Critically analyze two (2) strategic frameworks full service restaurant managers and owners can apply and assess the potential challenges in operationalzing their strategy.
The report is based on the analysis of two strategic frameworks that can be used the owners and the managers of the restaurants to increase their business and profitability. The strategic frameworks that are present for the purpose of implementation in any kind of business are many in number. The choice of the right strategy for a particular business is the most important part of the implementation process of the business. The restaurant business is an integral part of the hospitality industry. The restaurant environment is quite tough as the working hours are long in this case and the work is also tedious (Lee, Kim & Park, 2012). The restaurant or the hospitality industry has many opportunities of growth, however, the most important part of this growth process are the customers of the restaurants.
The satisfaction of the customers helps in the growth of the restaurants. This process can be completed with the help of certain strategies implemented by the restaurant owners or the managers. The implementation of the right strategy is important for the growth of the restaurant. There are steps involved in the choice of the right strategic framework for the success of the restaurant. The first involves the analysis of the need for a strategic framework in the restaurant and further choosing the right strategy (Gobble, 2012). The next step involves the application of the chosen strategic framework on the goals of the organization and analysing the way each of the goals fit with the strategic framework that is chosen. Finally, the entire plan that has been made for the implementation of the strategic framework is analysed and the balance of the goals is measured on an overall basis.
The two strategic frameworks required by restaurant managers and owners
The two strategic frameworks that are suitable for the managers or the owners of the restaurants are Porter’s Five Force Model and the VRIO framework.
Explanation of the Porter’s five forces model with respect to restaurants
The Porter’s five force model is used for the purpose of creating and maintaining the competitive advantage of the organization. This tool helps managers to analyse the environment where the organization is operating. The restaurant managers can use this tool to analyse their competitors and also develop strategies to counter them. As discussed by Srivastava, Franklin & Martinette, (2013), the Porter’s Five Force model helps in identifying five forms of pressure within a particular sector including, competitors in the market, new entries in the market, products that act as substitutes of the products of the particular company, power of the suppliers to bargain, power of the customers to bargain. This model is applied to the restaurant sector and this can help the managers as well as the owners to increase the profitability of the restaurant.
Rivalry in the market – As discussed by McLay, (2014) the rivalry of between the organizations in the market is the most important force of the Porter’s five force model. The level of the rivalry between the organizations is an important factor that determines the pressure of the competition. The industry is considered to be a disciplined industry if the level of the competition between the organizations is low. The high level of competition in the market results in the extreme rivalry between the organizations. The amount of the conflict in the market is affected by some characteristics of the particular industry as discussed further. The more number of organizations of the same kind in the market increases the competition between the organizations. The growth of the market in which the organizations are operating results in the fight of the firms for acquiring their share in the market. The reason behind this is the opportunity that a growing market can provide to the firms (Hacklin & Wallnöfer, 2012). The fixed costs and the costs of operating in a particular market is another that increases the competition. The higher the fixed costs of operating in the market, the greater is the competition between the firms. The low level of switching and less difference between the products in the same industry increases the level of rivalry as well. The barriers related to the exit of a product and the rivals who are diverse in nature increases the competition in the market as well. The growth of an industry encourages more and more entries into the market. This further increases the number of firms in the same industry and the level of competition also increases. The service sector is the fastest growing in the recent times (Sohel, Rahman & Uddin, 2014). This has led to the entry of many organizations in the market. The restaurant sector is also a part of it and is growing in the same pace. This has developed huge competition and rivalry among the organizations in this industry.
Supplier power - As discussed by Nasri & Zarai, (2013), the suppliers are an important factor for any type of restaurant The suppliers have the power to decide the price of the raw materials that are required by the restaurants. The cost of the raw materials decides the ultimate price of the products of the restaurants. The restaurant industry is considered to be in the service sector. The services provided in the restaurants are directly dependent on the prices decided by the suppliers of that restaurant. The other main factor that affects this sector is the power of the staff or the labour. The costs associated with the labour of the restaurants is another important factor that affects its operations. The power of the supplier is more if the number of suppliers of any particular product is less in the market and the costs related to the switching of the suppliers is more. This situation makes the suppliers much more powerful. On the other hand, if there is more competition for the suppliers in the market, the restaurant owner can get more chance of bargaining with the suppliers and increase their profitability.
