Strategic Management McDonalds - Essay Example

?Strategic Management Executive Summary The study is related to the McDonald’s business operations and strategies that have been implemented during the development phase of McDonald’s. The focus has been upon the period when Jim Cantalupo was the CEO of McDonald’s. The strategy applied by him in developing the business of McDonald’s are discussed. In the subsequent section, the newly implemented strategies of McDonald’s (after Jim Cantalupo’s death) have been discussed by using McKinsey’s 7S framework. Ansoff Growth Matrix has been used to recommend and critically analyse various strategic approaches that could have been implemented by leaders of McDonald’s after 2004. Table of Contents Executive Summary 2 Introduction 4 During CEO Jim Cantalupo Management 4 Strategic Vision 4 Core Competences 5 Competitive Advantage 5 Resources Used 6 Successful Management Strategy and the Reasons and Elements of Jim Cantalupo’s Strategy 6 After CEO Jim Cantalupo Management 9 The New Strategic Approach McKinsey’s 7-S Framework 9 New Strategic Approaches through the Application of Ansoff Growth Matrix 13 Conclusion 16 References 17 Bibliography 20 Introduction McDonald’s has been operating in the US market for many years and has grown internationally by establishing its brand value in the world. There were various challenges during the development phase of the company and there were problems related to business strategies implementation in expanding the stores of McDonald’s. The study reflects the business strategy that was implemented by CEO Jim Cantalupo during his tenure in McDonald’s. During CEO Jim Cantalupo Management Strategic Vision Strategic vision of a company is the representation of the core values, beliefs and philosophies (Air University, 2010). Jim Cantalupo’s strategic vision was upon developing new customers and not increasing the numbers of the restaurants. Since the market was focused upon targeting the competitors’ customers, he concentrated upon new customers. Jim Cantalupo’s vision was upon offering healthier food. For existing customers, his vision was to enhance the level of service with hygienic environment and commitment to deliver service within stipulated time. His vision was upon innovation and introduced new products for all categories of customers. Core Competences Core competencies are the unique attitude, skills, knowledge and behaviour that contribute to excellence (University of Nebraska–Lincoln, 2002). McDonald’s core competence is in its operations and infrastructures. The organisation is competent for production and timely delivery of affordable foodstuffs to wide range of customers. The company has developed its core competency through low cost foodstuffs, high speed service and consistent quality strategy. These factors influence the customers to be attracted and being loyal towards the company. The core competency of the company is supported through its brand image, relationship between customers and suppliers, strong financial resources, market leadership and product value (Zamarripa & Wylie, 2000). Competitive Advantage According to Investopedia, “The advantage that a firm has over its competitors assisting in generating margins and sales and retaining customers than its competitors is firm’s competitive advantage” (Investopedia, 2010). McDonald’s competitive advantage is gained in the industry of fast food restaurants. The company’s innovative menu and introduction of wide range of foodstuffs have made the company gain competitive advantage over others. The food is affordable and value for money offerings aid in retaining the customers. Its franchisee based model has been able to strengthen its financial position and played a significant part in their global expansion. It is a ‘penny profit’ business but still with hard work, it has been successful. Through the global presence, economies of scale operations have led McDonald’s to gain competitive advantage over others in national and international markets. Resources Used McDonald’s started their business with purchasing land and not by leasing. This reduced the leasing cost of operations. There were labourers employed at low cost during the initial phase. Later, the skilled employees were employed as the company depended upon them to deliver service to the customers as expected. The franchise model was efficient enough for the company to create the requisite cash for the business expansion and development. Successful Management Strategy and the Reasons and Elements of Jim Cantalupo’s Strategy McDonald’s has experienced loss in 2002 due to hefty costs in certain parts of their Latin American business operations (BBC, 2007). McDonald’s planned to close down approximately 175 stores in America due to such hefty costs (Cohen, 2004). The strategy was developed by the CEO Jim Cantalupo to increase the sales and develop the market for McDonald’s. He developed the strategy based upon quality, cleanliness, service and value with innovation. He focused upon operational excellence, leadership marketing and innovation. This strategy was developed to enhance the improvements in the performance. The strategy that was taken by Jim was in the direction to make changes in the internal organisation to develop the internal aspects in order to sustain the competitive pressure and develop in their own way in the restaurant business. The internal improvement in the service of quality and healthy food offering was the prime focus to attract the customers and increase the sales. The operational excellence was achieved through the increase in sales and control in the costs. This allowed the company to gain control over the costs that added value to the financial strengthening of the company with increase in the revenue with more sales. This strategy was to develop the business with existing and new customers and increase the financial liquidity of the company. The market was competitive and there was fight in acquiring competitors’ customer. But Jim Cantalupo’s strategy was in developing new customers. This way Jim Cantalupo wanted to expand the customer base for McDonald’s. The expansion through opening new restaurants was not focused. This would raise the number of customers. Competing with the existing customers would not benefit the company as it would just switch the customers from one brand to another and there was every possibility that McDonald’s customers would also switch to other brands. Thus, Jim focused upon developing new customers in order to increase the customer base. Subway was the biggest competitor of McDonald’s as they offered fresh food. This was a threat to the business of McDonald’s. Jim Cantalupo developed the concept of healthier food options. The focus was provided upon delivering healthy foodstuffs to everyone. This also encouraged the people to consume healthy food. He contracted the suppliers to deliver fresh food items in order to prepare fresh and healthy foodstuffs. This was supported by the customers and gained acceptance from them that ultimately helped in increasing the sales. The enhancement of service was focused by Jim Cantalupo. He developed the strategy to develop better service providing