Operations management (OM) are activities that relate to the creation of goods and services through the transformation of inputs to outputs. This essay is to critically evaluate the OM strategy of Hard Rock Café (HRC) regarding the ten major required OM decisions of operations managers, described in the Principles of Operations Management – Heizer and Render, Pearson Global Eighth Edition.
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Design of goods and services: The product design may refer to the improvement of the existing products or to the development of new products. The product design strategies need to adapt to the product life cycle for minimizing the costs and maximizing the profits. The principles of innovation will need to be systematically applied in product design processes for business success. The designed products have to meet the following requirements: response to the customers’ demands in term of quality, size, colour and layout, the designed items should be workable and profitable when they are put into production.
In its 39 years of existence, HRC has grown from a modest London pub to a global power, managing 129 cafes, 12 hotels/casinos, live music venues, and huge annual Rockfest concert in 40 different countries, serving 100,000 meals each day. The author believes that product design is contributing to this impressive success story of HRC. As we can see from the case materials, HRC always finds for reliable suppliers for quality products and on time services, the products at HRC have been being designed with its typical red colour and create value in the form of good food and entertainment. All the products are designed, tested before putting them into production; the production will only be processed if the ingredients are available from qualified suppliers.
From its website and case materials, we see that HRC has designed different menus for different restaurants; it is also updating the menu from its classic American foods to higher quality products. These are key success factors to the food and beverage business, because the people’ taste is different.
HRC applies the product concept in it product design, the customers come to HRC not only because of its café’ quality, but a dining event not duplicated anywhere else in the world, with a lot of different experiences, including its style, its entertainment, its service’ attitude, its valuable memorabilia’ pieces, its friendly atmosphere, all these well designed products are being displayed at HRC for its differentiation. The core value of HRC is “Love all – Serve all” has been designed and applied to all staffs, who are offering warmest reception and thoughtful service to all customers.
Managing quality: For any business that has the franchise and merchandise business, the management quality is key success factor; the customers buy the business right or merchandise thanks to the widely recognised quality of the product/service. The success franchise story of HRC with around 70 franchised restaurants around the World and 48% of a typical café’s sales from merchandise confirms the quality of its good and service.
From the case materials, we see that HRC is putting the quality management of its food and service on its top concerns, HRC is improving their food and service to accommodate the changing tastes through its surveys on regular basis, if customers do not give the highest score to its food and service, HRC considers its business as a failure.
Food safety and cleanliness are also key success factors for business in food and drink, in its 39 years of existence, HRC is serving more than 100,000 meals each day, but there is any reported food poisoning case related to HRC. I were very impressed with the enthusiastic and healthy staffs, the red colour and the cleanliness when I visited HRC in HCMC in 2009, all these feature are seen as a criteria of product quality of HRC.
Process and capacity design: A process strategy is an organization’s approach to transforming resources into goods and services. The objective of a process strategy is to build a production process that meets the customer requirements and product specifications within cost and other managerial constraint. The process selected will have a long term effect on efficiency and effectiveness of production, as well as on cost and quality of the goods produced.
In case of HRC, the organization is using the process focus, because food would be made with low-volume and high-variety to meet the requirements of food safety and of customer’ taste. From the case materials, we see that the process and capacity method together with the Microsoft Project planning and managing tool operated in HRC are enabling the organisation to serve well over 100,000 enthusiastic fans in big events such as Hard Rock Live Concerts, Annual Rockfests…, even with surprised circumstances.
We see that HRC also uses its forecast results to its process and capacity design, it uses long-range forecasting in setting a capacity plan, intermediate-term forecasting for locking in contracts for leather and goods, and short-term sales forecasts in ordering food items. The forecast system in HRC works efficiently and helps the café managers to effectively operate the business, including employee scheduling, bonus setting and menu planning.
Location strategy: With the fast globalization of business and the government calls and preferential to foreign direct investments, and signed free trade agreements, entrepreneurs have a lot of choice for location of their business. The decision on location of business will need to take account of PESTLE (political, economic, social, technical, legal and environment) analysis as well as human resources, wages, currency policies, raw materials, real estate. The objective of location strategy is to maximise the benefit of location to the firm.
From the case materials, we see that HRC puts much serious efforts into its location analysis, for example, HRC spent 3 years of advance for preparation its restaurant in Moscow. HRC uses Hard Rock’ Standard Market Report for offshore sites with detailed analysis of trends in demographic, visitor market, of transportation, restaurants and nightclubs, political risks, real estate market and of HRC comparable market analysis, currency, social norms and possibility of brand development. It also uses the break even analysis to decide on the investment’ options for its facility. The core value of HRC with “Ensure the long term growth and success of our organisation”, is being strictly respected in it location strategy, for any location decision, HRC requests for at least 10-15 year commitment.
