Read this case study and answer the following questions at the end.

MiniCase 11 Chick-fil-A's Structure, Culture, and Control

"To glorify God by being a faithful steward of all that is entrusted to us. To have a positive influence on all who come in contact with Chick-M-A." S. Truett Cathy, Chick-fil-A founder What is America's must profitable fast food restaurant? Answer: Chick-fil-A, with sales per restaurant double that of McDonald's, more than double that of Chipotle, and almost three times as much as Wendy's (see Exhibit MCIl.I). How does a smaller chain of restaurants serving chicken sandwiches outperform multinational giants such as McDonald's, Burger King, and Starbucks by such a wide margin? Clearly, Chick-fil-A has a competitive advantage-but how did it gain and sustain it? Chick-fil-A's structure, culture, and control afford it advantages that other competitors find hard to match. Chick-fil-A's Birth and Values Chick-fil-A founder S. Trueti Cathy grew up during the Great Depression (1929-1939) in Hapeville, Georgia, a small town close to Atlanta's international airport. Like many Americans, the Cathy family faced financial hardships during that challenging time. The family lived in the nation's first federal housing project. Unable to cope with the stresses of his life, Truett's father was abusive and regularly beat his children.

Truett adored his mother. From her, he inherited his love for the teachings of Jesus Christ and learned her Southern cooking skills. From a young age, he turned to his Christian faith to sustain him during the economic and family hardships he faced during his formative years. He also learned early on that he needed to take care of himself, which lit the fire of ambition sustained by a strong work ethic. After serving in the Army during World War II, Truett opened a tiny 24-hour diner near the Atlanta Frank T. Rothaermel prepar red this MiniCase from public sources for ciass and all errors and omissions are entirely the author's. Revised and updated: AURUSIIU,2064.Pidlk . NoacrC airport (in 1946) with the fitting name of Dwarf Grill. Implementing his Christian faith into his business, he decided from Week One never to open on Sundays, stating that if he had to work seven days a week to make a living, he should find a different profession. A devout Southern Baptist, he attended church each Sunday and taught Sunday school for over 50 years.

The Classic Chick-fil-A Sandwich A beneficial chance event was crucial in creating the now-iconic Chick-fil-A sandwich. The Dwarf Grill was doing okay, but Truett faced a highly competitive market because many returning Gls opened diners after World War II. As such, Truett was always looking for ways to differentiate his offerings. In the early 1960s, a local poultry supplier for Delta Airlines provided bone less chicken breasts to fit in the small plastic trays for in-flight meals. However, the chicken breasts in one batch were too big for the trays. Needing to unload the chicken breasts, the poultry supplier asked Truett if he would buy them. In his search to develop a different menu, Truett bought the chicken breasts and staried experimenting with a pressure coker, peanut oil, and seasoning for the breading. By 1964, long after the first batch of chicken breasts was gone, he had come up with the perfect recipe: a breaded chicken breast on a buttered bun with two pickles. His guests loved it, so Truett decided to stop tinkering with the recipe. He wrote down the recipe on a piece of paper, which is now locked in the company's vault. It is said to be known to fewer people than the Coca-Cola formula. To communicate that his chicken is more like an A-grade filet, he christened his sandwich the Chick-fil-A. Growth Having perfected the classic chicken sandwich that his customers loved, Truett Cathy set out to expand beyond the Dwarf Grill. Catching the economic boom of the 1960s, during which large shopping malls were springing up near cities, he opened the first Chick-fil-A restaurant in 1967 in the Greenbriar Mall (Atlanta). Cathy was not only an inventor in the kitchen but also one of the first restaurateurs to realize that building take-out joints in a mall was much cheaper than running stand-alone diners. As such, he was a pioneer in helping to create food courts in shopping malls. In the 1980s, the United States experienced a severe recession. Chick-fil-A faced its first serious challenges because business declined, and no new malls opened. The company's leaders debated whether to sell the com-pany. But instead, they ended up going on the offensive by building free-standing Chick-fil-A restaurants with drive-throughs. Sales took off. By 2006, Chick-fil-A had booked more than $2 billion in annual sales. And just 10 years later, in 2016, Chick-filA crossed $10 billion in sales. In 2019, Chick-fil-A moved beyond the United States by opening a restaurant in Toronto, Canada. Exhibit MCIl.2 shows the Chick-fil-A timeline from its founding until 2022.

