Operations and Strategy
Operations is the activity in the supply chain that takes the raw inputs from inbound logistics and transforms them into the final product ready for the outbound logistics activity. Creating a sustainable competitive advantage in the operations activity generally revolves around two primary factors, efficiency and quality. Efficiency is primarily concerned with maximizing effectiveness while minimizing cost. The second factor is quality. Quality is concerned with product dimensions such as conformance to specification, performance, features, response, reliability, and aesthetics and revolves around the central theme of customer satisfaction. An example of melding these two factors together is seen in Domino’s pizza tracker. Domino’s took a frequent question asked by its customers and created a unique supply chain widget (literally, a web-based widget) that provides transparency into the “manufacturing” process of its pizzas and creates customer satisfaction and peace of mind.
This constant communication with the customer provides several benefits:
• Response – communicating where the order is in the pizza-baking process provides peace of mind to the customer.
• Efficiency – conveying where an order is in the pizza-making process decreases inbound calls from customers asking, “Where’s my Pizza?” This service fractionally reduces costs for Domino’s as they no longer need the additional labor to communicate with customers since the technology can do it constantly.
• Reliability – displaying where the order is in the pizza-baking process shows a commitment to transparency.
• Humanity – the Domino’s Pizza Tracker widget is engaging for the customer, increases customer goodwill and brand loyalty, and provides valuable customer feedback to Domino’s (shmula.com, 2011).
One of the supporting activities in the value-chain process is technology development. This order-tracking, customer-feedback widget is also an example of how technology development can be used to decrease operations cost and increase revenue by influencing customers for repeat sales. This operational advantage is also an example of a temporary competitive advantage as this widget was not inimitable, as other pizza delivery companies now have their own versions of order trackers.
Domino’s has also implemented a new ordering system. Domino’s Pulse™ Franchise Office System assimilates franchisees’ financial, payroll and other store information with Domino’s system-wide PULSE™ order entry system. This system provides daily reports to store managers and assists in sales analysis and validation of accounting data. It also minimizes the time required for both Accounting and Payroll functions. In addition, the software provides corporate management with operating summaries to help manage the stores. The software system has decreased the payroll processing time by approximately 80% from 25 hours down to 4 hours for a franchisee with 70 stores. Store managers and supervisors can also get a daily overview of key performance indicators (KPIs) to assist in reducing labor and food costs. The system also provides hourly performance numbers which management can analyze to assist in scheduling the resources at the appropriate times (Servant Systems, 2018).
Moreover, Domino’s has pursued a vertical integration strategy in its supply chain and integrating dough manufacturing and other supplies and ingredients. Last year alone, Domino’s produced over 388 million pounds of dough (Domino’s Supply Chain, 2018). This type of volume enables Domino’s to leverage its economies of scale and provides consistency and quality in its products. It also frees up Domino’s store managers to focus on customer service and store operations.
Marketing and Strategy
Nested between Outbound Logistics and Service on the value-chain is Marketing and Sales. The focus of marketing and sales is to persuade customers and end users to purchase products and goods produced by the firm’s operations. Strategic marketing management consists of five interrelated, complex processes (Pearson, 2014):
1. Defining the organization’s business, mission, and goals
2. Identifying and framing growth opportunities and potential
3. Formulating strategies for products and markets
4. Budgeting marketing and production resources
5. Developing reformulation and recovery strategies
Let’s look at each of these marketing processes and how they relate to Domino’s internal environment and strategy.
Defining Domino’s business. According to Domino’s corporate website (biz.dominos.com, 2018), Domino’s “is a company of exceptional people on a mission to be the best pizza delivery company in the world.” Its mission is to be the number one pizza company in the world. Its goals are:
• To become the #1 pizza company in the world by 2020
• To provide the best return for its franchisees in the restaurant industry by creating a dramatically better experience for its customers
• And, to have a Leadership Team in place that would be ready to take Domino’s to the next goal: becoming the dominant #1 global pizza brand (Domino’s, 2017)
Identifying growth opportunities. Once the firm’s business, mission and goals have been defined, strategic marketing then searching for and evaluating organizational growth opportunities using three questions:
• What might we do?
• What do we do best?
• What must we do?
