Porter’s five-force model

Q1. Porter’s five-force model

This is a business analysis model that will evaluate the attractiveness of the industry in which an organization is operating. This model was explained initially in Michael Porter’s book in 1980. The industry structure of an organization and its corporate strategy is analyzed with the help of five forces that are undeniable and play an important role in shaping every industry and market worldwide (Mandere & Indiasty, 2014). In the case of Domino’s pizza, the pizza industry will be analyzed, based on the following five forces:

1. Competition within the industry

Three major competitors of Domino’s are Pizza Hut, Papa John’s, and Little Caesar Pizza.

• Pizza Hut- it is one of the most prominent competitors of Domino’s. Dominos’ is number one in US delivery section but the top company in the pizza segment is Pizza Hut. The company is older than Dominos but has targeted 95 countries with 13,000 stores. It majorly focuses on various Pizza, which is ready to eat, where the customer can customize the toppings option as per their local culture and taste. Moreover, the company is focusing over more competitive priced items in the menu, and likes to be known for “pizza pasta and wings brand”(Porter & Heppelmann, 2014)
• Papa John’s – considering pizza delivery segment, this company ranked at third position after pizza hut and Domino’s. John Schnatter established the company in 1984. It has targeted more than 32 countries in 52 states, with more than 3,646 restaurants owned and franchises.  This company operates within six segments, which are Domestic commissaries, domestic restaurant, domestic franchises, variable interest entities, international operation, and various other business units.
• Little Caesar’s – this in the pizza industry stands out to be at the fourth position. A family-owned enterprise franchises and owned 2600 units in the United States and 11 various nations. The major positioning of the company is opening up stores in strip malls and is considered as the fastest growing restaurant chain in the United States in 2009. The company was popular for two for one Pizza, this marketing campaign initiated in 1971, however, in 1975 became an everlasting fixture(Betton, 2017).

Another force that influences the market of the pizza industry is new firms that are entering into the market. They are affected and do affect the organization and its strategy. The strategy that Domino’s follow to tackle this force is economies of scale, which will help the firm in lowering the fixed cost of each unit produced. Through innovation in services and products, was another strategy to handle this force. For example, new flavors, additional products, capture a new market, use of advanced technology like a mobile application. New entrants are less comfortable while entering into such a dynamic industry, where already global leaders have maximum market shares and goodwill. It was significantly reducing the opportunity for extraordinary revenues or profits for new entrants, which eventually discourage new players over the industry (Dobbs, 2014).  

Buyers bargaining power, in another force that affects Domino’s strategy and sale. The customer would like to pay a minimum price for the best quality product. This is something that creates pressure on Domino’s, as the switching cost for the customer is nil. To tackle this, Domino’s strategies to build a large customer base, which will help the company in two ways, first to diminish the threat of customer bargaining power and second is to gain the opportunity to streamline its production process and sales. Moreover, this threat was reduced by constant innovative product development, because customers expect a discount on stable products and if the company is introducing new products without any discount, it was acceptable by the buyers. New products will be helpful in reducing the existing consumer defection to its competitors (Gaudin, 2018).

A company is accruing raw material from various sources that are different suppliers. This can make supplier in a dominant position, which can hamper the profit margin of Domino’s. To reduce this threat, the strategies used by the company were creating an efficient supply chain, which includes various suppliers, exploring new designs with different material, even if the prices increase of some raw material then the organization can go for another alternative material (Zhao, Wu, & Sha, 2015).

Value chain analysis

Substitute products are something that can be replaced by one product and fulfill the needs of the customer. This is one of the major concern while strategizing. The major substitute of Domino’s is McDonald’s or KFC, which is offering a burger and is able to fulfill the similar need of consumers as Domino’s. To handle this situation, the strategies made by Domino’s are becoming service oriented instead of just focusing over product, the company tries to understand the customer’s core needs instead of concerning on what customer is purchasing. This threat can be reduced by increasing the switching cost for customers (Porter, How smart, connected products are transforming competition, 2014).

Value chain analysis, as shown in figure 1 is a particular set of activities conducted by a company that initiated from procuring raw material, process converting into final goods, and finally, reach to end consumers (Puck & Mudambi, 2016). Domino’s has its unique value chain bifurcated into two parts that are primary activities and support activities.