In 2021, Andrew Cathy, Truetts grandson, took over as CEO of chick-fill-A from his father Dan Cathy. In 2022, Chick-fil-A had about 3,000 restaurants, and sales were over $16 billion. While McDonald's has about five times as many restaurants, Chick-fil-A has become the third largest restaurant chain by annual sales, after McDonald's and Starbucks. And it is the leader in average sales per restaurant by a wide margin (see Exhibit MC11.1). Unlike fast-growing franchises such as Chipotle, Chick-fil-A purposefully grows slowly, opening no more than 100 restaurants a year. Chick-fil-A remains a private, family-owned company. Andrew Cathy, the CEO, has stated that Chick-fil-A will never go public. As a privately owned company, Chick-fil-A must therefore finance its growth through retained earnings (net income). In contrast, publicly traded companies such as Chipotle can draw on debt (by issuing bonds) and equity financing (by selling shares) to supercharge their expansion.

Franchise Model Although Chick-fil-A's culture is unique-its employ. ees are imbued with the belief that their work serves a higher purpose-the chicken sandwich chain also dif fers markedly from other quick-service restaurants in its structure and control. While traditional fast food franchises such as Burger King and Wendy's require millions from their franchisees in total startup cost, Chick-fil-A requires its operators to contribute only $10,000 to cover the franchise fee. This considerable difference stems from the fact that other fast food chains require the franchisee to pay for the land and the construction of the restaurants. In contrast, Chick-fil-A owns all its restaurants, the stores' equip. ment, and the land they sit on. Exhibit MCI1.3 depicts the avcrage start-up costs for popular fast food restaurants.

o communicate its unique organizational structure, Chick-fil-A calis its franchisees "operators." Chick-fil-A relies on centralized, top-down control, dictating every detail of a restaurant's operation, including its site loca tion, menu, and how the stores are run. Although the monetary investment to buy a Chick-fil-A franchise seems to be a low hurdle, being selected as an operator is super-difficult. Out of 8,000 applications each year. Chick-fil-A selects no more than 130 people. This ratio equals a 1.6% acceptance rate-lower than the admittance rate to the most selective colleges in the United States. Chick-fil-A aliows each uperaior to ruii only one res-taurant. In rare cases. exceptional operators are granted a second restaurant. The company makes its expectations for its operators clear: "Franchising is not an opportunity for passive financial investment, working from the sidelines, or adding to a portfolio of business ventures."? A successful operator can earn over $1 million annually through a profit-sharing incentive scheme.? People Because Chick-fil-A does not allow passive franchise investment, all operators must be on-site and personally run a restaurant, know their employees, and be involved in the local community. Chick-fil-A operators put in long hours, six days a week. While other investors may own several McDonald's and delegate the running of the restaurants to professional managers, Chick-fil-A operators must personally manage a team of more than 100 hourly employees. For many employees, Chick-fil-A is their first job. Chick-fil-A uses a rigorous training program for all employees, even part-time workers. At this purpose-driven company, two-sided matching takes place. Most applicants for a job at Chick-fil-A know what the company stands for. At the same time, Chick-fil-A ensures that each team member fits into its distinctive culture. The company selects team members based on three C's: character, competence, and chemistry. All employees are trained for several weeks and will not be hired unless they can commit to working for the company for at least one year. In 2022, Chick-fil-A employed more than 170,000 people, whom the company calls "team members." The hourly pay is competitive, starting at around $15 per hour for part-time, entry-level workers and rising to above $20 per hour for high performers. Each employee receives one free meal a day, and uniforms are provided by the company. Perhaps more critical for high-school and college students seeking their first job is the fact that Chick-fil-A has a scholarship program ("Remarkable Futures") for which team members can apply. Since the Remarkable Futures program started in 1973, Chick-fil-A has provided scholarships for more than 80,000 team members. One employee described growth opportunities at Chick-fil-A on Glassdoor as follows: "You can walk off the street and within a year or 1.5 years become management."4 Chick-fil-A values positive interactions with each customer. As such, the company's signature hospitality is easily recognizable in the politeness of each employee. At the end of each interaction employees have with customers, they always respond with a smile and say, "My pleasure," a differentiator to customers' experience with other fast food restaurants. In 2022, Forbes named Chick-fil-A "Best Employer in America," and Glassdoor named it "a top company for career opportunities for Black employees." Operations A strong culture and a unique structure allow Chick-fil-A to provide superior customer service and implement an efficient and lean operation. Chick-fil-A achieves consistency in quality and exceptional customer responsiveness through simplicity. First, the classic Chick-fil-A sandwich has only four ingredients (breaded chicken breast, two pickles, but-ter, and a bun). In contrast, flagship sandwiches of other fast food chains such as McDonald's Big Mac o speed up orders and to provide a more pleasant customer experience, Chick-f-A uses upstream ordering. This system lets employees meet custom ers in their cars and take orders and payments via tablets. Customers love Chick-fil-A's friendly service and value their food offerings more than those old competitors.

