food the substitutes are home-made-meals, ready- to -cook meals offered by Knorr, Mon Salwa,
K & Ns Chicken and local vendors, other restaurants as they could choose anyone of these foods
over fast-food. Moreover, increased health consciousness has lead people to switch from fast
food to health oriented food as offered by Subway or made at home.
Switching costs

When a customer switches from a product to its substitute, then he has to bear a switching cost.
If the cost is high then the probability of customer to switch will be low. In the industry, there is
low switching cost as customers do not have to incur any additional cost to switch from a
product. Therefore, there is increased pressure of substitutes because customers can easily switch
from products on the basis of low prices. In the market there are numerous substitutes available
for fast food. Firms like K&Ns and Menu offer Ready-to-Cook meals. The long range of
products offered by these firms provides best substitutes for KFC. In price sensitive market like
Pakistan, products of comparable quality with low price attract customers. Same is the case with
KFC; the substitutes available have low price, comparable quality and long expiry life than the
products of KFC. Moreover, local restaurants and cafs also deal as substitutes of KFC. Health
and obesity issues keep rising which again push people towards healthy eating and fast food is
not considered to be one. On the whole, the switching cost remains low and pressure from
substitutes high.

Buyer inclination to substitutes

Buyers have greater inclination towards substitutes because they are considered healthier and
more health conscious people would rather move to other substitutes. KFC faces this threat,
because it can lose its loyal customers as health consciousness and obesity issues increase. It has
made efforts by advertising and launching its trans-fat meals which have low fat content.
Nevertheless, fast food remains as such and people refrain from eating it especially if advised by
a doctor. The buyer inclination towards substitutes thus increases, increasing the pressure from
substitutes too.

Substitutes price-quality trade-off

Analysis of substitutes shows that most of the products have attractive price-quality combination.
Also, range of products at different prices is available. Hence, price-quality combinations offered
by substitutes may tend to motivate customers to shift, especially with increasing health
concerns. So, KFC has to face the pressure from the substitutes available in the industry it
belongs to. Although, KFC claims that it provides quality chicken based on secret recipe that no
else has it, has already been replicated to an extent, by its competitors. So, it can increasingly
lose its customers due to above mentioned factors. The pressure from substitutes hence rises.

BARGAINING POWER OF SUPPLIERS

Suppliers of KFC include K & Ns, Pepsi Co, Hilal, Nescafe and bread and buns are produced
internally. Marination is imported from California, India and Dubai. The suppliers within
Pakistan can compete in the industry by raising prices or reducing quality of produced goods or
services.
Supplier concentration

In Fast food industry there are lots of suppliers available as the raw materials needed for the end
products are widely available across Pakistan. Firms can easily switch suppliers. Overall,
supplier concentration of chicken in Pakistan is low, but drinks suppliers are concentrated. So,
the bargaining power differs across different vendor industry. However, KFC produce bakery
products in-house. However, Suppliers of KFC chicken is K&Ns and drinks are supplied by
Pepsi, in Pakistan. As for chicken other alternatives such as Zenith and Menu are there. KFC has
to rely solely on Pepsi for drinks because there is no other quality supplier except Coca-cola that
is the major supplier to McDonalds. Hence, the bargaining power of Pepsi is high. It is difficult
for KFC to find an equivalent supplier. However, both being multinationals benefit from each
other. K & Ns too, being certified for quality and Halal food possesses some bargaining power
but options are available and in the case K & Ns is the beneficiary; to be associated with a huge
company like KFC. Amongst all the suppliers, maximum bargaining power is with Pepsi, also it
is strongest multinational. K n Ns comes second. Recently, a firm is said to launch which will
provide chicken to the restaurants at a much convenient price than K n Ns, and at the same
quality. If the firm is successful, it might hurt the bargaining power which K n Ns possesses.

Size of suppliers

In industry there are suppliers of different sizes. Smaller the size of certain supplier lowers the
bargaining power of the supplier. Pepsi is huge and wont be affected if KFC stopped buying.
KFC on the other hand cannot afford to let go of Pepsi, especially when Coke is already serving
McDonalds and various other competitors. Not that Coke will refuse to supply to KFC, the firm
itself will prefer to be different from its major competition. KFC is major buyer of K&Ns which
would not want to lose partnership with KFC, especially when new chains like Zenith and Menu
are coming up. Also, affiliation with KFC makes it more acceptable to people. On the other hand,
KFC does not have an option to buy from a well known and certified chicken supplier. Zenith is
new and Menu is also not as large and popular as K n Ns. Thus, suppliers overall do possess
bargaining power.

