A study on KFC operations and recommendations for improving the process and CSR

1. A Consultant report on
the Strategic operations
of KFC
2015
Presented to Dr. Soroosh Saghiri
Module -Operations Strategy
Kingston University
London
Submitted By: Pragnya Sahoo
Student Id- K1359395
Date of Submission: 2th
April 2015

2. Contents
Executive Summary.................................................................................................................2
Operation Strategy...................................................................................................................3
Introduction...........................................................................................................................3
Order winners and Order qualifiers....................................................................................3
Competitive Analysis...........................................................................................................4
Delights .................................................................................................................................4
The Importance –Performance matrix...............................................................................5
The Operation Strategy matrix ...........................................................................................9
The four -stage model of operation contribution............................................................11
Stage -1 – Internally Neutrality.....................................................................................11
Stage -2 – External Neutrality.......................................................................................12
Stage -3 – Internally Supportive ...................................................................................12
Stage -4 – Externally Supportive..................................................................................12
Recommendations..............................................................................................................13
Conclusion ..........................................................................................................................13
REFERENCES...................................................................................................................14
Appendices..........................................................................................................................16
Appendix-1 .........................................................................................................................16
Appendix-2 .........................................................................................................................16
Appendix-3 .........................................................................................................................17
Appendix-4 .........................................................................................................................17
Appendix-5 .........................................................................................................................18
Appendix-6 .........................................................................................................................18
Appendix 10........................................................................................................................19

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

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

5. The order winning factors directly has a significant contribution to the success of the
business. KFC’s some order winning factors are important than others. For instance, the
unique taste of the fried chicken tops the list and makes it an important order winner
compared to the location of restaurant.
Competitive Analysis
Though KFC stands the second largest fast food chain in the world after McDonald’s, it
faces huge competition from other brands (Appendix -1). They make a differentiation in
market because of it unique taste of spices which still remains a secret. Operating under
Yum! Brand, KFC continues the dominance compared to its sister brands like Taco bell
and pizza hut. However, more than 275 KFC units were closed by 2011 and few outlets
of sisterbrands were opened (Forbes, 2013). China is one of the major consumer of KFC
but it has been facing competitive threats from other brands like McDonald’s and burger
King. It has been experiencing a strong impact on its sale from domestic competitors
like Laibibao, Zhengongfu, Jijixiaosheng and Yonghe Bean Milk, which has been
cannibalizing the exiting KFC stores (Businessinsider,2013). The future threatsfor KFC
has been predicted as ‘KFC Won't Be 'Eating Healthy' in Future’ (adweek, 2013). This
is an alarming threat to the company and its various shareholders.
Delights
The order winner, order qualifiers and competitive analysis helps to draw out a graph
describing how the delights could contribute to a company’s sales,profits and
customer service. Adding value to customer experience is considered to be very
significant component in today’s business (The Guardian, 2014). An operation starts to
perform successfullyin terms of its delights, could be very significant. Delights are
novel and also adds value to the customers there by improving customer satisfaction.
However, delights could be applied at one point of time as they are very transparent to
the competitors and could be easilyimitated.

6. Figure -2 Order winners, qualifiers and delights
KFC must focus on its delight as a part of improvement processes.The following are the
few delights recommended to KFC:
 Keep a track of Anniversary and birthday dates of customers,
 Special discount and Complementary cake on special occasions,
 Customize seating arrangements for kids and physically challenged customers.
 Return gifts on orders over particular amount.
 Treating kids with small gits like balloons and chocolates.
 Surprise customers with free meal after few number of purchases. For instance if
a customer has been visiting the store on regular basis, then he should be given a
adds on free after the tenth meal.
The Importance –Performance matrix
The importance –performance matrix is applied of KFC to compare the factors in terms
its importance to customers and performance. In Figure-3, each contributing factor is
positioned according to its scores and rating.

