Outback Steakhouse Case Study

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Overview of the Outback Case Study Analysis

The authors of the Outback Goes International study, (hereinafter the “Study” or “Case”) depict a restaurant company, Outback Steakhouse, (“Outback”, the “Business”, or the “Company”) that by 1995 had experienced significant growth over the prior seven years. The Case addresses how management identified international expansion and product diversification as the principle elements of a strategic plan formulated to continue rapid expansion.

This report will evaluate Outback’s strategies of international expansion and restaurant diversification in light of alternative means of achieving enhanced shareholder value via growth. Several uncertainties and challenges, which management acknowledged and the Case documents, faced Outback. The methodology used by the Company to consider its strategic options will be addressed by this report as well. The analysis contained herein will evaluate issues pertaining to those challenges, relying on the comparative performance of the Company’s publicly traded stock as the ultimate measure of management’s success or failure.

This report will first evaluate the fundamental elements of the companies’ strategic plans, incorporating published academic research regarding strategic decisions, risks and the basis for management’s decisions. Additionally, further evaluation of the opportunities and competitive achievements in the international arena will be conducted. Finally, this report will attend to and appraise the ultimate financial performance achieved by the Company since the establishment in 1995 of its strategic plans and subsequent preparation of the Case being analyzed herein. Comments from Outback’s legendary C.F.O., Bob Merritt, will serve to punctuate the conclusion of this analysis; Outback’s strategies of product diversification and international expansion did not pay off for shareholders.

Strategic Planning Methodology

In evaluating Outback’s strategic plan this report adopts the fundamental assumption that management has as its primary objective the creation of shareholder value. Presumably, strategic decisions of management are designed to support this value proposition. A number of alternatives exist for companies to create value and Outback’s challenge was to weigh potential returns of alternatives against their inherent risks.

Adrian J. Slywotzky and John Drzik of Mercer who document seven classes of strategic risk in their April 2005 article Strategic Risk Management published in the Harvard Business Review, set forth that in managing strategic risks there are an, “array of external events and trends that can devastate a company's growth trajectory and shareholder value.” It is evident that Sullivan, Outback’s chief executive, was aware of risk when he stated, “…the world is becoming one big market, and we want to be in place so we don’t miss that opportunity.”

Management can react to risk through five generic responses as addressed in "A framework for integrated risk management in international business", published in 1992 by Dr. Kent Miller in the Journal of International Business Studies . Miller’s five responses are identified as avoidance, control, cooperation, imitation, and flexibility. Sullivan and his management team’s plans reflected their primary concerns over two of the strategic risks identified by Slywotzky and Drzikclear; stagnation and competition. Stagnation is characterized as flat or declining sales volumes; in the case of Outback slower growth. The risk of competition is characterized by emerging competitive threats; in the case of Outback this strategic risk was represented by restaurant competitors in their markets. These were appropriate concerns and priorities given the facts of the Case.

In responding to these threats, management’s reaction reflected four of Miller’s five categories of risk responses including control, imitation, cooperative responses and organizational flexibility...
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