Uniqueness of service/Product

The products and services offered by the suppliers are alike as the products they supply are
naturally produced that they do not produce artificially. So, the uniqueness of the products and
services is not there. However , KFC have choice to buy from big chicken suppliers like Zenith,
Menu and Knorr, they are not perfect alternatives for KFC suppliers, because K&Ns have better
standard and it is HACCP, it helps build KFCs image as Halal, and it also got brand of the year
award in 2009. All these factors make it best for KFCs brand image. These factors can make
K&Ns stand apart and give it some bargaining power. Pepsi too, of course, is unique in what it
offers. Halal on the other hand has no uniqueness in service. KFC could easily shift it for Knorr
or National. Hence, the suppliers providing some uniqueness have more right to bargain than the
others.

Switching costs to KFC

KFC faced the issue of not providing halal chicken some years back, which deteriorated its
image. But due to its present supplier, K & Ns, which is largest Pakistan-based company and
known for best practices for slaughtering but also follow stringent quality standards has regained
the trust of public. Indirectly KFC has based its halal chicken on K & Ns brand name. So,
switching cost for KFC can be higher if it switches from K&Ns and even Pepsi, for both brands
compliment each other. These factors raise bargaining power of its suppliers.

Threat of forward integration

Forward integration by suppliers can pose a major threat to the company to which it is supplying,
especially when not many alternatives are available. K & Ns can start their own restaurant and
fast food chain. This may pose a threat to KFCs supply of chicken in Pakistan and thus gives
some bargaining power to the supplier.

CONCLUSION

High economies of
scale
Moderate product
differentiation
High capital
requirements
High access to
distribution
Moderate
 High
concentration
Large to small
size
Uniqueness of
product high to
low

Low
concentration
High price
Low switching sensitivity
costs Moderate
High buyer
inclination
High
sensitivity
towards price

Analyzing KFC on the five competitive forces given by porter certainly makes its competitive
position more clear. KFC is a well established multi-national with no equally big direct
competitor in business. However, it operates in the industry that has moderate barriers to entry,
hence; it faces a threat by new firms: both local and multi-nationals

Rivalry, in the fast food franchise industry we analyze is not bitter. Large scale companies like
KFC do not indulge into price wars and intense rivalry. Instead they focus on differentiating their
product and animate selling efforts to compete in the market. Exit barriers for KFC and similar
companies are not very high although they might get some restrain due to high capital
expenditure, contracts and relationships with suppliers, employees and customers. In addition,
due to emotional and ethical reasons, companies like KFC would rather accept their mistake and
take it from the scratch then wind up and run away. Exiting business usually involves high stakes
and tradeoffs.

KFC faces a lot of threat from its substitutes, especially with growing health concerns among its
customers. Health and obesity issues associated with KFC food have diluted the trust people
once had in them. Hence, the reason, substitute pressure is there. KFC has tried launching salads
and promoted production using vegetable oil in the past.

Customers do have a say in the working of the brand they are so loyal to. No company can afford
to lose its customers. Although, the customer base is huge and one single customer does not have
much bargaining power, KFC tries to listen to each and every buyer via feedback and opinion
cards. Mass customization is what KFC is trying to do to make all customers happy thus it makes
it a point to do whatever is possible to cater to the needs of the customers.

Suppliers on the other hand do possess some bargaining power, especially when talking about K
n Ns and Pepsi. Although, none of the two wants to lose association with KFC since it benefits
the suppliers brands name too, they do possess some power unless an equally powerful supplier
enters the market. The company and its suppliers however, remain each others beneficiary and
do what they can to benefit each other.

In conclusion, KFC occupies a strategic position in the market. It is in a profitable business with
maximum returns. However, the entire positioning is based upon one single secret recipe which
if eluded by one of the competitors can cause serious damage to the brand. Therefore, the
business though profitable is risky. KFC should try and differentiate its products on other lines
than only chicken to capture other segments in the fast food industry.

