Managing Innovation in Business
In this study, efforts have been made to evaluate innovation strategies adopted by Subway to gain popularity and sustainability in the market. The particular company has been considered to illustrate its survival strategy in the fast food chain industry in attracting augmented numbers of consumers other than the competitors. The outline of the study develops vivid understanding regarding the innovations carried out by Subway in its primary product, i.e., submarine sandwiches. The marketing mix adopted by the company has proven to be fruitful in attracting new sets of customers worldwide. Utilizations of various analytical tools such as PESTEL and SWOT have helped in analyzing the internal and external business environment and strategies adopted by the company to sustain the business. Findings of the study exhibit that innovation of its product has been a predominant factors behind its success in the global arena contributing towards developing a distinct identity. However, it has been assessed that innovation is a continuous process to cope up with the changing needs of customers, therefore there is room for implementing new strategies to continue with its success in the market.
The essential purpose of this report is to examine the history of Subway in order to gain relevant insight into the factors at play in the course of enforcing innovations in respect of the primary product of Subway. The food business industry has been selected, as it is my ambition to work and excel in this industry in the future. The specific company of Subway has been chosen due to the fact that Subway is the global leader in its field. The submarine sandwich has been chosen as the product of study because Subway came up with its idea and innovated it over the years. A SWOT table has been formulated with regard to the industry and its market. In addition to this, the information has been analyzed and applied to prepare document regarding the future innovation of the Company.
The organization and industry overview
A careful study of Subway’s history provides sufficient insight into its inception, its present market capabilities, performance, and the mechanisms that has been followed by Subway in the course of becoming the world’s largest sandwich chain. Subway is present in more than 44,000 locations all over the world. It is present in 110 countries around the world. The franchises and restaurants have followed a certain motto that has catapulted its growth in the food industry. Subway’s vision is “Be the Number 1 Quick Service Restaurant (QSR) franchise in the world, while delivering fresh, delicious sandwiches and an exceptional experience.” The procedure employed in all the different areas of Subway essentially follows a lean approach. In addition to this, subway uses the “pull system” and “Just in time” delivery system in order to minimize wastage and maximize productivity. Subway also uses eco-friendly packaging material, platters etc. It makes use of eco-friendly furniture, low flow taps and low-energy lighting in its outlets. Subway has more outlets in America than Starbucks and McDonald’s has combined (Burch and Lawrence, 2005). The subway franchise saw tremendous growth over the last few decades owing to the fact that it provided a healthy alternative to people who were wary of fast foods. The prices at which they provided these products made Subway unstoppable in the period of Great Recession. It created innovation by way of “build-your-own-meals” procedure (Fosfuriand Giarratana, 2009).
The 4Ps of Innovation Space
The primary products sold by Subway are in the form of sandwiches. However, they provide diverse form of sandwiches in the form of subs. In addition to this, they provide beverages or other items that go with it.
Subway has evolved a mechanism of providing the products to their customers that has been path breaking and established it as the world’s largest sandwich chain. This procedure is known as “build-you-own-meal”. This essentially means that the customer can customize their sandwiches as per their own requirements.
The subway outlets are primarily positioned at big cities or developing cities in a macro outlook. When a micro outlook is employed, it has been observed that subway outlets have been located in comparatively high-income areas as well as areas that are easily accessible from major landmarks or residential areas.
Subway redefined the entire QSR industry all over the world and especially in America. They brought about a paradigm shift at how people look at the food that they eat on the go. Subway’s “eat fresh” motto has made it the global giant in the industry.
Innovation timeline of Subway
|1965||Subway Opens. The submarine sandwiches were an innovation in itself.|
|1965-75||The submarine sandwiches came a long way from being simple foot long sandwiches. Various new ingredients began to be used.|
|1976-85||During this period, Subway sought to standardize their “eat fresh” motto by using the freshest ingredients available in the market at the time.|
|1986-95||During this period Subway started adding healthier ingredients to their sandwiches. Spinach, in particular, began to be used. They also popularized their “build your own meals” concept during this period.|
|1996-2005||During this period, Subway had already gone global and they started to delve into the rich spices and condiments available in different parts of the world. This made the food tastier.|
|2006-2016||During this period Subway started using egg-white patties for breads in their sandwiches.|
|2016 and beyond||It has been observed that Subway’s idea of “eat fresh” has lost its luster over time. People’s understanding of “fresh” has undergone a paradigm shift. Hence, Subway saw a considerable fall in revenue in the years 2015 and 2016. Subway needs to catch on to the global trends of the fast food industry in respect of its products as well as its marketing strategies.|
Subway started with a single product in mind, submarine sandwiches. Thereafter, they innovated the product over the years. In the 1980s the subs were simple, slit Italian bread with veggies and/or meat at the centre. In the 1990’s they started adding spinach in order to make the subs healthier. In the 2000s, they started adding other condiments and spices to the mix in order to make the submarine sandwiches tastier. After the 2000s, Subway started the use of egg-white patties. These patties make a terrific sandwich (Ottenbacher and Harrington, 2009). It can be positively asserted that these innovations were carried out by subway for the following purposes:
- To make their product wholesome. To convince their consumers that they are getting value for money.