Power of the buyers – The customers of the restaurant are considered to be the buyers of the services provided by the restaurant owners. The power of the customers influences the operations and profitability of the restaurants. The customers are more powerful if the same type of services are provided by many restaurants in the same sector. The customer has the power to choose and this determines the profitability of the organization. On the other hand, if the number of restaurants are less in the same sector the customer has less choice and hence the prices can be controlled by the restaurant owners. The prices are regulated by the choice of the customers if they have more choices of restaurants (Gassmann, Frankenberger & Csik, 2014). The power of the buyer to set the price is more if the competition is less and the power of the buyers is less if the competition is more.
Threats related to the substitutes – The third force in the Porter’s five force model is the threat that is posed to the restaurant owners due to the presence of their substitutes. The availability of the substitutes contributes to the changes in the cost related to the service of the restaurants. The threat related to the substitutes is more prevalent if the demand of the particular service changes with the change in the price of that service. The price elasticity of the services is affected by the substitutes available in the market. The increase in the substitutes of the service increases the demand for that service as well (Cardeal & Antonio, 2012). The reason being the availability of that service is more in the market. The closest substitute of a particular restaurant, for example in the same cuisine, contributes in the change in the prices of the services of that restaurant. The threats related to the substitutes of a particular company that endangers the competition of that organization arises from outer industries. The substitute related threat affects the industry in terms of the competition related to the prices of the service provided by the organization. This regulates the prices that will be decided by the owners of the restaurants.
Threat related to new entrants in the market – The entry of new organizations in the market is another threat for the particular firm that is taken into consideration. The new entries in the market have an effect on the level of competition between the organizations. However, there are many barriers related to the entry of the new firms. The barriers to the entry in the market are the factors that define the characteristics of the industry itself (Harrington, Ottenbacher & Way, 2013). The rate of the entry of the fresh organizations is reduced due to the barriers that are present in the market. This helps the old firms to maintain their profit levels. This theory holds true for the restaurant or service industry as well. The different types of barriers as discussed by Bernhardt, Mays & Hall, (2012), are as discussed further. The barriers in the market are related to the policies made by the government. The policies made by the government sometimes restricts the entry of the new organizations. Government can also try to create monopolies for a particular organization in some industries. This restricts the entry of new competition in the market. However, in case of the service sector monopoly market is not created by the government, although the regulations of the government can differ in different places. The patents or copyrights that are required for the new organizations can also act as a barrier to their entry in the market. The ideas and the knowledge that helps an organization to create competitive advantage is used as the private property of the organization that cannot be used by any other organization. This also creates a barrier for the new organization. In case of the service sector the ideas related to the different cuisine styles or the décor of the restaurants are used as the patents of the particular restaurant, which creates an advantage for that restaurant. As argued by, Booi-Chen & Peik-Foong, (2012), the need of the resources for a particular organization is another barrier for its entry. The problem occurs for the organizations where the specialized equipments are required which cannot be traded for any other products if the idea of the business does not work. In the restaurants also specialized equipments may be required for different types of cooking purposes, which cannot be used for any other purposes if the business fails. The other barriers in the industry are related to the exit of any particular organization from the market. The exit barriers are related to the difficulty of exit due to the assets which are not easily saleable, the high cost of the exit is also a barrier (Haghighi et al., 2012).
Fig 1. (Lee, Kim & Park, 2012)
The framework of the VRIO Analysis is used to examine the business based on the strategic scheme. The vision statement of a particular organization is related to its strategic scheme. VRIO analysis is used an internal analysis tool for a particular organization.