KFC IN THE CONTEXT OF BLUE OCEAN STRATEGY AND

COMPETING ON RESOUCES

RED OCEAN
Kentucky Fried Chicken is one of the most famous fast food restaurant started in the early 1930s
by Kernel Sanders in southern USA. It is known since then for providing the best meals for
chicken lovers throughout the world. It is part of the YUM Brand Inc. and focuses on providing
quality products and services to the customer. It came to Pakistan in 1997 with its first branch in
Gulsha-e-Iqbal, Karachi. It currently has 60 branches operating in 18 major cities. It is operated
by a Dubai based company, Cupola, which took it over in 1999 with 4 major outlets. KFC
specializes in chicken products, including chicken pieces, burgers, sandwiches, nuggets, hot
shots, chicken wings etc. They also have salad variants, rice, rolls, ice cream, soups, tea, coffee
and drinks in their product line. Major competitors include AFC (Al-baik fried chicken), Fri
chicks, Go chicks, Nandos, Dixy Chicks, McDonalds, Pizza Hut, Genos, Hardees, Cock n Bull,
Subway etc.
KFC entered the red ocean when it came in Pakistan in 1997. The industry was already occupied
by major players in the fast food industry like salt and pepper, various burger points and other
local fast food providers. However, KFCs resource of being a multinational and carrying a
successful brand name made it a unique proposition to the new market: Pakistan. Its specialty
chicken and a comfortable environment for food and celebration appealed to the local
population, but these resources were not unique and McDonalds followed suite in 1998.
Although these supreme brand names become inimitable for the local market, the competition
does exist as mentioned earlier. Today, the industry has numerous players all competing with
each other for a better market share.
KFC takes the structuralistic view of building up strategy. Its strategy although remains the
same: providing the best chicken to the people and celebrating with them their achievements, the
tactics do change with the context, which is purely a red ocean strategy, however, beneficial for a
company to survive. Ramazan and eid deals are an example. These are given by almost all the
fast food chains in Pakistan and by KFC too. Hence, most of the times competitors strategies are
taken as a bench mark to implement their own. Also, there is a trade-off between product
differentiation and price. People usually have to pay a higher price for a new or enhanced
product, however, that is not the case with the companies in a blue ocean. These companies
usually offer differentiation at a low cost. Furthermore, KFCs proposition of fun, food and
festivity is similar to what McDonalds or Hardees offer. Even the taglines like finger-lickn
good for KFC and im loving it for McDonalds offer a similar experience. Even the specialty
chicken KFC claims to provide is now being offered by chains like Nandos and AFC. Hence, the
fact that KFC consecutively focuses on being better than the competitors than eliminating the
competitors completely.
KFC can work towards the blue ocean by taking a restructuralistic perspective and as an
incumbent grow into an industry where there are few or no competitors. One of the suggestions
can be building into a chain which is a combination of amusement and food. KFC is, no doubt,
already providing that, but it is not different from what the current industry is practicing to
provide amusement. It can, for instance, build an amusement park. It already has a brand figure:
Colonel. It can build the amusement park around that figure and combine food with it. It can also
grow into animations on the same theme. Although this requires a huge investment, but it will
also provide huge barriers to entry with no competition to battle with and thus make resources
durable for a longer period of time.
COMPETING ON RESOURCES
Since KFC continuously competes in the industry, it builds its strategy on some important
resources it owns and which are valuable for it based on three factors: scarcity, demand and
appropriability. Some of these resources include both tangible and intangible resources.
Tangible resources include various patents like the original recipe and kentucky grilled
chicken and the network of a strong distribution chain with 60 outlets adding up to physical
uniqueness. Patents are not imitable while the network is also not easy to be copied by local
players. Intangible resources include the brand name itself build by some successful path
dependency which is also hard to copy. KFC also uses the resource of being the best in chicken
business due to its secret recipe of 11 herbs and spices. This resource is also inimitable since it is
said to be well protected as the colonels original recipe for Kentucky fried chicken. It has been
secret so far and is thus durable. Competitors like AFC and Dixy chicks have come up with
similar chicken but the recipe is not the same hence is the taste and quality. Therefore, this is one
resource KFC proudly boosts off and builds its entire strategy on it. Its strategy also talks about
fun and festivity; celebrating achievements of not only its customers but also its employees but
this resource is not something that cannot be imitated. McDonalds, Hardees and some local
chains have positioned themselves on providing the same experience for its customers and
employees.
The secret recipe is also KFCs distinctive competency. It strongly promotes it to compete in the
industry and gain competitive edge. The brand name also is a very valuable resource KFC has.
However, durability issues rose in the local market when obesity and halal perceptions began to
upset customers in the local market. This is also where substitutability issues rise. People start to
turn towards healthy and secure food. Hence, the brand image does have its negative points
along with creating a lot of popularity and acceptance for the company.
KFC considers its distribution channel as one of the major resources I own. It has the largest
number of outlets reaching out in areas where none of the other fast food franchises are present.
The channels of distribution also are more in number than other fast food chains. It provides
dine-in, take away and KFC van (a mobile KFC van) facilities to customers.
Investing and leveraging valuable resources remains the key to all the companies competing on
resources, because all resources tend to become less valuable with time and expansion of
industry. KFC has used its secret recipe and patents to continuously differentiate its products
from competitors. It has used one recipe to come up with a whole range of products and it
continues to increase the line. Apart from that KFC also tends to differentiate both product line
and operations according to the environmental context. It has differentiated its product line
including rice and currys as per local demands. It also takes part in various local activities to
build public relations and good will. Supporting deaf and dumb people, providing education to
under privileged children, sponsoring various arts events and sports are some of the activities
KFC is involved in. It also celebrates local events and festivals like Ramadan, Eid and
Independence Day by offering various deals and organizing events. It has also invested to build
its distribution to open a number of outlets in the country the resource being a strong successful
value chain. KFC also plans to reach a target of 100 outlets in 35 major cities by the end of 2010.
It wants to grow on its strength of the largest distribution in the country and tap unidentified
markets.
In conclusion, KFC can invest and leverage its current resources to enter into a blue ocean by
adopting a strategy of doing something completely different which will build a completely new
industry. One of the suggestions is combining the idea of amusement and food. KFC already has
a strong supply network and the funds of expanding into such a market. Other ideas can be
investing into markets like targeting health conscious people and launching a line of products
specifically for them or giving the customers the option to get their food customized and charge
accordingly.