The first question, what might we do, identifies external environmental opportunities which have already been discussed in the external analysis. Domino’s strategy has settled on creating the best-tasting menu, including chicken, sandwiches, and pasta alongside pizza, at a competitive price with the most convenience. The second question, what do we do best, dives into the internal structure of the firm and utilizing value-chain and resource-based analyses, derives what distinctive competencies the organization can build upon to create a sustainable competitive advantage. Strengths such as the number of stores and outlets, the supply chain scale, and brand awareness and loyalty, are factors from which Domino’s can create and sustain competitive advantages. The last question, what must we do, introduces and identifies the important key success factors required to compete successfully. These items are referred to as table-stakes for consumers. Items such as good food quality, desirable taste, and competitive price will have to be maintained to gain market share.
Formulating strategies for products and markets. The next step in determining how marketing affects strategy is to look at the firm’s internal product-market strategy. We can determine from Domino’s annual reports that they have created a potent combination of three marketing strategies. The first is the market-penetration strategy. This strategy describes the firm’s desire to gain dominance in existing markets. It also seeks to increase the consumption rates of present consumers, to attract buyers from competitors, and to spark trial purchases from potential consumers. The second is market-development strategy. This strategy prescribes the introduction of existing offerings (current menu) to new markets. Since 2010, Domino’s has launched its brand in more than a dozen countries (Domino’s, 2017). The third strategy is product-development strategy. This strategy specifies the creation of new product offerings within existing markets. Since 2008, the Domino’s menu has changed significantly, either through the improvement of existing products or the introduction of new products, such as its Handmade Pan Pizza, Specialty Chicken, and pasta. International markets may vary its variety of toppings by country and culture, such as spicy cheese in India or squid topping in Japan. Domino’s also may feature regional specialty items, such as a banana and cinnamon dessert pizza in Brazil (Domino’s, 2017).
Budgeting resources. A budget is a quantitative expression of a firm’s planning and strategy initiatives. This formal expression balances the financial, production, and marketing resources of an organization to meet strategic goals and objectives. Master budgets have two parts: 1) an operating budget, and 2) a financial budget. In addition to the master budgets, many organizations prepare supplemental budgets such as a marketing and sales budget. Marketing budgets are designed to increase the value of brand awareness by more than what is spent by the firm to do so. As an example, Domino’s budgeted 20 grants of $5,000 to repair potholes in streets and roads. This $100,000 budgetary item is currently being used in conjunction with a major branding campaign. It is aimed at improving the “triple bottom line” by highlighting its commitment to social responsibility. According to Andrew Zaleski, “In return for this modest investment, the corporation is enjoying a feast of national media coverage and spicy takes, as Matt Pearce of the Los Angeles Times observed on Twitter” (Zaleski, 2018).
The $100,000 street repair budgetary item is small in comparison to Domino’s annual advertising spend. According to Statista, Domino’s advertising spending the United States has topped $300 million, or almost 15% of total revenue on average, in the past two years of 2016 and 2017 (Statista, 2018).
Figure 3 – Domino’s Advertising Spend; Source – Statista
Developing reformulation and recovery strategies. Strategies are rarely enduring and contingency planning must be conducted to increase the speed of reaction in implementing recovery strategies and remedial actions. Utilizing the following BCG matrix, we can audit Domino’s marketing environment, strategies and objectives to determine problem areas or areas of continued opportunities.
Insert section on BCG matrix?
Domino’s Pizza, Inc. (December 31, 2017). Form 10-K. Annual Report. Retrieved from: http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_DPZ_2017.pdf
Domino’s Supply Chain (2018). Retrieved from: https://jobs.dominos.com/dominos-careers/opportunities/supply-chain
Servant Systems (2018). Retrieved from: http://www.servantsystems.com/portfolio/dominos-2/
Shmula.com (September 12, 2011). Retrieved from: https://www.shmula.com/strategic-supply-chain-dominos-pizza-online/9243/
Statista (2018). Retrieved from: https://www.statista.com/statistics/308930/dominos-pizza-advertising-spending-usa/
Zaleski, A. (June 14, 2018). “Why Domino’s Pizza Is Fixing Potholes Now.” CityLab. Retrieved from: https://www.citylab.com/transportation/2018/06/dominos-pizza-is-fixing-potholes-now-and-thats-fine/562829/