As discussed by, Lin et al., (2012), the first part of the VRIO analysis is based on the Value factor of the firm. This part helps in analysing the value of the resource for the organization. The investigation is based on the factor that whether the resource that is provided is able to use the opportunity that is available and also whether it is able to counter the threat that is posed towards the organization. The value factor is considered to be the strength of the company if it is able to conduct the above mentioned activities (Heo et al., 2013). There are many opportunities in the market that can be used by the organizations to increase their value. The opportunities include, change in the technologies related to the industry, the changes in the demography of the target market of the firm, the changes in the culture of the target market. The other opportunities include, the changes in the economy, events related to the industry of which the organization is a part and the political and the legal conditions of the industry (Knott, 2015). The value of the organization can be detected effectively from the value chain of the organization.
The second part of the VRIO analysis is the rarity of the organization. The uniqueness of a particular organization in terms of the resources that it possesses and the capability of the firm to create an edge in the market is the rarity aspect. The resources that are possessed by a company can create a competitive advantage for that particular organization. This advantage can be ensured if the supply of the resources that are used by a particular company is low and cannot be easily obtained by any other organization (Stefan & Richard, 2014). The case in which the organization is not able to gain the advantage over its competition with the help of the resources available, then the level of competition between the organizations is high.
The third part of the analysis is related to the imitability factor of the organization. The organizations which possess ideas and resources that cannot be easily obtained or imitated by any other organization can gain a lot of competitive advantage over the other organizations in the same industry (Lin & Tsai, 2016). The organization can use the opportunities available for the improvement of its profitability or it can use the resources that are rare and are not easily available for any other organization. In this manner the organization can counter their competition.
The fourth and final part of the VRIO is the organization of the resources of the particular company. After the analysis of the value of the resources, the rarity factor of the resources and the ability of the other companies to imitate the resources, the last part of the framework states that the resources need to be organized in such a manner so that they are useful for the company (Piórkowska, 2012). The accurate organization of the resources of the organization can help them to gain the competitive advantage required for their sustainability.
The VRIO framework can be used by the restaurant managers or the owners to analyse their organization based on the resources possessed by them and the correct usage of these resources to gain the advantage required by them (Slavik & Bednár, 2014).
Fig 2. (Cardeal & Antonio, 2012)
The use of the two strategic frameworks, that is, Porter’s Five Force Model and the VRIO Analysis involves some challenges as well. The Porter’s Five Force Model is used to analyse the industry in which the business is operating in this case the industry is the service sector, on the other hand VRIO analysis can be used to analyse the internal factors related to the resources of the restaurant. The managers need to apply these frameworks efficiently from time to time to make the business sustainable. The report can be concluded by stating that the two strategic frameworks that are discussed above can be implemented and used efficiently to analyse the sustainability of the restaurant in the service industry and the improvements that are required in the business to increase the sustainability and to get the competitive advantage over other organizations.
The managers and the owners of the restaurants can be recommended to use the Porter’s Five Force Model and the VRIO Analysis to analyse the service industry and to analyse the resource availability and the competitive edge of the organizations. The service industry is a growing sector and many opportunities are available for the restaurants to increase their business and profitability. The strategic frameworks that have been discussed above can thereby be used by the restaurant owners and the managers to analyse the internal operations of the restaurants as well as the external environment. The Porter’s five forces analysis is used for examination of the external analysis of the environment where the restaurant operates and the VRIO Analysis is used for analysis of the internal operations. The internal operations include the Value, Rationality, Imitability and the organization itself. The examples of two restaurants that use the Porter’s Five Force Model and the VRIO Analysis are as discussed further. The “Rockpool Bar and Grill, Melbourne” is a restaurant in Australia that uses the Porter’s Five Force model as the strategic framework. “Belles Hot Chicken” is another restaurant in Australia that uses the VRIO Analysis as the strategic framework for the analysis of the business scheme.
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