Primary activities:

• Inbound logistics- this activity includes purchasing raw material like dough, sauce, cheese, spaghetti, fruits and vegetable, salt and pepper. These products too, have varieties like ranges of sauce that are the regular, white, and sweet sauce. It is the strength for domino’s, as the firm maintains a minimum of four days of stock, they have small cold storage at every store, and most importantly, level of inventory is monitored through POS data using centrally.
• Operations- operations include, pizza dough is prepared and other ingredients are procured through other commissionaires that include topping and seasoning and then distributed to various stores of Domino’s. At outlets, the customization is done, as per customer requirement and flavor. According to customer order, the salads and pasta are prepared using raw material. Everything is done in a particular time span because the company claims to make food available in provided time. This is a major strength for the company as everything is done on time while considering the quality standard of the product.
• Outbound logistics- the logistics are a major activity of the company, initially, it is required to transport bases of pizza from a centralized location to the store, which is done through refrigerated trucks. In addition, either delivery boy or vans deliver the prepared food to the customer doorstep.
• Marketing and sales- where sales and marketing are considered the company has a strong social media presence, which turns out to be the strength of the company. Moreover, the marketing campaign is conducted domestically according to the country the company is operating and targeting. Various discounts options and coupons are provided, to influence customers to have food from Domino’s.
• Service- it is the activity, which the company majorly focuses. The services include providing hot pizza at the doorstep of the customer within a specified time. It also includes providing customer service at the outlet and make the customer feel happy and comfortable by providing the best taste of food in a healthy environment. Online service is the biggest strength due to which the Domino’s sale has reached so high. Moreover, the online order can be through its website and application, where discounts are also offered to the customer.

Support activities:

• General administration- it includes all back-office work, that is financial reports, it is neither any strength nor weakness of the firm, but the administration is also essential to manage for effective working among all the departments.
• Human resource management- this is considered a great strength for the company. The management of human capital is very strong of Domino’s. Appropriate training for preparing food is provided to employees, as taste must be according to standard, and same in every outlet. Moreover, delivery boys are also motivated to reach out to the customer in time and handle food with due diligence for the maximum satisfaction of the customer.
• Technology development- this is the major strength for the company, Domino’s gain global technology advantage, through Domino’s tracking system, corrugated pizza box, order over the phone, application for I phone and Android phones, hotter delivery through Heatwave delivery bags, vehicle delivery that includes technology to keep food hot and fresh.
• Procurement – the raw material is been procured from the local places which are best for that particular ingredient. For example, if tomatoes are good of one state, and corns of another, then these two different ingredients are procured from a different source and then distributed the best material to the outlets. The time span is also considered while procuring so that there is no issue of shortage of raw material in any outlet. The inter-store transfer is also available in case of an uncertain situation(Christopher, 2016).

The linkages between human resource management, technology development, and services create major core competencies for Domino’s.

Core competencies of the company include the best customer service, as it is one of the largest pizza company in the delivery segment. It is an industry leader for customer satisfaction. This shows that the service of the company is really strong and efficient. However, human capital management and technology development are another competitive advantages of the company that is working for providing the best service to the customers. Therefore, it can be said that the support activities of technology development and human resource management which is linked with a primary activity, services, which eventually result in the core competencies of the company (Amara & Traore, 2016).

One of the competitive advantages of the firm is innovation, which is the result of good human resource management and advanced technology. The main motive of the company is to provide customer hot food at their home, within a specified delivery time. For this, the advanced technology used is online ordering, where with a click customer can order food from the Outlet. For keeping food hot, heat wave bags to delivery, with vehicles include a panel to keep food hot until the customer. To offer customer same taste with high quality can only be provided through a proper training to chefs and other employees. These linkages result into the satisfied customer service (Oke & Prajogo, 2016).

Cultural web analysis

The linkages that lead to core competencies were identified in the previous section, these linkages fulfill the criteria of VRIN framework propounded by Jay Barney, in 1991 (Chatzoglou & Chatzoudes, 2018).

VRIN is a framework focuses over four qualities:

• Value – the linkage between technology development and service creates core competencies for the company which will fulfill the criteria of “value” element in this framework
• Rareness – according to this element, a core competency that is rarely provided by a competitor. In case of Domino’s delivery service fulfill the criteria. Pizza hut, being one of the major competitors of Domino’s can gain an advantage in fulfilling its customer satisfaction at their outlet, but when the service considering doorstep approachability, no pizza firm can beat Domino’s.  
• Imitability– this element considers a core competency, which the competitors cannot imitate. Domino’s advanced technology like the pizza tracker is not imitable by their competitors, which fulfill the “imitability criteria of VRIN framework
• Non-substitutable- it consists of a resource that cannot be replaced by any other source. The human capital of Domino’s fulfill this criterion, as a human resource of the firm is its competitive advantage, which leads to innovation, and eventually enhances customer satisfaction(Choi & Park, 2016).