and Burger King's Whopper have a dozen more ingre-dients. Second, Chick-fil-A has kept the menu simple and focused, offering few options of chicken, fries, sal-ads, and some desserts, while the menu at other chains has as many as 125 items. More items on the menu increase operational complexities, resulting in lunger wait times and lower customer satisfaction because more things can and do go wrong. In addition, we know from research in psychology ("Paradox of Choice") that more choice (on a menu, for example) creates consumer confusion, delays decision making, and leads to lower customer satisfaction.

DISCUSSION QUESTIONS 1. Detail the roles that Chick-fil-A's structure, culture, and control play in the company's achieving a competitive advantage. Which components are most important? Or, is the interplay of the elements an integrated system that forms the basis of the company's competitive advantage?

2. Do you agree with the author's thesis that Chick-fil-A's structure, culture, and control form the basis of the company's competitive advantage? Why or why not? Or, are other things such as the secret recipe for the classic chicken sandwich and the food quality more important in explaining Chick-fil-A's success? Discuss.

3. Chick-fil-A is a privately owned family business. As such, its strategic leaders have more degrees of freedom in the way they run the business (e.g., not opening on Sundays). Yet, being privately owned limits access to capital because all growth must be financed through retained earnings. Self-financ. ing results in a slower pace of expansion. Should Chick-iil A consider going public by issuing stock? An initial public offering would provide access to vast financial resources to fuel expansion domestically and internationally. Faster growth can allow for first-mover advantages by locking up the most desirable locations, suppliers, and so on. Some critics argue that Chick-fil-A should go public because more people can participate in the company's suc cess, and the purpose-driven company can "bless more lives." Discuss the pros and cons of Chick-fil-A's ownership structure and the implications if the company were to go public.

4. This MiniCase indicates that strong corporate cultures are often a plus but can have downsides. Chick-fi-A created controversy with its giving policies (now changed) and statements by its then-CEO. As a strategic leader, what can you do to develop a robust corporate culture while not conflicting with societal values? Also, did it surprise you that the Chick-fil-A boycotts turned into a "buycott" (i.c., the company's sales rose)? Why or why not? Explain.

5. Given its popularity, Chick-fil-A will eventually reach maturity in the United States. Although Chick-fil-A's distinctive culture and approach trav. eled well beyond Georgia, can it succeed outside the United States? Do you think its unique culture, structure, and control are suitable for international expansion? Why or why not? Explain.