7. Figure -3 the importance –performance matrix
URGENT ACTIONZONE
This zone holds very critical factors that impacts the consumers directly. These factors
are the major aspects of operation performance contributing to the business. The
following explains the factors set up in the urgent action zone:
 KFC has been facing challenges over its improper usage of antibiotics in chicken
(Wall Street Journal, 2013).It is an alarmingsituation for the brand has an impact
directlyon the consumers and also on the business and hence needs animmediate
attention.
 These days, people are more health conscious and invest a lot in healthy lifestyle.
KFC uses a lot of excessive oil in the food items (WSJ, 2014). Even though KFC
has a big brand value, it must low down its oil usage to promote its healthy
lifestyle.

8.  KFC has franchise all over the world and these franchise work with different
suppliers for different raw materials.KFC was highly criticizedfor working with
unethical suppliers who used high amount of antibiotics in chicken. There were
protest by PETA in multiple countries like India and the US (The telegraph,
2013). The celebrities like Pamela Anderson, Sir Paul McCartney, His Holiness
the Dalai Lama and The Rev. Al Sharpton continue to motivate people not to eat
from KFC (www.kentuckyfriedcruelty.com) .This has a direct impact on the
business thereby loosing consumers and lowering its sales. Many KFC outlets
were forced to shut down. In this scenario, KFC immediately stop their business
with such unethical suppliers and give start contacting suppliers who follow
ethical way of farming including organic farming.
 People are converting into vegetarians to achieve healthy way of life (Dailymail,
2014). KFC must focus on expanding the veg menu depending upon the region.
It must start including the local cuisines in KFC style. The vegetarians prefer
McDonald’s over KFC because of the wide range of veg menu (The economic
Times, 2013).
THE IMPROVE ZONE
The factors falling in this zone are the non-urgent cases but are necessaryfor the brand.
The following are few of the factors:
 Improve the CSR value: The Company should focus in increasing the CSR
value to enhance its brand value. The companies with high CSR value has a better
image rating there by contributing to its sales and gaining new consumers. This
factor is placed at a position where it is important to the customers and also gives
a competitive advantage.
 Better Layout: The outlets should be redesigned in order to accommodate kids
play zone and also to facilitate the physically challenged consumers. The brand
should display a great amount of hospitality towards it customers.
 Organic farming: KFC must should move towards the organic food and drinks
by growing its own organic farms or working with suppliers having organic
farms.The trend of consuming organic food and drinks has been increasing from
few years. (The Guardian, 2014). Many fast-food restaurants e started organic
farming and are attracting lots of health conscious consumers. This factor

9. indirectly impacts the consumer and hence it is placed at a position of a
comparatively high importance to the consumers and also at competitive
advantage in the market.
 Reintroduce Breakfast: KFC is located majorly on high streets,malls and busy
areas.The location is an advantage giving it a chance to draw customers.It should
reintroduce breakfast with healthy menu. People love to treat themselves on
breakfast that is healthy, quick and easily accessible.
 Auditing for quality check: This factor is placed at a position of medium
importance to consumers and high rate of performance against competitors. The
auditing process should be carried out with the suppliers as well as within the
outlets to ensure hygiene and cleanliness. It was reported that
THE APPROPRIATE ZONE
This zone is the minimum boundary zone for the country to perform and satisfy its
customers.
Factors like home delivery, drive away, take away contribute to this factors.Also to
keep in mind the lead-time of the operations does have an impact on the customers. For
instance, Dominos delivers pizza in 30 minutes and pizza hut takes more than an hour
to do the same. Consumers prefer Dominos over pizza hut for its quick delivery.
THE EXCESS ZONE
The factors in this zone contribute to excessive usage of resources which could be low
importance to the customers but has a high competitive advantage.
Chicken dominates the menu: KFC is known for the chicken recipes which doesn’t
give much options to the consumers to select.It must dilute its menu. KFC has a
benchmark for the taste of friedchicken. Its secret spices are the main attraction.It
should continue to hold the benchmark but should also expand into other options
including regional dishes and other meet products like egg, fish and ham. It must
balance its veg and non-veg menu.
Chicken is fried in batches: This factor is an advantage against competitors because
the fried chicken is always available in the outlet and helps in lowering the lead-time of
the consumers. But it doesn’t do any good to the consumers as it is not freshly fried.