HRC always select the cities of visitors, for example, the Orlando based head quarter is a World City, the home of Walt Disney World, with annually around 52 million visitors, Moscow is the city of millionaires, Bogota is the centre of art, culture in South America, Venice where visitors are slightly bigger than resident peoples, Bangkok, Beijing, Hong Kong and Ho Chi Minh (HCM) City are most visited cities in Asia…The selection of a particular site within a selected city is also part of location strategy, HRC has located it first café in HCM City at 53 Le Duan Street, this is the street of visitors and entrepreneurs.
Layout strategy: A high relevant layout strategy will help to establish an organisation’s competitiveness priorities in regard to capacity, process, and flexibility, and cost, quality of work life, customer contact, and different image.
From the HRC’ case materials and its website, we see that HRC owns efficient kitchen layouts, motivated personnel, tight schedule, and the right ingredients at the right place, the displayed Hard Rock Values “Love all – Serve all” at the entrance, those efficient layout strategies delight its customers.
HRC uses its typical red colour in banner, logo, website, restaurant and bar layout, together with light and sound system, screens, rock and new music, a huge investment in rock ‘n’ roll memorabilia and retail bars, all these layout strategies help customers to differentiate easily HRC with other restaurants and make HRC’ brand recognised at 92% as one of the highest in the world. HRC has also developed a website for its communication and layout strategy.
Human resources, job design and work measurement: The greatest asset of a business is not its building, its equipment, its inventory or account receivable. It is the employees. Hiring the right person for the right job with decent working conditions are keys for success. The objective of a human resource strategy is to manage labour and design job so people are effectively and efficiently utilized. Mutual commitment and mutual trust between managers and employees help to establish constructive industrial relations for high productivity and competitive advantage in business. Fair staffing policies with appropriate work rules, pay plans, fringe benefits, and working conditions are key success factors of human resource strategy.
From the case materials of HRC, we believe that HRC has developed an excellent human resource (HR) strategy, its HR department gives priorities to applicants who have job skills, bright, positive attitude, self motivation, who are passionate about music, who love to serve peoples and finally who are able to convey the HRC’ experience to customers. The training department provides two days orientation training to all new staff and other follow up couching training courses that help their employees develop both personally and professionally.
The Hard Rock core values are being introduced to all new staffs and applied to all employees; these values encourage the innovation, creativity, self motivation, productivity of all employees. HRC requests their employees to protect the planet and to practice honesty, integrity and professionalism; these actions ensure the long term growth and success of HRC.
HRC is building an organization’ culture where people are able to fully enjoy their work, where the substantial diversity and individuality are accepted. HRC applies outstanding pay and benefits and facilitate the part-timers with only 19 hours per week. Especially HRC encourages a high level of internal promotions with some 60% of the managers are promoted from hourly employee ranks. The unique culture and work environment at HRC contributes to the low turnover of hourly people and encourage the applicants from potential talents around the world.
However, we do not see clearly from the case materials what strategies HRC applies to evaluate the performance of their employee, the author believes that a results-based performance evaluation system would be a good method and tool to employee’ performance monitoring and evaluating at HRC, each employee will work with the supervisor to agree on a list of key results, these results may have both personal results and organizational results that the employee has to achieve within the given time. The results much be SMART (specific, measurable, achievable, realistic and with a time bound) and be reviewed and updated and evaluated, ensuring the productivity and personal development of employee and growth of HRC.
Supply chain management: Supply chain management is the integration of the activities that procure materials and services, transform them into immediate goods and final products, and deliver them to customers. These activities include purchasing and outsourcing activities. The objective is to build a chain of suppliers that focuses on maximizing value to the ultimate customer. Strategies of low cost, rapid response, stable quality and quantity are key success factors of supply chain management.
For the food-service business in HRC, the management of suppliers is top concern of OM managers, because HRC will need high quality products (chicken, pork, beef, eggs, ingredients…) and transform them into fresh and high quality foods and merchandise with appropriate taste to its demanding customers. The food safety, and freshness and rapid response are main criteria for selection of suppliers. We see clearly from the case materials that HRC takes into account the high importance of selection of suppliers, the menu items are only put into production if the ingredients are available from qualified suppliers. When HRC opened in Moscow, it ended 3 years of advance preparation of a Russian supply chain.