USING GAME THEORY TO SHAPE STRATEGY AT KFC

VALUE NET

The game of business is all about value: creating it and capturing it- a phenomenon most
businesses successfully implement and work at. Without creating and capturing value, there is
nothing a business has to offer a customer. It is the major strategy which drives any enterprise.
KFC also continuously tries to create value and then capture some in return. Creating value
involves numerous players which participate in the working of the enterprise. To describe these
players a value net is used. This value net describes the various players a company coordinates
with to create. It consists of customers and suppliers interacting with the company in the vertical
direction and complementors and substitutors interacting with the company in the horizontal
direction.

Suppliers are the companies providing resources such as raw material. KFCs suppliers are
primarily Pepsi, K n Ns and Halal. Customers are the people who utilize the final product. KFC
targets both the upper and middle classes for the product line and experience they offer.

Substitutors are alternate players from whom customers may purchase products or to whom
suppliers may sell their resources. KFC has a number of substitutors namely McDonalds,
Hardees, Fri-chicks, Nandos, Subway, ready-to-cook meals, continental food available at
restaurants and even home-made food. Complementors are players from whom customers buy
complementary products from or to whom suppliers sell complementary resources.
Complimentors for KFC include the companies providing beverages (Pepsi) and various sauces
(Halal). McDonalds, Fri-chicks and all those companies which buy chicken from K n Ns now
become complimentors, since they help to offset the price set by K n Ns.

CHANGING THE GAME

Understanding the symmetries existing in the value net is the managers job along which
strategies are shaped and executed. These symmetries also help managers to change the game by
changing strategies. Managers usually find these symmetries along the vertical dimension. They
understand that suppliers and the customers work together to benefit the company and can also
compete to capture a better share in the market. However, managers usually fail to find this
symmetry when it comes to the horizontal dimension of the value net. Substitutors are always
taken as enemies and complimentors as friends. However, the relationship can change causing
both win-win situations or loose-loose. Managers need to find these interdependencies to change
the game. The game can be changed by changing the players in the game as defined by the value
net; increasing your value added to the game or decreasing the value added by other players;
changing the rules of the game, that it through which the business and the players operate;
changing tactics to play or by changing the scope of the business by expanding or shrinking.
KFC too can change the game to its benefit by changing one or more of these options.

Changing the players

As per the value net, the players of KFC are all its competitors, suppliers, substitutors and
complimentors.KFC can change its suppliers, by backward integration or by shifting to another
supplier like Zenith or Menu for chicken. It already produces its own buns; it can back integrate
to get its own supply of chicken too. These practices will reduce the bargaining power of
suppliers and give KFC the power to bargain on various factors primarily price. KFC can also
move into a new target market, like introducing a new line of products targeting health conscious
people or target beef and fish lovers by producing a product line for them. This practice will
increase the customer base and also decrease customer bargaining power. Power of the
substitutors can also be lowered by entering into a new market, may that be food to target a
different segment or product differentiation to keep offering something new to the customers.
Price differentiation without indulging in price war can also be effective. This can be done by
offering various deals not only on occasions and events but otherwise too. The complimentors
power can be reduced by in-house production of the complimentary products. This step will not
just decrease the power of complimentors but eliminate them completely.