10. Volume flexibility: KFC stores the frozen chicken in the outlets for a week .Hence
there is a weekly supply of chicken to the outlets. This gives them the ability to provide
extra capacityat short notice.
The Operation Strategy matrix
After analysing the various competitive factors of KFC, the focus should be on the
decision areas matching the performance objectives.This is done by using the following
matrix to collaborate the decision areas, performance objective gaining the market
competitiveness. Figure 4 displays various factors which contributes to the intersection
of decision areas and performance objectives.

11. Figure 4. The Operation Strategy matrix

12. The four -stage model of operation contribution
The four-stage model of operation contribution, designed by Professor Hayes and
Wheelwright of Harvard University, captures the organizational aims, expectations and
aspirations of the operations function that contributes the ability of any operation to
open up market potentials for the organization. This model is applied to KFC as shown
in the figure 5.
Figure 5-Tthe four stage model of operations contribution
Stage -1 – Internally Neutrality
In this level, the operation is considered as a ‘Necessary Evil’ because this is the poorest
level of contribution by the operation functions. At this stage, the organization holds
back itscompetitive attitude.The expectations on it areto be internally neutral,a position
where the organization corrects its mistakes.
 Discontinue working with unethical suppliers
 Ensure food safety and zero antibiotics in food

13. Stage -2 – External Neutrality
At this stage, even thought the company does not contribute to competitiveness, it
adopts, the industry bets practice and the best ideas from the rest of the industry. This is
expected to be external neutral with operation strategy similar to its competitors.
 Work with ethical suppliers
 Increase the usage of organic food
 Introduce breakfast and heathy food in the menu.
 Grow organic farms
 Better layout in stores for kids and physically challenged customers
Stage -3 – Internally Supportive
At this stage,KFC might not as good as its competitors but he brand is broadly up to
their best. The company tries to achieve this level by clearly understanding its market
position and unambiguously the very best in the market. They organize and develop
their operations function to be internally supportive.
 Enhance customer service delights
 Regional and vegetarian menu
 Create better working policy and environment for the staff
 Flexible working hours.
 Contract with ethical suppliers
Stage -4 – Externally Supportive
At this stage,the company sees the operations functions as the foundation base for its
future success.From stage 3, the company has grown in high competencies to place
itself in the future market conditions.
 Wide range of products at competitive prices.
 Increase CSR value
 Highly responsive to the consumer demand and taste.
 Bonding with suppliers

14. Recommendations
On the Basis of above analysis, the following are the important summarization of
recommendations.
 KFC facedlot of criticismbecause of its unethical suppliers who provided them
with chickens with high antibiotics. So KFC should start working with ethical
suppliers and create bonding with them.
 It could also start Master Franchise where all the responsibilities are given to a
single franchise. The master Franchise would be solely responsible for all the
operations. This helps the brand to focus on other issues ratherthan concentrating
on the supply chain network.
 KFC should start growing its organic farms
 Should have wide range of Veg menu along with seasonal and regional items.
 Redesigning the layout to accommodate kids play zone
 Increase CSR value
 Recycling process and Technology investment to increase efficiency of
operations.
Conclusion
KFC has a big brand value though it has seen a lot of crisisin the past 3 years. The brand
needs to re-establishitself againin market and need to gain customer’s trust. KFC has a
great advantage over its secret spices which gave an opportunity to still sustain in the
market. Now, it should focus on expansion menu which is tasty and healthy. From the
various models used in this report, it can be predicted that, it is very much realistic plan
for KFC to bounce back and gain its customers in the market.