- To make their product healthier. This is the major reason for using fresh ingredients in their sandwiches.
- To make their food tastier. This was the reason for using the various spices and condiments in their submarine sandwiches.
- To stay ahead of global trends. The use of egg-white patties was a game changer for Subway. This was incorporated by Subway in order to stay ahead of the competition in the fast food industry.
It can be safely asserted that Subway started out with radical innovation with its never seen before product but transitioned into incremental innovation as its market increased (Moreau, 2011).
However, looking at the present context and Subway’s performance in the last two years, it can be safely asserted that Subway needs to reinvent itself. Subway needs to understand the understanding of the word “fresh” has changed drastically among the masses. In addition to this, that various fast food companies are becoming increasingly cautious of the raw materials that they purchase for preparing their products. It has been observed by various eminent and renowned personalities that the other companies, especially indigenous fast food companies are fast taking over the market. They have adopted and enhanced the idea of “eat fresh” that was first perpetrated by Subway. In the wake of this, Subway mustreinvent its product as well as marketing strategies to stay ahead of global trends and remain a global leader in its own right.
Political Factors: Subway is currently present in 110 countries and has over 44,000 outlets all over the world. The government policies and political environments are diverse in these countries. Subway has to deal with these diverse political factors.
Economic factors: Global economic recession is one of the economic factors that is relevant to subway. However, Subway saw robust growth during the recent global economic depression.
Social Factors: As Subway is present in diverse markets, it has to deal with diverse social factors unique to each of these markets. Subway needs to carefully identify the locations that are influenced by the western culture for diversification.
Technological factors: Technology has been the most widely and critically studied aspect of the Subway franchise. It has been claimed that Subway uses outdated technology. More user-friendly apps must be made available to the consumers.
Environmental Factors: Subway already uses eco-friendly material for its packaging and other purposes. However, significant changes can still be affected by Subway in the present scenario where “going green” is the way to go.
Legal factors: Diverse rates and mechanisms of taxation are present in the diverse markets in which Subway is present. License requirements are another important issue for Subway. Diverse criterions of minimum wage are present in the different countries.
Porter’s five forces analysis
|Bargaining power of suppliers: Bargaining power of suppliers is low in case of fast food industry as there are multiple suppliers present for each raw material.||Bargaining power of buyers: Bargaining power of buyers is high as there are various substitutes of Subway in the fast food industry.|
|Threat of substitutes: Threats of substitutes is high as Subway is a global restaurant chain and it competes with the indigenous products in each market.||Threat of new entrants: Threat of new entrants is high as setting up a fast food franchise does not take heavy investment.|
|Industry Rivalry: All the above factors create a unique industry rivalry for Subway in the context of the entire fast food industry. It can be safely asserted that industry rivalry is high and the need to stay abreast of the global trends is paramount.|
The Organization’s Existing Innovation Performance and Capabilities
Refer to Appendix 1 for SWOT Table.
- Physical Resources: The physical resources of Subway include the various outlets that it owns in more than 110 countries all over the world. There are over 44,000 Subway outlets all over the world. In addition to this, Subway owns the machinery and other equipments used in the production of its items.
- Financial Resources: Subway has access to massive financial resources by way of capital, stocks. The net worth of the Subway brand was $7.1 billion in 2016 (Forbes.com, 2017). It has made sales worth $17 billion. However, Subway’s yearly revenue fell by 4.3% to $1.11 in 2015 and by 2.6% in the year before that. Slow adaptability and rapid growth of subway has been cited by Subway as the causes for this decline.
- Human Resources: The Subway brand has around 804560 employees around the world.. However, the classification of employees and franchisee owned are somewhat muddled in case of Subway. When the total number of employees of the Subway brand is evaluated, the franchisee owners as well as the employees in each franchisee is counted. However, the franchisee owners are not essentially employees. They are contractors.
- Intellectual Resources: The intellectual resources of subway are the recipe they use in whipping up the various ingredients that are used in their products.
- Value of strategic capabilities: The strategic capabilities of Subway include the fact that it has a diversified market. This essentially means that the company can still generate acceptable patterns of revenue even when half of the global economy goes through recession. It is of paramount importance to mention here that Subway saw robust growth in the period of global recession. The value of the strategic capabilities of Subway is high.