Changing added value

KFC practices numerous ways to add value to its product. KFC has been highly active in public
relations. It has been involved in numerous social events to build a good corporate image. In its
tangible products it tries to add value by offering various deals. Also, it continuously comes up
with new, enhanced variants of the existing products. In its experience, KFC tries to incorporate
what it claims to stand for. Celebrations for various events are organized and promoted. Teacher
workshops, student appreciation programs and earning facility for the impaired have helped KFC
to stand out and promote itself as a socially responsible organization. In addition, sponsorships of
various events also help it to add to its brand image. KFC can continue adding value to its
company by adding tangible value, like increasing the product line or entering a new market. It
can also add value to the KFC experience by working on the dine-in facility which is not rated
too well by customers. KFC can also provide more convenience to customers by going
electronic; the idea of launching an e restaurant that is, facilitating customers with online
ordering and meal customization. KFC can also add value by investing in and leveraging its
current resources to enter a blue ocean. However, this will change the industry and completely
eliminate some players. Another way of adding value to the company is by changing the players
in order to capture greater value, for instance, suppliers. Although, K n Ns brand value is way
higher than Zenith or Menu, KFC can change to Zenith for reasons like introducing beef and fish
products. In the categories mentioned Zenith is a major player and has a significant value over
others.

Changing the rules

There are no universal rules for a business to follow and same is the case with KFC. Some set of
rules which play a role in the Pakistani market include laws pertaining to halal food,
Government regulation towards the contribution of a multinational in the local growth and other
agreements as per work ethics, culture and contracts. KFC utilizes a one price to all rule as
well. It usually does not copy prices as far as small new comers are concerned. Also, in such a
diverse industry where prices are highly versatile, KFC only cares about the major players in the
market and offers a price which acceptable to customers as compared to competitors. The rules
can be changed if KFC tries a new approach like customizing the products as per individual
need. Prices then can be charged respectively too. In the industry most players are freewheelers.
In the fast food industry companies usually charge according to the value they offer and hence
each company gets a share for the value, and which ever companies increases this value tends to
charge higher than the rest and most of there is a readiness to pay for a higher value among the
audience. KFC too plays the same way. It charges a price relative to what it offers. An enhanced
product usually costs more. Disparities, however, do exist when people do not find value for the
money they pay, and the perception is significant enough when talking about KFC.

Changing the tactics

This is connected to the rules too. If a rule like the provision of halal food is broken, which did
actually bruise the reputation of KFC at a time, the perceptions towards the brand will change,
especially in a country like Pakistan. Hence, after that violent issue, KFCs tactic was to change
the perception people had suddenly acquired. It indulged into major marketing campaigns to
convince the target audience and was very successful too. Furthermore, the KFC has changed
tactics when it comes to obesity concerns. Instead of advertising cream and topping, which
definitely raise obesity concerns, it advertises the usage of low-fat vegetable oil, availability,
convenience, taste, experience and the image associated with acquiring the brand. Hence,
changing the tactics usually means getting customers to buy your product and changing their
perceptions. KFC can also change tactics like supporting causes, starting a healthy food line to
suggest concern for obese customers, agreeing to the fact that fast food causes obesity and then
suggesting ways to overcome it like exercise help-books to effectively compete in the industry.

Changing the scope

Currently KFCs scope is the provision of the best chicken and fast food experience in the
country. This is the scope claimed by many other fast food providers of Pakistan. KFC can
change the game by changing the scope of its company. Some options could be entering new
segments as mentioned earlier. These may include an increase in the current product line:
breakfast, salads, beef, fish and desserts. It can also increase the scope by adding to its portfolio:
launch a television cooking show; start cooking competitions; build an amusement park etc.

TRAPS OF CHANGING THE GAME

There are numerous traps while trying to change the game. Most fast food restaurants are already
in the first trap. They have accepted the game as it is and made a place for themselves in it. They
consider finding a place to earn profits the only reason to survive. KFC too is one of them. It has
constantly positioned itself on one single recipe which many even claim to have copied. It is time
that it moved out of that shell and position itself on more significant factors by changing the
entire game to its benefit.

Secondly, KFC does not go into the beef business in fear of loosing focus on its chicken. This is
because it does not consider coopetition strategies. It should look for win-win opportunities. On
the same note, KFC should not look forward to increasing business by harming others. It should
look for win-win opportunities rather than win-loose ones. When KFC came to Pakistan, no
other fast food chain had a play area. It was the first to come in and target children and families
in such a manner. Soon, McDonalds came in with a similar experience and many local
restaurants followed suite. Hence, the strategy, along with KFC, benefited many and on the
whole increased the demand for fast food. This is one example of a win-win strategy in the
Pakistan industry.

On the same lines, if finally accomplished something, thinking that its final is the third trap. KFC
probably knew that McDonalds will come with play place for kids once in Pakistan but it bore in
mind that as many people came up with the play place, the more benefit it will provide o the
industry as a whole. Hence thinking, that others will not imitate the change is another trap.
Imitation, sooner or later, comes. Companies should look forward to strategies whose imitation
will create win-win situations as in the GM example the case.