15. REFERENCES
 Nigel Slack & Michael Lewis (2008).Operations Strategy.2nd ed. Edinburg:
Financial Times.p65-179
 Alex Hill & Terry Hill (2009). Manufacturing Operations strategy. 3rd ed. London:
Palgrave Macmillan. P73-82
 Hill, A .and Hill, T.2011.Essential Operations Management. London: Palgrave
Macmillan.
 Carol Matlack. (2015). Inside the KFC kitchen. Available:
http://www.bloomberg.com/news/articles/2015-03-18/why-did-kfc-let-a-tv-crew-
inside-its-chicken-operation-. Last accessed 21st March 2015.
 DEBBIE CAI and NATHALIE TADENA. (2013). Yum's China Sales Fall 20% as It
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http://www.wsj.com/articles/SB100014241278873242810045783547715183858
86. Last accessed 21st March 2015
 Trevor Jensen. (2013). KFC Won't Be 'Eating Healthy' in Future. Available:
http://www.adweek.com/news/advertising/kfc -wont-be-eating-healthy-future-
70651. Last accessed 21st March 2015
 Sandra Mu. (2013). Fast-Food Wars: The 10 Big Chains That are Closing
Restaurants. Available: http://www.forbes.com/pictures/feji45eeee/kfc/. Last
accessed 22nd Mar 2015.
 Ashley Lutz. (2012). KFC's Gravy Train In China Could Be Ending Soon. Available:
http://www.businessinsider.com/kfc-facing-competition-in-china-2012-
10#ixzz3W7Bxd1u5. Available: http://www.businessinsider.com/kfc -facing-
competition-in-china-2012-10?IR=T. Last accessed 19th Mar 2015.
 Reuters. (2014). KFC admits excessive antibiotics were used in its
chicken. Available: http://www.wantchinatimes.com/news-subclass-
cnt.aspx?id=20130101000006&cid=1103. Last accessed 25th Mar 2015
 Reuters. (2013). KFC Parent Suffers After China Scandal. Available:
http://www.nytimes.com/2013/02/06/business/global/kfc -parent-suffers-after-
china-scandal.html?_r=1. Last accessed 22nd Mar 2015.
 WANG HONGYI. (2012). KFC supplier used excessive additives in chicken
feed. Available: http://www.chinadaily.com.cn/business/2012-
12/21/content_16038309.htm. Last accessed 14th Mar 2015

16.  COLUM MURPHY. (2013). KFC Criticized Over Suppliers in China. Available:
http://www.wsj.com/articles/SB100014241278873247313045781892907989017
54. Last accessed 20th March 2015.
 KFC. (2014). our-story. Available: http://www.kfc.co.uk/about-us/our-story/.
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 Lara Morgan. (2014). Five steps to developing an effective sales
strategy. Available: http://www.theguardian.com/small-business-
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 Reuters. (2013). PETA's Campaign against KFC. Available:
http://www.kentuckyfriedcruelty.com/. Last accessed 21st March 2015.
 Trevor Porter. (2013). KFC animal rights campaigner abandons protest after
being pelted with chicken wings. Available:
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17. Appendices
Appendix-1
Source: Consumer Foodservice: Euro monitor from trade sources/national statistics
Appendix-2
Source: Consumer Foodservice: Euro monitor from trade sources/national statistics
14.00
3.70 3.20 2.70 2.70 1.60 1.20 1.20 1.00 0.80
2013
Fast Food Brand share
McDonald's KFC Subway 7-Eleven
Burger King Wendy's Taco Bell Dunkin' Donuts
Tim Hortons Chick-fil-A
0.80
0.80
0.80
0.80
0.90
0.90
0.74 0.76 0.78 0.80 0.82 0.84 0.86 0.88 0.90 0.92
2008
2009
2010
2011
2012
2013
World Consumer Foodservice by
Type KFC (Yum! Brands Inc) Yum!
Brands Inc

18. Appendix-3
Source: Consumer Foodservice: Euro monitor from trade sources/national statistics
Appendix-4
Source: Consumer Foodservice: Euro monitor from trade sources/national statistics
3.60 3.60 3.60
3.70
3.60
3.70
2008 2009 2010 2011 2012 2013
World Fast Food KFC (Yum! Brands
Inc) Yum! Brands Inc
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Asia Pacific Australasia Latin America North America Western Europe
KFCBrand share
2008 2009 2010 2011 2012 2013

19. Appendix-5
Source: Consumer Foodservice: Euro monitor from trade sources/national statistics
Appendix-6
5.20 5.10 5.20
5.90
6.40
5.10
2008 2009 2010 2011 2012 2013
ChinaFast FoodKFC(Yum!Brands Inc) Yum! Brands Inc

20. Appendix 10
Porter’s five forces