A culture is something that influences the organization as a whole, it the way people work, communicate, within an organization. The cultural web analysis is a framework or model that explain the organizational convictions, paradigm and assuming in a firm that is clear by means of six elements. The six elements include stories, symbols, rituals and routines, organizational structures, power structures, control systems, and symbols (Alvesson, 2016).

• Stories – This element explains organizational culture, which is constantly communicated within the organization. As this element is about communication in the organization, the culture of dominos includes free communication across the organization. In case of dissemination of information to the staff, the methods used are email, posters, notice boards, and pamphlets. The innovation is always encouraged in the organization, therefore the free flow of ideas are communicated by the staff and to the staff(Collins & Benard, 2018).
• Symbols- the element of this model illustrate the recognizable sign ort expressing of the company like corporate identity, the logo, office building, company cars, dress code, language, and functions. Considering this element, Dominos has a globalized logo in blue and red color that makes it expressible, moreover, all the delivery vehicles have the logo of Domino’s to publicize the brand.

• Power structure- this element is directly linked to the paradigm, as the powerful human resource of a company is considered to directly influence the ideas and core assumptions within an organization. Considering this element, Domino’s major competitive advantage observed is human resource management, which means the company has people who are in a powerful position to influence ideas within Domino’s.  For example, the organizational manager has the responsibility of outlets in-group, like there are four or five outlets, of which he will manage the work, and is considered the most experienced person in the outlet, who has total knowledge of the restaurant or outlets(Huckin & Berkenkotter, 2016).
• Organizational structure- as per this element, a company has a hierarchal composition, that links the relationship between human resources, which construct the layers of the form, although, informal power structure, is also part of the organizational structure. Domino’s has an organizational structure, where CEO and executive managers are largely responsible for new innovative ideas, that are executed by lower-level managers, but the culture of Domino’s always welcome ideas from all the sources like salesmen, or lower staff members. The company follows multicultural staff within an organization because Domino’s is a global player; the staff is from various culture and nations. Therefore, culture is enabled according to the strategy of the company(Wass & Harrison, 2017).
• Control system- this element considers the way a company is being controlled and managed. The financial system, rewards, and quality systems are included in this element. As already discussed, the administration of Domino’s is very strong, which fully supports the strategy of organization and primary activities conducted. The Domino’s culture includes believing in teamwork, a disciplinary environment that leads to a complimenting company’s strategy. According to Domino’s culture, employees motivation is highly considered and financial reward is the best way to do so. Moreover, the inequality in the rewarding system is highly discouraged within the organization(Argyris, 2017).
• Rituals and routine- this element include organizational events that emphasize the true importance of that event for the organization. In Domino’s one of the very important event is training, the company is a global organization, and the work is to be done according to particular standards, for which providing training to employees is very important.  This element is largely responsible and affects the strategy of maximum customer satisfaction through delivery service is supported. Many people conduct the training as if crew trainer is an individual who is responsible for providing training to crewmembers and shares his knowledge and experience within the organization to crew person. This could include the knowledge of how to prepare a dish according to the standardized form.  After passing the stage of crew training, the member of the crew become crew trainer, and will further provide that training to other employees. Training manager provides lessons to crew trainers and passes on his experiences and knowledge with trainees(Morris, 2018).

All the elements of Domino’s cultural web and paradigm were considered, and it can be said that the organizational culture influences the performance of the organization. The organizational culture of Domino’s provides maximum support, for successful implementation of the strategy of the company. The company has a strong organizational culture, which creates a strong competitive advantage. Moreover, the firms consist of multicultural teams, which lead to gain advantage through core competencies. At times, it can be difficult to manage, but it eventually turns out to be advantageous for the company.

According to the Ansoff’s matrix, this matrix focuses over observing business future, and determines available potential strategies to the organization into three area that are market development, product development, and market penetration (Aksoy, 2018). These are explained as following:

• Market penetration- market penetration is considering an existing product into an existing market, for this strategy the manager focus to increase its market share with running products. Domino’s consider pizza’s as the product to aim for enhancing market share of the company. For this strategy, the capability identified in the previous section, of technology development will be best suited. The core capability of the company includes advanced technology to provide the best service to the customers. The online delivery system will consider the same product for the same market, but attract those customers who consider eating in a comfortable environment at their home or workplace. Even if the person is busy to visit the outlet and have pizza, he or she can get the desired food with just a click or through the order on the telephone. Moreover, the food received will be hot guaranteed, which means those customers are approachable to consume Domino’s pizza without any additional cost of travel. With the technological advancement of tracking, the company can ensure customer satisfaction and timely delivery of the package. With this, the new customers are attracted and the company retains existing customers(Shaw, 2012).
• Market development- market development is the strategy of the company to serve a new market with the existing product; this can be done by existing marketing and channel of distribution or new are involved. In case of Domino’s, the company has always tried to increase the market, either by increasing outlets in the international market, capturing the new market in the untapped nation through franchising. The new market has also be tapped by changing the delivery options, by using the capabilities of technology development, the online delivery was included to the system that has tapped a new market, this has increased the customer base. This includes a customer who prefers the food at their doorstep. This has also included a tracking system so that the delivery can be tracked. In addition, all these are done to attract customers and increase the reliability of the company according to the customer(Hilman & Alkasim, 2018).
• Product development – this strategy includes new products to offer in the existing market. The major considering in this strategy is “time to market,” that means the time needed to develop a new product to return the cost rapidly. Considering capabilities of Domino’s, human capital management compliments this strategy, as the product development includes innovation. The company culture includes innovation, and everyone is free to share ideas related to the products. The company has focused over the same product line, but the new products are included after a long time, for example, increases in the variety of deserts, introducing new flavors in the topping of pizza. Change in ingredients, which are the use of different pizza base, say cheese base, or thin crust base. This eventually leads to a new product. Moreover, the wraps, garlic bread, and their varieties can be included in this strategy(Chiang, Chen, & Ho, 2016).

• Health conscious group- to capture a new market, the future growth opportunity includes targeting a new customer segment, which is a health-conscious group of customers. The people who are more health conscious generally avoid having pizza due to more of fat included in the product. This group can be focused by using the human resource of the company. The chefs of the company can have ideas for this purpose, for example, use of brown bread in making a pizza base, and include wheat pizza base, introducing wraps and pizza that are full of good nutrients. This could be done by reducing the serving of cheese or even avoid using cheese for such products. The beverages menu can be included which include green tea other than soft drinks.
• Fresh and organic ingredients- the ingredients used in making any food product is fresh and not frozen one. This will attract many customers who are very concerned about the quality of ingredients used. The flavors must not be the preserved ones, instead, the organic ingredients can be used, which will retain existing customers and attract new customers.
• Technology advancement- technological development is one of the core capability of Domino’s, this can be used to enhance the use of technology while providing service to the customer. More advanced technology is another opportunity for the company to gain a competitive advantage.
• Physical outlets- this is an area where Domino’s lack from its major competitor, that is Pizza Hut. This brings the opportunity for the company to use its capability of best service and human resource management, to enhance the customer base at the outlets as well. This can be done by opening up the outlets at the place where people generally visit, like shopping complex, movie theater, so that the customers visiting there can be a target and attracted to consume pizza from Domino’s

Conclusion 

From the case study of Domino’s, it can be concluded that the company was established in 1960 by James and Tom Monaghan. It is part of the pizza industry, with various other competitors. The ownership of the company was changed in 1998 and David Brandon became CEO and Chairman of the company. The company business segments were domestic store, international and domestic supply chain services. The pizza was a popular product offered by the company that serves a wide demographic of customers. The competition was very high. The top company in the pizza industry was Pizza Hut, but Dominos was first and largest pizza delivery company. Other competitors include Papa John’s pizza and Little Caesars, at the third and fourth position in the industry.

The industry is very attractive as it is a growing industry and while considering Porter’s five force model, the competition is very high, the new entrants are rarely there due to the influence of the global leaders, the customer bargaining power can influence Domino’s, but this can be handled by introducing new products to the market. The bargaining power of suppliers is also very much, because the suppliers are providing raw material to many companies, and can bargain with the company, but the company can tackle this by dealing with a numerous number of suppliers. One of the major issues is the threat of substitute products that will affect the Domino’s sale by full filling the need of customer like McDonald’s.

Using capabilities for growth

Value chain analysis of Domino’s was conducted, where the primary activities and support activities of the organization were observed and the core capabilities of the companies were analyzed. Between both types of activities, the linkages between the value chains of Domino’s result into core capabilities are Human resource management, technology development, and service.

Then the organizational culture of the company was considered, it was observed that the organizational culture is more towards innovation, and the free flow of communication among the organizational hierarchy. To analyze this, six elements of cultural web and paradigm were considered and it was analyzed that the culture of Domino’s is supportive in the successful implementation of Strategies.

Lastly, the Ansoff’s matrix was considered for the study of business future potential strategies with regard to three elements. The company majorly focuses the marketing penetration strategy by enhancing market share by targeting current market with an existing product that is pizza. Market development strategy of the company focus on serving the same product in the international market that is untapped. Some of the recommendations to gain future opportunities were targeting health-conscious customers, including organic and fresh ingredients.

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