Unless the entire value net is clearly seen, change cannot be made. Simply put, nothing that
cannot be seen can be changed. KFC is always in competition with McDonalds, however, it fails
to see that McDonalds can also be a complementor since both are supplied by K n Ns. Both
together can offset prices of K n Ns, but as per the conventional thinking, competitors are only
enemies. Hence, identifying each player in the value chain and the role played by it becomes
crucial.

To change the game, a set of steps cannot be followed. KFC will need to be allocentric and put
its perspective on all theories to successfully achieve change. KFC produces its own chicken
abroad. The idea in Pakistan failed miserably and bruised the reputation of the chain. KFC
however, was smart enough to change tactics immediately and to some extent, gain it back.

Finally, change is the only constant. If the organization thinks that by accomplishing one
successful change it has achieved its ultimate goal, it is seriously mistaken. Organizations have
to keep on changing. During the process, some changes will fail, and the organization will have
to change them. Most of the ideas suggested above may not work. KFC has to carefully measure
each and then introduce them. It may still fail but it will have to change them. Product line
extensions are a good example. KFC recently launched hot wings as a product line extension for
chicken. After a post launch survey it realized, it wasnt doing too well and quickly changed it
for its benefit: increased the quantity and also attached it to a combo.

CONCLUSION

In conclusion all organizations should look ahead, assess past and then bring change for not only
there benefit but to create win-win situations. Win-lose situations do create high entry barriers
and create distinctive competencies, but win-win situations, though imitable are usually more
appealing to the audience and beneficial for the industry. The fast food franchise industry
usually ends up in profitability but a step taken by one player. But, along with win-win situations
there have been cases of price wars amongst small scale firms resulting in loose-loose situation.
The firms in the industry usually play for a win-loose situation, but since the market is not well
differentiated, the situation mostly ends up as win-win when most ideas are easily imitable and
executed effectively.

KFC COMPETING ON THE EDGE?

PLAYING THE IMPROVISATIONAL EDGE

The first KFC restaurant opened its door in January 1997, drawing thousand of the eager
customers to enjoy quality food and friendly service in clean surrounding. Boosted by the huge
success of the first restaurant, new outlets mushroomed at prime location in both Karachi and
Lahore that continue to attract a record number of quality food lovers. KFC is considered to be
the number one brand among fast food restaurants in Asia.

In Pakistan, there are large amount of chicken lovers. In a highly competitive market, restaurants
have to keep coming up with unique products so that customers do not switch to other brands. To
do so, companies have to play around with their strategies on the improvisational edge. Is KFC
doing so? To answer this question the culture, structure and communication channel of KFC will
be analyzed.

KFC commits to provide delicious, fresh and hygienic food to its customers; and to fulfill its
commitment KFC follow specific rules. All processes, from inventory level of products to
finished goods, are well defined. It is the responsibility of quality management department to
ensure quality at each and every level. At business level change is always expected. KFC culture
is big on diversity in workplace that promotes differences in background and focuses on teaching
everybody something new, they encourage new and innovative ideas because they consider it
their key to competitive growth ,focuses on building relationships, creating diversity and
commitment with in company, among employees and customer.

Change in work culture of KFC is evident from the example of shifting from mechanical
slaughtering of chicken to collaborating with K n Ns on the arousal of the Halal/Haram issue in
Muslim countries. Marketing department is responsible to carry out proper marketing research
before and after the launch of any product, recommendations are made and respective steps are
taken.

KFC is a well structured organization. It has five departments, Finance, Marketing (and R&D),
Human Resource Management, Operations and Quality Control Department. Marketing and
R&D are combined departments. At product level, marketing department is responsible to
advertise its products in the market. Day to day demand forecasting and schedules are
responsibility of Operations Management Department. Strict priorities like keeping the food
hygienic and delicious every time, it is served to customers are communicated by the same
department. At business level, responsibilities are distributed too. The Marketing department has
teams that collaborate to form marketing strategies. The basic purpose of this department is to
keep an eye on the competitors that what they are doing. Similarly finance department is
responsible to maintain accounts, quarterly analysis of business results and to deal with all other
financial issues. KFC has also created some handful of targeted measures of real time operations
like day to day demand forecasting, administration of restaurants, training of employees etc is
responsibility of operations manager. Operational efficiency is important for any business
especially in restaurants. Timely delivery of food cannot be achieved without following standard
set of procedures. Processes are defined at every stage. Quality control department check quality
at each and every step till the final product. Quarterly meetings are scheduled to review the
performance of each department. Moreover in annual meeting all departments are invited in
which the performance of the organization is reviewed and goals are set for the year. Managers
set their priorities according to these goals. Management team meets on weekly basis in order to
review their activities and priorities list. Resources are allocated according to priorities. For
example a new deal is launched in the market with agreement of all the heads of department.
Deadlines are clearly defined for some tasks like offering a new deal in the market. The
marketing department does pre-launch research, because of highly changing market minimum
tenure of launching the new deal is 30 days. Post launch surveys are also made by marketing
teams. In organization hierarchy heads of all departments are accountable to the Chief Executive
Officer. CEO has the responsibility for the performance of whole organization. Performance
reviews of the whole are taken under the supervision of CEO on daily basis, moreover extensive
reviews are taken weekly.