However, we do not have much information from the case materials about the strategies that HRC applies to manage supply chain risk, ensuring the food safety in all its restaurants. The author thinks that several measures that help HRC manage effectively and efficiently the supply-chain risk may include the regular and surprise monitoring visits to suppliers, the third-party audits on supplier process and logistic or the development of few but exceptional suppliers who will provide the lowest costs and highest quality. Long term partnership development, vertical integration with suppliers is also good strategies to manage supply-chain risk. HRC may want to develop and sign long term partnership agreements with producers or producers’ groups, agricultural cooperatives for its supply chain.
HRC may also conduct value chain analysis of its major chain (chicken, eggs…) from producer-trader-wholesaler-retailer-consumer to identify the opportunities for value chain upgrade and improvement, and to ensure the cost and competitive advantage of the organisation.
Inventory material requirements planning, and just in time (JIT): inventory is one of the most expensive assets of many companies, representing as much as 50% of total invested capital. A good inventory management helps the company to reduce costs and manage efficiently the production. The objective of inventory management is to strike a balance between inventory investment and customer service. The firms must carefully control critical items, keep accurate records, count inventory regularly, and avoid theft and damage.
For food and beverage service business in HRC, the inventory is very important to make sure that all the foods and drinks and merchandise do not exceed the expiry date, HRC always have available fresh ingredients, foods, drinks and merchandise to serve its customers on time. HRC is investing a huge amount ($40 million) to its memorabilia’ pieces and many are the unique and most expensive pieces in the world such as: Clapton’s silver suit from 1969, Sting’s Fender Precision Bass used in the 2001, guitar worn and used by Guns N’ Roses’ guitar from early 90s, Madonna’s bustier from 1990, guitar owned by Sex Pistols’ guitarist Glen Matlock from 1970s, and harpsichord used by The Beatles from 1967…. It is for sure that HRC must carefully control these valuable pieces, keep accurate records, count inventory regularly, avoiding theft and damage for its exhibition’ purpose.
Intermediate and short term scheduling: Good scheduling means lower costs and faster and more dependable delivery. For HRC’ businesses, both capacity planning, annual scheduling and short term scheduling are very important. HRC’ OM managers have to make sure that they always have capable and available staffs to serve its customers on time for daily businesses and important periodical events. HRC’ OM managers have developed proper schedules, ensuring the effective and efficient management and the turnover of employees. HRC takes into consideration of sales, priorities, short term sales trends, annual sales forecasts, coming big events nearby the restaurant and seasonality to develop its schedules. HRC managers also take into account the seniority of employees in filling the daily schedule; this is very importance, because seniors have experience, the more senior the employees are, the more they produce profit.
Maintenance: Quality and control are keys to success. HRC owns a lot of equipments and furniture for its businesses, especially HRC owns many most expensive pieces of memorabilia and needs to have a proper maintenance of these valuable pieces. HRC also does regular menu review and customer’ survey to update and improve its foods and drinks.
Other References:
Heizer and Render, Principles of Operations Management – Pearson Global Eighth Edition, page 56, 57, 83, 222, 346, 452, 453, 616
Assignment question 2. Discuss the OM challenges and opportunities for HRC when considering an expansion of its business into Hanoi.
PESTLE (political, economic, social, technical, legal and environment) and other related business enabling factors analysis.
PESTLE’elements
Challenges
Opportunities
Political
Vietnam is a mixed economy (private, foreign and state-controlled enterprises) and government still plays a big role in planning and governing;
Many countries do not recognize the market economy for Vietnam yet;
Vietnam has a very good political stability and Hanoi is the City for Peace recognized by UNESCO;
There is positive attitude and strong supports from government and communities to foreign investments;
Economic
The inflation is quite high (12%), but manageable;
Poverty is declining (from 22% in 2005 to 9,45% in 2010);
High stable rate of economic growth (7-8% annually);
Social
Vietnamese love street foods and drinks;
Young peoples become more dynamic and love stylish restaurants and cafes;
Visitors is increasing in the last ten year and annually around 4 million visitors in Hanoi
Technical
Power shortage is now very current with increasing demand;
Internet is widely accessible and reasonable price;
Legal
The implementation of Laws is a real challenge due to poor quality of human resource and corruption issues (116/178 ranked countries);
Strict rules to bar and nightclub’business (close time is 11:30 PM);
Available Enterprise Law, Investment Law and other global and regional agreements (WTO, ASEAN, APEC…);
Environment
Traffic jam is a major problem in Hanoi;
Hanoi has 1000 years with a lot of investment to infrastructure for tourism development;
Human resources
Vietnam killed workforce for service’s industry is low;
Around 1 million new entrants to labor market each year;
Wages
Wages in food-service business is not attractive to young talents;
Values of HRC may be attractive to Vietnamese young talents;
Currency policies
The management of exchange rate is not flexible;
The low value of Dong compare to Euro and USD is good to import goods;
Raw materials
Climate change affects to agricultural production;
Foods safety is a major issue due to uncontrollable production processes;
Vietnam is an agricultural country, 60% labours work in agriculture, forestry and aquaculture;
Rice, aquatic products, coffee, vegetables, cashew nuts, pepper and tea are major exported items of Vietnam
Real estate
High fluctuation of price in recent years;
Supply’source is increasing, but price is high due to high price of constructions, materials and interest rate.