- Rare/unique Strategic Capabilities: The unique strategic capabilities of Subway are the idea of sandwich artists and three-employee outlets. The idea of “eat fresh” developed by Subway was unique. However, other companies in the food business industry have adopted this idea. The essential modification that Subway has to make now is to reinvent this idea in accordance with the public’s understanding of eating fresh. In this regard, it must be stated here that Subway has shown an unique capability of carrying out widespread reforms within its business in a rapid manner.
- Inimitable Strategic Capabilities: The inimitable capabilities of Subway refer to the quick delivery service that subway provides to its consumers. This is essentially due to the excellent training of the employees prior to their appointment. In addition to this, the procedures implemented by Subway in carrying out its business are inimitable to a certain degree. The recipe to prepare the ingredients used in the products delivered by the Subway food chain is an inimitable capability of Subway.
- The Value Network or Value Chain Analysis: (Refer to Appendix 1 for diagram)
The industry in 2016 and beyond
A decline in the revenue and market share has been observed over the past two years for the Subway brand. However, the Subway’s market is rock solid (Lichtenberg, 2012). The essential problems that subway is facing right now are the effects of rapid growth and slow adaptation.
Rapid growth: As subway went through a period of rapid growth, it has not has sufficient time to consolidate its position in the diverse markets that it has penetrated. On the other hand, rapid growth essentially pushes a company towards ignorance in respect of home market and its consumers. It gets too caught up in growth and diversification that it fails to provide acceptable standards of customer satisfaction.
The innovation of this company that is Subway has been done considering the latest trend in the fast food industry. The Sandwich Submarine, which the company has decided to include in the menu, is one of the latest trends in the fast food industry. The other trends include the delivery facilities, working consumers, animal welfare. However, Subway has chosen this particular menu in order to innovate because, this is food that will attract the customers who are always in a hurry and want to consume an eatable that is fast and light as well.
In this era, where work is an inevitable part of life and desk lunch has become a trend, this product will work as a wonder and have chance to be widely accepted. Through the SWOT analysis mentioned above, all the aspects of the innovation related to its success and failure is very evident. The strengths that have surfaced are in support of the launch of the new product. Therefore, the innovation will be widely accepted by the customers in the industry of fast food. However, the weaknesses, the threats and the opportunities need special consideration for future innovation in this industry. The technology employed by Subway is not updated which is a drawback on the side of the company in terms of taking order and delivering the products and payment as well. Therefore, Subway should go for innovating in the technology that the competitors Gregg’s, Percy Ingles and MacDonald’s, are employing so that it can achieve the competitive advantage.
Slow adaptability: There have been various claims made by diverse people that the technology used by Subway at present are outdated. In addition to this, Subway’s philosophy has become repetitive as various companies like Gregg’s, Percy Ingles and MacDonald’s have adopted and enhanced it in the food business. These companies are providing fresher edibles by incorporating fresher ingredients compared to Subway. This is where Subway has lost out. The idea and understanding of the word “fresh” has undergone a paradigm shift over the past few years and Subway has been left in its tracks (Shaharudinet al.2011). This has allowed other companies to get in on the competition and strong-arm Subway into submission in various markets.
Subway needs to update its product (Jackson, 2010). In addition to this, Subway needs to incorporate new idea in its business strategy. Innovation only in its product will not be enough. Innovations must be carried out in its marketing as well. These innovations can be by way of food trucks in areas from where the subway outlets are not easily accessible, but comprise of people who consume Subway products. Subway also needs to come up with a mobile app on different platforms in every market or countries where they are present. This app shall allow the consumers to order food from the luxury of their homes, offices, etc. this shall tremendously bolster the revenues of Subway. Subway also needs to incorporate latest technology in their outlets. This app shall also allow the consumers to customize their submarine sandwiches (Antonssonet al. 2011). In addition to this, Subway must thrive to get access to fresher ingredients for their products.
If the Subway brand is able to incorporate all of the above in a period of innovation and consolidation, it shall be able to easily increase its revenues and gain its former position in the food business. Subway needs to essentially embark on a mission of massive innovations in all sectors of its business.
Subway is present in multiple markets in multiple countries with diverse social, political, economic and other conditions at play. In such a situation, bringing about innovation in its business operations and product is going to be extremely tricky. It can be safely asserted that if Subway chooses to innovate in a standardized way, it must keep in mind the diverse factors at play. If subway chooses to carry out innovation in its product through adaptation, it must show proper care in the implementation of the procedure in its innovations. Innovation is a continuous process and the ones who stop innovating according to the needs of the times are essentially knocked out of the competition.
Value Chain Analysis of subway.
(Davis and Stewart, 2002)