Although structure is important but equally important is to understand what is unstructured. A

few, major responsibilities, priorities, operating measures and deadlines are structured. There are
few lock steps and checkpoints when it comes to the quality and cleanliness of food but in actual
departments are not burdened with set of strict rules. The culture of KFC encourages team based
activities and the performance of the department is evaluated at collective level on the basis of
team performance. This shows that teams have flexibility to work in their own way but the end
result should the best of their team can do.

Communication is a self described way of life in a company. Communication begins with

groups. KFC has teams with in the department and there are cross functional teams. Much of the
communication among teams is occurred in formal meetings for example there are regional
meetings. These meetings provide opportunities to share ideas among each other and also
provide an insight what others are doing. In order to keep a close eye on the competitors, real
time communication plays an important role otherwise the organization will lag behind in the
race of competition. Communication channel with in the organization defines the culture of that
organization. KFC focuses on teaching its employees something new that shows the learning
aspect of this culture, they believe on building relationships, creating diversity and commitment
with in the organization and amongst employees and customers. For this purpose the Human
Resource department provides training that includes workbooks, quizzes and on the job
competency training for the employees. KFC also spends a lot of time communicating with
general public by organizing different social events, for example, it organizes Teachers
convention every year since 2004. It also organizes different welfare programs like education
enhancement, care for special children, scholarships as they consider it their social responsibility

Summarizing, KFC is the divisional part of the divisional structure of Yum! Brands Inc. KFC is a
part of divisional structure in which departments are grouped together according to the output of
organization and each separate division is responsible for one single item or product. The
managers and employees focus more on the end products/ outcomes and results for the customer
or location. Because of highly changing consumers KFC is responsive to change and the
organization is quite flexible. KFCs structure with in the individual companies is both
mechanistic and organic; they are very structured as far as rules are concerned but have a team
environment where everyone works together.

Conclusion

In KFC there are rules and they are created to be followed because KFC commits to provide
delicious food with hygiene, without standard operating procedures it will be difficult for KFC to
keep up to its commitment. Responsibility both at product and business level is distributed from
inventory level till end product. Focus is more on the end product so that customers get more
value out of KFC. Priorities list is reviewed weekly and priorities are aligned towards the long
term goals. Moreover communication is channeled as mostly departments communicate in
formal meetings. The survey concludes that KFC is standing at improvisational edge.

CAPTURING CROSS BUSINESS SYNERGIES

KFCs core business is the processing and provision of fast food. It collaborates with different
outlets that operate in Pakistan, with suppliers and other stake holders including companies with
which it carries out public relation activities and ventures for various deals and promotions.

They collaborate to order delivery system. There is call center that, once received the order, place
it with the restaurant with is nearest to the place of order delivery. Establishing a common system
helps them keep their costs low by locating the nearest outlet that saves time, cost of transport,
and the customer receives fresh and hot food. Also, they coordinate when there is some shortage
of raw materials. For instance, if they fall short of chicken they would contact other outlets and
ask them for it. Moreover, different chains can also transfer the manpower among each other if
they fall short of some or if they have excess people working at a restaurant. They can transfer in
and out the human resources, as they call it. Also, KFC has centralized logistics so they all have
to collaborate with the central warehouse. However, this is not random it is the rule.
KFC also collaborates with PSO and Turkish airlines. Recently, it initiated a joint marketing
promotion with Turkish Airlines for their customers across the country, which will help them
synergize their efforts in marketing of companies. KFC entered in strategic alliance with PSO
towards the introduction of fast food restaurants at PSO stations that would help both firms to
take advantage of counterpartys customers and brand image.

Primary decision makers about collaboration are Unit Business Managers; they are General
Manager of a restaurant. They carry out regional meetings every month where managers from all
the outlets in that specific region meet to discuss the performance of outlets. Here, they discuss
various loopholes, prospects and how they can collaborate effectively. However, the main
collaboration decisions about alliances with other companies rest with high level management.

All the units are the same as each is there with same product, service and brand. They all have
same goals. Individual and collaborative win of each restaurant is important for KFC success, so
there are short term (monthly to quarterly) financial goals for each restaurant that are discussed
at the monthly meeting. Also the quality standards are the same. All the individual efforts are
then translated into success of KFC. Employee incentive and award programs are carried out to
appreciate individual and team efforts.

