CHAPTER II LITERATURE REVIEW 2.1Theoretical Framework Chapter two provides an overview of literature review containing several theories. Those theories will then be used as tools to answer the research question in chapter one and analyze the collected data. The theories used were based on the researcher’s topic regarding the business strategy for the restaurant. Moreover, the theory is obtained from various sources such as journals and books. To create a good business strategy, the researcher is using strategic management process. “Without a strategy, an organization is like a ship without a rudder, going around in circles. It’s like a tramp; it has no place to go” -Joel Ross & Michael Kami (R.David, 2011). Without strategic management, the company does not have a long-term purpose to be achieved. The theoretical framework which used are shown in the figure below. The theoretical framework above is used to solve the research problem in chapter one. It also helps the researcher to focus on formulate the right strategy for the company in long-term performance. This caused by Competition is getting tighter and company do not rely on short term plan. This also supported by Wheelen & Hunger (2012) which states that strategic management is an action of long-term performance which divided into several steps such as: Environmental Scanning External: PESTEL Analysis & Porter’s Five Forces Internal: Corporate Culture, Corporate Resource & Value Chain Strategy Formulation: EFAS, IFAS, SWOT & SFAS Business Strategy Formulation Figure 2.1 Theoretical Framework 2.2Environmental Scanning Environmental scanning is a tool to monitoring, evaluating, and dissemination of information from the external and internal environment from the key people in the corporate. The aims of environmental scanning are to identify the strategic factors, the external and internal elements for future corporation strategy (Wheelen and Hunger, 2012: 64). This tool used to ensure the company's performance. The simplest way to conduct environmental scanning is through SWOT (Strength, Weakness, Opportunities, and Threat) analysis. In chapter 2 of The Management of Strategy, Ireland, Hoskisson and Hitt (2010) stated definition of opportunity and threat: An opportunity is a condition in the general environment that if exploited effectively, enable a company achieve strategic competitiveness. A threat is general condition that may hinder a company’s efforts to achieve strategic competitiveness. The opportunities and threat will be known from external environment, while strength and weakness will be known from internal environment. 2.2.1External Environmental Scanning PESTEL Analysis The societal environmental is mankind’s social system that includes general forces that do not directly touch on the short- run activities that organization can do in long-run decisions (Wheelen and Hunger, 2012: 147). The factors that affect societal environmental are PESTEL. PESTEL analysis is a simple and effective tool used in situation analysis to identify the key external forces that might affect to organization. The purposes of doing PESTEL analysis are find out the current external factors affecting an organization; identify the external factors that may change in the future, and exploit the change or defend against them better than competitors would do. The PESTEL itself are: 1.Political These factors determine the extent to which government may influence the certain industry and economic. For example: tax laws; laws on hiring and promotions. 2.Economic These factors determine of an economy’s performance that impacts directly company and cause long-term effects. For example: interest rates; wage/ price controls; GDP trends. 3.Sociocultural These factors determine the societal environment of the market like cultural trends, demographics, population analysis, etc. For example: lifestyle changes; consumer activism; life expectancies. 4.Technological These factors examine innovation in technology that may affect the operations of the industry and the market favorably and unfavorably. For example: patent protections; new products; internet availability. 5.Ecological These factors consist of all that influence the industry by surrounding environment. For example: weather; geographical location 6.Legal These factors have both external and internal sides. There are certain laws that affect the business in a certain country. For example: consumer laws; production laws. Porter’s Analysis Task environment includes elements or groups that directly affect a corporation and, in turn, are affected by it. Industry analysis, popularized by Michael Porters, refers to “an in-depth examination of key factors within a corporation’s task environment” Porter (1984) says that “the collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long-run return on invested capital” (Wheelen and Hunger, 2012). Factors within are defines in porter five factors framework according to Porter: Figure 2.1 Porter’s Five Forces Models (Porter, 1998) Threat of New Entrants New entrants to an industry typically bring the new capacity, desire to gain market share and substantial resources. Moreover, the threat depends on the existing of new entrants’ Industry Competitors Rivalry among existing firms Potential Entrants Suppliers Buyers Substitutes Threat of New Entrants Bargaining Power of Supplier Bargaining Power of Buyers Threat of Substitute Products of Service reaction which can be the supply-side economies of scale, demand-side benefits of scale, capital requirements, customer switching cost, unequal access to distribution channels, cost disadvantages, independent of size, and restrictive government policy. Furthermore, an entry barrier is an obstruction that makes it difficult for a company to enter an industry. Threat of Substitutes Products or Services Substitutes’ product is a product appears to be different but can satisfy the same need as another product. According to Porters, “Substitutes limit the potential returns of an industry by placing a ceiling area”. It means that the force is strong on an industry when the switching costs are low. Bargaining Power of Buyers Buyers affects an industry through their ability to force decreasing the prices, bargain for higher quality and services, large-volume buyers, and buyer has the potential to integrate backward by producing the product itself if the vendors are too profitable. Bargaining Power of Suppliers Suppliers can affect an industry through their ability to raise prices or reduce the quality of purchased goods and services. Rivalry among Existing Firms A competitive move by one firm can be expected to have a noticeable effect on its competitors. Intense rivalry is related to presence of several factors including number of competitors, rate of industry growth, product or service characteristics, amount of fixed costs, capacity, height of exit barriers, and diversity of rivals. For competitors’ analysis, researcher using framework of 4P (Product, Price, Place, and Promotion) 2.2.2Internal Environmental Scanning Corporate Culture Scanning methods using the corporate culture basis includes corporate beliefs, corporate expectation and corporate values. Corporate culture is the collection of beliefs, expectation and values learned and shared by a corporation’s members and transmitted from one generation to other. Corporate Resource The corporate strategy Analyze corporate’s asset, skills, competencies and knowledge in each corporate functional structure.