Wednesday, June 3, 2015

Kentucky Fried Chicken-Japan Limited

The Beginnings. The founder of Kentucky Fried Chicken was Harland Sanders. He started to franchise his chicken recipe in 1956 by selling 700 franchises in not more than nine years. In running his business, Col. Sanders just relied on the basic goodness of people around him. As Kentucky Fried Chicken franchising boomed, there were some specific key factors that should be fixed up: location, effective store management, and chain’s overall market image. By early 1960s, Colonel Sanders sold his interest in his company for $2 million to a group of investors. In John Y. Brown and Jack Massey leadership, the company had rapid growth but the turnover problems began to emerge. Then, Brown though that it was a good idea for the company to expand KFC to international markets.
KFC-Japan (Stage 1): In 1970, a joint venture agreement was signed by Mitsubishi and KFC. After that, Loy Weston as the President of KFC Japan and Shin Ohkawara built three stores in a cheap sites, and where new shopping centers were opening up. At that time, the sales were very poor.
Meanwhile, the economy in US went into a recession. In 1971, Brown and Massey sold KFC in an exchange of stock to Heublein, Inc.
After gaining debt from Heublein, Weston began thinking of new strategic vision; focus on Tokyo and target group- upscale young couples and children. Without consulting to the KFC Headquarter, Weston built stores in downtown areas (change the location and the size of restaurants), adding fried fish and smoked chicken menu (menu set configuration), adjusting prices, and introducing mini barrels. However, even though in 1973 there were 50 more stores were added, KFC-Japan still can’t attain the break-even point because of the attack of oil crisis.
On the other hand, the KFC’s domestic operations in US were in turmoil. There was a widespread discontent among the franchisees, some of whom felt the new owners did not understand the chicken business and were not providing leadership expected from a franchisor. At that time, Quality-Service-Cleanliness were terrible, standards were inconsistent, employees were unfriendly, and the buildings run down.
In the late of 1975, Michael Miles was appointed to be VP of International operations for Heublein. With strategic planning as his credo, Miles thought overseas subsidiaries needed more support and control from corporate Headquarter. In respond with Mile’s effort in planning system, Weston though a market research was useless, and so did Ohkawara. It was clear that KFC-I had different perspectives with KFC-J. KFC-J learned to live with planning system, but adapted it to Japanese practices. Furthermore, they learned how to manage their relationships with headquarters better; they didn’t show a big jump, whereas they managed sales and profit to show consistent growth.
Organizational changes. Miles made organizational changes to transfer to KFC’s overseas companies some of database management system, in order to increase efficient and ensure standards. At that time, efficiency targets, QSC ratings, and performance bonus levels were introduced, and reports on trends at the store level were produced.

In 1982, R.J. Reynolds (RJR) acquired KFC, and Richard Mayer appointed to be the chairman and chief executive of KFC. Mayer found four important issues for KFC-I and KFC-Japan: KFC-I had to maintain its drive for aggressive growth to ensure the growth would continue (expansion problem), implementation of administrative operational controls and systems (HQ-sub problem), how to expand into new countries (agency problem), and managerial skills problem. 
There are some suggestions that KFC should do in order to solve the problems:
1.    Have more attention on R&D and they should study the culture of new country before try to expand their business to that country
2.    Use new technology to make innovation of product development and cut the cost
3.    Compete on price using the benefits of cost savings from economies of scale.
4.    Repair the relationship with franchisee; try listen to their ideas and discuss problems with the franchisee because KFC-I could also learn from franchisee.
5.    KFC need to have a clear vision and solve the internal issues
6.    Retain and manage its manpower; They should work on the management issues to create a good atmosphere where employees are happy to work in.
7.    When the owners changed, the employees should have ability to adapt with different operating procedures and working conditions. The old managers must remain in the business because they are people who know well how to operate the business.
8.    KFC should always listen to their customers and try to follow the new trends on the market in order to fully satisfy their customers.

From this case, we can learn about Human Resource Management, and see that KFC has: Economic of Scale (EOS), Division of Labors specialization, and Capitalization. The business can be successful while it has good standardization (SOP, economy of scale, and procurement), autonomous, and they can also make differentiation with the other competitors.

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