In conclusion, KFC succeed in providing the ultimate chicken meals for a chicken loving nation,
and achieves the mission of growing by successfully collaborating with all its stakeholders and
also within the business.

Conclusion

Hence, cross business collaboration does not exist, but KFC collaborates with various
stakeholders and its numerous branches. The decision making powers lie with the upper
management. Team play is there, but appreciation awards usually go out to individuals. However
department and regional wards also take place.

GAINING THE ADVANTAGE OF THE PAST

Exploiting the old and exploring the new is a strategy carried out by companies that are
competing on the edge. These companies build on their past concepts and utilize new
opportunities which not only makes it easier for them to adapt to change but also to capture the
opportunity at a greater speed than competitors.

KFC is one of those companies. Most of KFCs product lines utilize past concepts and strategies.
The colonels recipe of eleven herbs and spices is widely used internationally. However, it is
modified slightly according to the local taste or demand. Hence, the company uses past concepts
approximately 80 percent of the times it has to launch a new product or take advantage of an
opportunity. This practice has been so tedious that the customers now according to a survey
carried out by the company seek the zinger or the chicken taste in all the products attached to the
brand KFC.

On the other hand, the company evolves as per the demands of the new and changing world. The
multinational is quick to adopt new technology for efficient production and processing. However,
it believes in training its employees to get familiar with the new machinery rather than
completely hiring a new team. Of course, the trainer and the specialist will be hired. Thus
although constantly adapting to the change, KFC focuses on building on the old, rather than
eliminating it. Hence, the amount of blending of the new and the experienced, KFC seeks in its
employee base is 60 percent. It trusts its experienced employees but believes in employees fresh
people for new ideas and concepts. It then blends both and comes up with what is called KFC.

New products like Zinger extreme, hot wings, subs, are all build on and around the chicken
recipe of the colonel. It refreshes the old products like the zinger and the chicken itself, with
almost the same taste but a different experience. Although KFC did try to go beyond its concept
of finger lickn good chicken, and tried products like brownies which failed badly. KFC was
trying to achieve success in a completely different business: confectionary. However, that is not
as easy as it seems. There are established players in the confectionary industry in addition to
KFCs own concept which is all about chicken and fast food. The twister salsa, vegetable roll and
zinger max also failed consumer tests for not being KFC. The twister salsa and vegetable roll
were rejected because of their lack of taste because the chicken people came to KFC for was
missing. The zinger max was said to be too spicy to be adapted by the normal public. Hence, the
name zinger was there, but the lack of zinger taste made it unacceptable.

Technological advances too have to be taken care of with the core concept of providing quality
food. One wrong move of buying machines to slaughter chicken resulted in huge losses. KFC
was sued for not keeping customer interests in mind and sales were lost not only in Pakistan but
UK and Malaysia too. KFC was called Haram in most Muslim countries. Although the issue was
resolved later on, the technological advance without considering local interests and the
companys values, it suffered.

Therefore, KFC focuses on its past but not to an extent that it becomes trapped in it. It does not
show too much novelty, and has failed when novelty was tried not based on the core concept, for
example, when they launched brownies. It neither lays trapped in the past, for example adapting
to the taste of the people: launching rice in some countries, fish in others. It tries and blends the
past with something new, which helps them refresh the past and speed up the present and future.
Past experience helps them back up while new helps them pace up with the changing market. It
becomes easier, hence, to grab opportunities and enter the market. They carry a critical mass of
experienced employees forward who are trained for any new opportunities. Also, the team
working culture of the new and the experienced helps both gain advantage from each other. Risk
is backed up by experience and hence made less volatile. Usually, teams are made for new
projects which consist of new and experienced people from each department. The performance
of all the team members is measured and accounted so no one is free rider. The experienced learn
and the new adapt and vice versa.

Conclusion

KFC builds on past concepts. One of the most important and oldest resources The secret recipe
of 11 herbs is still used in meals, with modifications according to the taste of local market. Most
of the new meals offered are based on the old product concept of providing quality chicken. KFC
has the culture of team. Teams are blend of old and new employees but KFC more on old
employees. The firm believes in learning of old employees rather than recruiting new employees.
Moreover new products highly refresh the old ones as recipe is modified according to the culture.
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THE RIGHT GAME: Use Game theory to shape strategy by Adam M. Brandenburger
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Competing on the Edge, Strategy as the Structured Chaos by Shona L. Brown and
Kathleen M. Eisenhardt
Interview with the Assistant Marketing Manager North: Shabbir Muhammad