The Evaluation of the Growth Strategies of McDonald's - Case Study Example

Executive summary McDonalds is among the world’s biggest chains of fast food selling restaurants. It has expansive operation in more than 119 countries and with its headquarters based in the United States (2013). It serves up to sixty million customers daily. The company has acquired an international recognition over time; however, it is still faced with challenges that need to be evaluated to enable effective and efficient operations. Various challenges are discussed in the report, and their possible remedies provided. After conducting research on these challenges, I was able to come up with several strategies that can be employed by McDonalds to mitigate its challenges and threats. The sections outlined include; evaluation of growth strategies, implementation of the various models and identification and evaluation of strategies for internal improvement of the company. These various models are discussed at length and a conclusive recommendation, drawn on the best way McDonalds can retain its position as a leading market player in the fast food industry. Introduction McDonalds is a group of fast food restaurant companies. According to a previous study, the company stands as the world’s largest chain serving more than 119 countries across the world (Maria, 2013); however, it is faced with many challenges and threats. In this report, strategic measures that can be implemented by McDonalds to curb various challenges that hinder its growth and development are discussed. It involves an in-depth discussion of analysis of several management models and possible suggestions that will help the company with implementation of better ways to solve the challenges and hence retain its glory as market leader in the fast food industry. Identification and Evaluation of Growth Strategies There are several growth strategies that can be employed by the McDonalds Company. These are: 1) Investment and Growth The Boston Consulting Group (BCG), a worldwide management consultancy firm, developed a BCG model that for investment and growth (BCG, 2014). The company can be divided into strategic business units according to their market shares and growth rates to enable a concise evaluation of the model. Cash cows; according to the model, this is where the company has high market share in a much slower growing industry. They generate a reasonable amount of cash used to maintain the business although it is given low investment which usually leads to wastage in a low-growth industry. In McDonald’s, sale of a vast array of fast food products fall under the cash cow category. Dogs; they are units with low market share in a mature and slow-growing industry. They usually don’t generate enough cash, although they are used by investors to judge how well the company is managed as they depress a company’s profitable return on assets ratio. The McDonalds is affected by the new entries in the market since the company only operates on the older products. Question marks; they are units operating on high market growth, but having low market share. They have a potential of gaining market share and become stars or degenerate back to being dogs. This includes the low bargaining power of the buyer. This lowers the market share since suppliers will be lowered. Stars; this is a business operating on a high market share in a fast moving industry. They are normally graduated question marks. And often require a high funding to keep up with the competition and maintain growth. Meeting customer experience and the provision of quality food has enabled McDonalds to take advantage of its stars. 2). Growth through Horizontal and Vertical Integration As seen from Porter’s five forces of analysis, rivalry, competition is one the major challenge for McDonalds company. The Burger King, KFC Company, poses a lot of threat to the company since it produces the same line of products as McDonald’s. Therefore, this will force the company to implement some measures in order to reduce this competition. One of the main strategies is engaging in either vertical or horizontal integration activities. McDonalds can improve the quality of their products and lowering their prices so as to increase its market share applying the economies of scale. This creates a monopolistic kind of market. Also, the company can indulge vertical integration by being in control of raw materials and supply chain. In doing so, it will reduce held up issues and subsequent competition improving its market share. From the results of my Strategic Group Planning, many consumers prefer quality food sold at low price and due to the time limitations they would rather take the fast foods other than doing their own cooking. Customers want to save time and money. Also, McDonalds Company can use the global supply chain to their advantage by lowering the supply cost and reduce selling prices for their products which in return will increase the competitive advantage over other companies. With the good branding of McDonalds over KFC, its products will gain a lot of large scale in supply chain even if the market will be saturated. Application of both vertical and horizontal strategies to gain market share can work well in the fast food industry since consumers depend mostly on the brand and trust bestowed on certain chain of company products. 3) Internationalization McDonalds is one of the world’s largest fast food restaurants with the most global market in more than 119 countries in the world. Internationalization is the process of increasing companies’ involvement in international markets (Susman, 2007, 281). However, there are other potential foreign markets which the company has not ventured in and which can be of many benefits to the company. These new foreign markets include Yemen, Uruguay, and most part of Africa. These foreign countries show a lot of potential, especially the African countries since they are fast growing economies and have greater interests in creating business links with the world’s best economies. The company needs to expand into these markets since they have so many admirable attributes which might boost the economic scale of the company. Several strategic plans need to be put in place to be able to penetrate successfully into this market. For a successful entry into this market, the company should have the ability to understand and appreciate different beliefs, cultures, behaviors and business strategies of different companies in the countries the company is venturing. Most African countries are still developing and, therefore, greater understanding of their cultures and ways of operation is a fundamental factor. The company also should have a concern about innovation, maintenance of high level of quality and willingness to provide corporate social responsibilities to the local should form the main emphasis on internationalization. With the previous successful strategies used by the McDonalds in high-income countries, there is no doubt that the company understands the diversification factor. This, however, calls