Available land law and real estate business law;
Real estate market has closely connected to gold and stock markets.
Operations Management (OM) strategies analysis
OM decisions
Suggested OM decision’strategies to HRC for expansion of its business into Hanoi
Design of goods and services
The Hanoi’culinary specialties and its draught beer are always highly appreciated by visitors and resident peoples, HRC will need to study the eating and drinking culture in Hanoi to design its goods and services.
It is suggested to design two kinds of food/drink products to two groups of customers, including western stylist products to local youths and entrepreneurs and Hanoi’improved specialties to visitors.
Its entertainment, its service’attitude, memorabilia’displays and enthusiastic atmosphere and the core value of “Love all – Serve all”will need to be strengthened.
Managing quality
Food safety is a major issue in Vietnam, especially in Hanoi and HCM city, according to an official announcement of WHO in 2007, there are annually 8 thousand reported food poisoning cases in Vietnam, in reality this figure represents only 1% of the total, this is largely due to the use of uncontrollable pesticide in agriculture.
The local traders are able to provide fresh and cheap local raw agricultural products for competitive advantage, but they are not familiar with long term contract based businesses yet, HRC will need to carefully manage the quality of local products, avoiding food poisoning issues.
The implementation of laws on quality management and control is still weak, counterfeit and imitation are widespread in Vietnam. Special anti-imitation measures to its merchandise with high technology will need to be adopted in design of goods. Merchandise is only displayed and sold in at authorized retail bars.
Process and capacity design
HRC will need to adopt process focus to its process and capacity’design, most of active peoples in Hanoi have lunches in café-fast food, employee and menu planning for lunch time is very important.
Vietnamese organizations and peoples usually organize impromptu parties or parties to celebrate an organisation’and personal events, such as new year, women day, labour day, birthday, new car…in bars, café with colleagues and friends. Peoples are not familiar with pre-booking practices and HRC will need to be pro-active in doing frequent surveys and forecast of potential customers for process and capacity’design.
Location Strategy
HRC will need to clearly identify its targeted customers for the selection of a particular site within Hanoi. Actually, Hanoi owns 3.324,92 km², but it will be enlarged to 13.436 km2 in 2020 (mostly to South-West and North-West).
If HRC will target visitors, a site in Old Quarter is a good place, If HRC would like to serve young talents and entrepreneurs, a site in the South-West, where living the rich peoples, and locating the national stadium, national conference centres, is better.
Real estate market in Hanoi doesn’t work with market principles, due to speculation and corruption, the marketing price is much higher than the real price. HRC may want to use the break even analysis to its investment’decisions of facility.
Layout strategy
HRC will need to enhance their designed layouts that help customers to differentiate easily HRC with other famous café bands in Vietnam.
Human Resource
According to the ILO and General Department of Vocational Training in Vietnam, there are around 1 million new entrants into labour market each year in Vietnam, but they are not well trained to service-business, working discipline and to entrepreneurship, because vocational training in Vietnam isn’t prioritizing these subjects in training curricula.
In addition to orientation training and follow up training of HRC’business values and practices to its employees, HRC will need to provide training on discipline and entrepreneurship to employees and prepare them working productively in enterprise.
Supply chain management
Currently, many international organisations such as CARE international, World Vision, ADB, WB, UN agencies…are supporting the rural poor to produce safe agricultural products for better market participation through the supports to the creation and operation of farmer’s groups, agricultural cooperatives, and rural enterprises. It is suggested to HRC to cooperate with these organisations to develop and manage the local suppliers; this will help HRC in one hand approaching the potential customers from these organisations, and in the other hand, contributing to poverty reduction and social responsibility in Vietnam for support from Government.
One other strategy is to develop vertical cooperation with few but exceptional local suppliers and to conduct regular and surprise visits and third-party audits to manage the supply chain risks such as food safety.
Inventory and JIT
Vietnamese are not familiar with long waiting time in restaurants; the quick service is key success factor that HRC will need to take into account for its services.
Short term scheduling
As mentioned above, HRC will need to well schedule its employees for lunch’time and to have available employees for impromptu parties. Forecast of sales and regular surveys are good practices to Short term scheduling.
Maintenance
Hanoi has a very damp climate, the maintenance of its furniture and memorabilia’pieces are very important to avoid damage.
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