Strategic Hospitality Management of Yum Brands - Case Study Example

Running Head: A STRATEGIC AUDIT OF YUM! BRANDS, INC. A Strategic Audit of Audit of Yum! Brands, Inc. in Harvard Style by Course Name University I. CURRENT SITUATION A. Performance 1. During 2006, Yum! Brands, Inc. reports total sales of $8,365 million, a 2% increase from the previous fiscal year. Out of this, $824 is transformed into net income which reflects an 8% annual increase. These figures signify the company's current ability of creating shareholder value and efficiency in managing costs. 2. Yum! Brands, Inc. is the world's largest restaurant company in terms of system restaurant with over 34,000 restaurants in more than 100, 000 countries and territories. B. Posture 1. Mission No specific statement. Throughout the company's course of operation, the implied mission is to be the world's largest restaurant in the world through its co-branding strategy that is, putting two of its restaurants together in one locality in order to appeal to a larger market. 2. Objectives In its Annual Report for 2006, Yum! Brands stresses its rallying cry of "Go for greatness around the world." The company also recognizes that it lags behind McDonalds in terms of customer service. In order to improve on this aspect, Yum! Brands, Inc. commits to invest in its human resource who are in the front line, directly interacting with its customers. Its SEC 8-K filling elaborates this as earnings per share growth, operating profit growth, same store sales growth, system sales growth, restaurant development, and customer satisfaction metrics." These established objectives are quite specific as they state the areas that the company wants to improve in. However, they are not measurable because they do not state how much earnings per share, operating profit, store sales, and system sales should grow. Increase in customer satisfaction is also a very general objective. These objectives fail to take into account all the shareholders of the business organization. 3. Strategies "Build dominant China brands." This is in recognition of the opportunities in Chins due to its huge population and increasing per capita income. It should be noted that China's move in opening up its doors to the rest of the world has spurred the growth of opportunities and enhanced the overall economic situation. China has grown at a very fast rate during the past years facilitated by the entry of foreign investments. The country is now considered as one of the most fertile ground for foreign business organizations who are eyeing the international market because of its very huge population together with their rising disposable income. "Drive profitable international division expansion." Yum! Brands recognizes taking advantage of global opportunities due to globalization and large market abroad. "Improve US brand position and returns." This emphasizes the company's concern in its largest market. It should be noted that aside from its huge operations abroad, the United States still serve as the company's largest contributor in terms of revenue and income. "Drive high return on invested capital and strong shareholder payout." This strategy takes into account the stockholders of the company. Yum! Brands, Inc. is very much dependent on the funding of its shareholders as most of its asset is financed by equity. Yum! Brands, Inc. enhances its image and reputation in the society by pursuing social corporate responsibility programs which are aimed in "nourishing the minds, bodies, and spirit of people in need." The company does this by designing and implementing unique programs dedicated to hunger relief, scholarships, reading incentives, and mentoring at risk teens. Co-branding strategy which combines two or three brands in each location. 4. Policies "Customer mania acts as one system to put a Yum on customers' faces around the world." The company highlights the importance of satisfying customers in order to become successful in the industry. Delivery of customer value is often enhanced through excellent customer service. "People capability firstsatisfied customers and profitability follow." Yum! Brands, Inc. invests in human resource skills training which is expected to boost customer satisfaction. This will benefit the company through a more profitable business operation. "Be at best at providing customers branded restaurant choicemultibranding great brands." II. CORPORATE GOVERNANCE A. Directors Eleven members (David Novak, David Dorman, Massimo Ferragamo, J. David Grissom, Bonnie Hill, Robert Holland, Kenneth Langone, Jonathan Linen, Thomas Nelson, Thomas Ryan, Jackie Truillio) All of the members have affiliation with other well known companies Members come from diverse industries Ten members are above fifty years of age Need for younger directors All members are from US Need for more diverse board in line with Yum!'s global strategy B. Top Management Seventeen executives (David Novak, Graham Allan, Scott Bergren, Jonathan Blum, Emil Brolick, Harvey Brownlee, Anne Byerlein, Christian Campbell, Richard Carucci, Greg Creed, Gregg Dedrick, Peter Hearl, Timothy Jerzyk, Ted Knofp, Patrick Murtha, Rob Savage, and Samuel Su) Most came from reputable business organizations An executive from China which stresses the company's commitment in growing business in the geographical region. III. EXTERNAL ENVIRONMENT A. Remote 1. Economic Rapid development of economies like China and India which brings a rapid rise in disposable income (O) Integration of economies into a global village through the establishment of trade blocs and free trade zones (O) Possible recession in US, Yum! Brands, Inc's largest market by the end of 2007 which can possibly curb spending of households (T) Foreign exchange rate risks due to the possible devaluation of currency in countries where Yum! operates (T). 2. Political-Legal Governments' clamor for fast food companies to offer healthier offering and disclose the nutritional content of their food to customers (T) 3. Social-cultural Customers have higher preference for healthier lifestyle including eating more nutritious foods (T) Developing countries' wide acceptance of the Western culture and lifestyle (O) 4. Technological Continuous rise in internet usage and literacy which is very much pronounced in Asian, African, and Latin American countries (O) Internet systems which allows suppliers to directly connect with their clients (O) Widespread use of internet technology in order to enhance the business model of companies (O) B. Task 1. Rivalry Among Existing Firms. High to Moderate: As an international player, Yum! Brands, Inc. competes with other fast food restaurants in the local and global arena. The most notable competitor is McDonalds. The level of competition in different markets varies according to the level of saturation. In highly industrialized countries like the United States, competition is very high because of the large presence of fast food chains while in emerging economies like China, competition is much more moderate. (T) 2. Bargaining Power of Buyers. High: The intensity of rivalry in the market together with the availability of product substitutes in the markets give buyer a high bargaining leverage. This is even enhanced by the fact that the internet technology has facilitated the exchange of information among buyers regarding different product brands. (T) 3. Power of Other Stakeholders. Moderate: Yum! has already established a good name in the industry. 