for a different mode since the target markets are low income and hence require special attention. The company can invest in foreign direct investment in the construction of their structures in these low-income countries and using local management systems so as to win the trust of the local market. The company also should encourage franchising in these countries to help in branding of its products. With the technology gap that exist in these developing countries, McDonalds can use this to their advantage by creating a monopoly in the introduction and production of the new products in the market. This will give an upper hand the company since it will take time before the indigenous companies produce the same products. Identification and Evaluation of Strategies for Internal Improvement and Turnaround Business process reengineering (BPR) is one the strategy that can be employed by the McDonalds Company to improve its operations in the marketing of the products. It is the process of rethinking and redesigning the way work is done within a firm. The company needs to redesign the supply chain by improving the customer end services which include changing the menus so as to create healthy products and cut the prices without interfering with the quality. In so doing, it will curb the threat posed by the government trying to cut on obesity and eating of unhealthy or junk fast food. Also, the information technology should be improved in order for corporate online shopping and orders where the company would expand on its deliveries to consumers. Another model that the company can use to improve its efficiency and performance is the Hoshin Kanri model, also known as policy deployment. It is a strategic planning method that helps an organization recognize some of its issues and evaluate them fully. It emphasizes the focus on a common goal planning and even holding participants accountable for achieving their part of the goal. McDonalds requires this kind of strategy to establish issues it is faced with and lay down ways to iron out such problems through the annual reviews of the strategies as per the requirements of the model. The company can also conduct a benchmark process for other successful companies to compare its operation in relation to other companies (Fifer, 1989, 18) which have scaled the heights of success. For example, McDonalds can conduct a benchmark on Kentucky Fried Chicken on its marketing strategies which include joint venture with chicken producers. Outsourcing is another vital parameter in solving performance issues facing a company. The McDonalds company can outsource experts in certain fields like financial institutions to guide them on financial matters. The company is also faced with environmental challenges since it’s a fast food selling industry and; hence, most of their packaging materials are polystyrene which pose a threat to the environment. Through outsourcing of experts on the environment issues, the company can come up with other packaging materials which are friendly to the environment, and they will be able to mitigate the issue of corporate social responsibility easily. The use of a balanced scorecard which is a strategic, planning, and management system that is used to align business or company’s activities to the vision and strategy of the organization (Gail, 2015, 1). This is done to improve both internal and external communication and help in monitoring performance and effectiveness as per the goals. McDonalds can apply this strategy to check on the main perspectives on the company that is, the learning and growth, where the company trains the employees on the continuous basis on the current trends. The business perspective where the company managers check whether the products and services meet the customers expectations and get to know how well the company is running its operations. The customer perspective, on the other hand, can be used to research on whether or not the customers are satisfied with the products. This will help in understanding the consumer needs and how well they can be met. McDonalds can use this strategy to improve on its menus so as to produce healthy food for its customers. Lastly, the financial perspective can be employed to assist the managers in case they want to introduce a new product so that they conduct risk analysis beforehand. A performance management can also be used to ensure that the company’s goals and strategies are consistently met (Zaffron & Logan, 2009, 17). The effect will not only be an improvement in the performance but also augment value of the McDonalds brand. This will also improve on the employees’ performances since there is effective communication and hence a motivated workforce. Conclusion McDonalds needs to work on implementing the above strategies to allow it meet its performance goals and keep its market leader position in the fast food industry. The company is still faced with many challenges and threats which can be ironed out by application of the strategies discussed. For example, in dealing with the competition challenge, the company can perform a business process re-engineering so as to produce a different and more sustainable line of products. The company should work on ways to increase its supply chain in the market so as to obtain a large market scale. They can lower its selling price of the products and maintain the quality of its burgers so as to win more customers. The company can improve its technology standards so that it can be in a good position to compete with other industries. Improving on customer services also will give the company a better bargaining position in the market. This can be done through the application of a balanced scorecard where research is conducted to establish a balance between the company, market, and the consumers. Lastly, putting into place strategies on foreign markets through advertisements and franchising will help so much on the improvement of the brand name which is a vital factor in the marketing of the products. This report also provides discussions on various methods the challenges can be mitigated and ways and suggestions the company can employ in order to attain its goals and ensure maximum profits are achieved. References Boston Consulting Group.2014."BCG at a glance". 2014. Retrieved 17 March 2015. Fifer, R. M. (1989). Cost benchmarking functions in the value chain. Strategy & Leadership, 17(3), 18-19. Gail, S. Balanced Scorecard Basics. Retrieved from; http://balancedscorecard.org/ http://www.bcg.com/media/factsheet_visuals.aspx Maria, J. (2013 April 23) McDonalds Corporation. Retrieved from file:///Users/wang/Downloads/McDonalds_MCD.pdf McDonalds Generic Strategies. (2013) Retrieved from Tinta Strategi from https://tintastrategi.wordpress.com/2013/11/26/mcdonalds-generic-strategies Susman, Gerald I. (2007). Small and Medium-sized Enterprises and the Global Economy. Young et al., 2003. Edward Elgar Publishing. Zaffron, S., & Logan, D. (2011). The three laws of performance: rewriting the future of your organization and your life. San Francisco, Jossey-Bass. Read More