4. Bargaining Power of Supplying Distributors. Low: Due to the size and scope of Yum! Brands, it has gained a high bargaining leverage relative to its suppliers. The company is considered as a big client that its suppliers cannot afford to lose. (O) 5. Threat of Substitutes. High: Switching costs for buyers in the industry where the company operates is relatively low or even non-existent. Buyers have lots of different choices. (T) 6. Threat of New Entrants. Moderate: Recognizing the huge opportunity in the industry, new entrants are establishing presence albeit, they are more focused on specific niches. IV. INTERNAL ENVIRONMENT A. Structure 1. Geographical Structure: United States and International 2. Divisional Structure: United States, International Division, and China Division 3. Decentralized management structure focusing on each brand (S) B. Culture 1. Emphasis on "A great culture starts with great people" which stresses company's effort in developing its workforce in order to deliver customer satisfaction. 2. "It's a diverse, results-oriented, high-energy, people-capability-first environment that is centered on spirited recognition that drives performance." C. Resources 1. Marketing Separate marketing for each brand to establish a unique image and position for each brand (S) Co-branding is the company's move in providing products to different markets with different preferences (S) Advertisements and promotion vary for each brand. Print, television, and internet are most utilized. Because of the franchising growth strategy, the corporate headquarters of each brand solely launches advertisements and promotional efforts for a certain brand. 2. Finance Increasing trend in net profit margin (S) Earnings per share increase by 14% in 2006 (S) Strong financial growth in China (S) Company's resources are highly financed by debt (W) 3. Research and Development Yum!'s research and development efforts are often focused on developing new product lines. With the current trend in healthier lifestyle, the company concentrates on creating more nutritious recipe on its menu offerings (S) R&D also allows the company to gauge the profitability of cobranding in different geographical areas. 4. Operation and Logistics Each restaurant's daily operation is focused on delivering customer satisfaction through cleanliness, hospitality, accuracy, maintenance, product quality, and speed of service. Co-branding allows efficiency by the higher utilization of store asset and staff (S) Cannibalization of sales because co-branding gives customers two choices (W) 5. Human Resource Management The company employs more than 1,000,000 staffs around the world which it refers to as Customer Maniacs. Yum! provides training to employees in order for them to be able to impart excellent customer service. (S) Yum! Brands, Inc. sees its human resource as strategic partners which are essential in achieving its specific goals and objectives such as profitability and customer satisfaction Renumeration package and benefits are at par with the industry Stresses the importance of human resource diversity 6. Management of Information Systems Employs technology which consolidates the activities of the company. Not much investment in technology (W) V. STRATEGIC FACTORS A. Strengths 1. Cobranding strategy which facilitates the generation of economies of scale, higher asset utilization, and marketing efficiency 2. Strong financial performance in terms of earnings per share, net profit margin, and sales in China 3. Emphasis on customer satisfaction through company's human resource 4. Human resource is viewed as strategic partners which are essential in achieving organizational objectives and goals B. Weaknesses 1. High dependence on debt in financing resources 2. Not much investment in technology 3. Cannibalization of sales C. Opportunities 1. Use of internet in facilitating customer transactions through the creation of websites and forming closer strategic ties of suppliers through investments in suitable information system 2. Rapid economic development of countries like China and India which can heighten the demand for fast food's products 3. Multibranding opportunity which can widen product offering and consequently offer them to a larger market 4. Customers' preference for healthier foods D. Threats 1. Intense competition among industry players especially in highly saturated markets 2. Threats of substitutes because of low or non-existent switching cost and high buyer power 3. Foreign exchange rate risk 4. Possible recession in the United States which can significantly harm the business organization considering that US is its largest market VI. STRATEGIC ALTERNATIVES 1. Growth through multibranding strategy. a. Pros-will be able to use the expertise, asset, and staff of Yum; can augment income through additional revenue; can cater to a larger customer base. b. Cons-possible cannibalization of sales; choice of restaurants to put together. 2. Consolidation by acquiring other quick service restaurants which it can use for its cobranding strategy. a. Pros-will widen the portfolio of Yum; higher revenue. b. Cons-compatibility to the current portfolio. 3. Retrench by eliminating some processes in the value chain. a. Pros-will enhance cost efficiency and bottom line b. Cons-will possibly lead to lay-offs. VII. RECOMMENDED STRATEGY 1. The company should choose multibranding a profitable strategy by having three restaurants in a geographical location. Recognizing customers' preference for healthier foods, Yum! can add a healthy brand to each of its existing cobranded restaurants. 2. This can use the company's expertise, assets, and staff. 3. This is also consistent with the company's mission and objectives of being the largest food company in the world. Bibliography Annual Report 2006, Retrieved 16 May 2007, from http://www.yum.com/investors/annualreport.asp Enz, C. 2004, Multibranding Strategy: The Case of Yum Brands Strategic Management, Strategic Management Journal, Vol. 11 pp.171-195 Thompson, J. 2002, Strategic Management, 4th Edition, London: Thomson Yum! Brands, Inc 8-K 2006, Retrieved 15 May 2007, from http://www.secinfo.com/dVxWa.z3x.htm Yum! Brands, Inc. 2007, Retrieved 17 May 2007, from http://www.yum.com/ Read More