facility in order that the existing customers keep re-visiting the store. The enhanced level of service providing facility will provide the opportunity to the customers to enjoy the benefits of the service and treatment they get in the stores across the nation that will deliver similar level of service. The commitment of delivering fresh, healthy and hot foodstuffs within the time frame to the customers was the strategy to draw new customers and retain old customers. This was one of the attempts of Jim Cantalupo’s strategy of delivering value for money to the customers. To ensure cleanliness, Jim Cantalupo focused upon the toilets to be kept clean all times and maintain the hygiene in the restaurant. This was through the appropriate training of staffs. Jim Cantalupo developed the strategy of innovativeness. There was introduction of new product line that was for every category of customers. This was one of the techniques of Jim Cantalupo’s in attracting new customers and delivering innovative products to existing customers and retaining them. Although McDonald’s had 40% of the market share in the US, still its burger was not performing better compared to Wendy’s and Burger King. Thus, the strategy of innovative product was introduced. After CEO Jim Cantalupo Management In the year 2004, suddenly CEO Jim Cantalupo died and after that there were several strategic changes in McDonald’s to develop the business. The New Strategic Approach McKinsey’s 7-S Framework The McKinsey’s 7-S framework focus is based upon the principles that the organisation is not only a structure but there are seven other elements. These are segmented into two: hard S’s and soft S’s. Strategy, structure and system are easily identifiable and feasible, known as the hard S’s. Shared values, skills, staff and style are hard to describe as they are continuously changing and developing. These elements are highly determined by the influence of people (Recklies, 2001). Source: (Recklies, 2001). Strategy: McDonald’s strategies after 2004 included to continuously grow, provide excellent customer care, and continue to be quality and efficient producer, offer high value and efficiently market the brand on global basis. These were to be achieved through additional 700 to 900 opening of restaurants annually, application of innovative menu items offering at low price, introduction of extra value for meals to promote customer visits, opening restaurants at customer convenient locations and selecting franchises carefully. In addition, there should be focus upon quality with limited product line, hiring skilful personnel and increasing the store efficiency to generate better business (California State University, 2011). Through the franchise model, McDonald’s applied the forward integration strategy; and through local sourcing, suppliers and cold chain it applied the backward integration strategy. Structure: McDonald’s is a centralised organisation structure that is based upon global strategy. It has more than 31000 restaurants in 120 countries and was able to generate a total of the US $ 19.06 million as revenue for the financial year 2004 (Orji & Et. Al., 2005). These restaurants are franchise based and receive the food supplies from the same vendors. By implementing this process, they try to maintain the similarity. The US McDonald’s is just the same as McDonald’s in Europe. System: McDonald’s had introduced the fast delivery of service with quality that is still maintained till date. The level of services has been enhanced and it’s a continuous process which is still going on. Style: The culture is maintained globally in the business process. The managers are mostly locally sourced personnel to understand the local customers and attract them in order to increase the sales and serve them according to their needs. Staff: McDonald’s annually invest more than US $1 billion in providing training to its staff. From McDonald’s training facility at Hamburger University, more than 250000 employees graduate annually. Since 1995, among the 50 corporate staffs that started as restaurant level employee, 20 along with 67000 restaurant managers and assistance managers were promoted. This is still followed (Novak, 2009). Skills: Production and delivery-on-time of reasonable foodstuffs to wide range of customers have developed the skills of McDonald’s and it is still continuing. The company has developed its skills through low cost foodstuffs, high speed service and consistent quality strategy that are followed globally till date. Shared Value: The current challenge is the value of developing strong brand value and to ensure that they are shared by all the franchises. To generate shared value McDonald’s is providing training to all the franchisees and the concept of beliefs and values they hold are shared to generate a common value. New Strategic Approaches through the Application of Ansoff Growth Matrix The Ansoff Growth Matrix is implemented to develop strategies for the business growth. The below illustrated is the model of Ansoff Growth Matrix. Source: (Franteractive, 2011). Market Penetration: McDonald’s deliberately keeps their products’ width and depth limited when they enter in new market. The company should apply the strategy of demographic segmentation with age parameter. The major target segment of McDonald’s is the youth and children. With their existing quality products at reasonable prices and quick delivery of service, they enter in new areas mostly with franchisee model. The strategy of including more options of range of products would assist the company to get enhanced customer base during the initial phase of venture in any new area. This will develop strong market penetration and assist in developing the business. Product Development: The strategy of innovativeness was initiated by Jim Cantalupo and it needs to be continued. There should be new product line developments with the existing products in order to attract new customers. This new development of product can be a vital business development strategy for McDonald’s in order to remain competitive in the global market. McDonald’s had attempted this previously through the introduction of new burgers and has gained positive response. This strategy should be continued and implemented to maintain the similar product line in all the franchisees. Experiments with traditional products in regional franchisees should be done. This involves risk but there is a probability of becoming successful. These products are famous and sold only in regional franchises that will increase the sales. Market Development: In the new market, McDonald’s should enter with the existing products that are particularly for a targeted segment of customers. When there will be more customers, the operating costs and other heads’ costs will be recovered. In the later phase, new product should be introduced that will assist in targeting new customers. This way the customer base will be stimulated and there will be increase in the sales volume with wide range of product line offering. This strategy will help McDonald’s develop the business in a systematic manner and will generate value for long term purpose. Diversification: The introduction of new product by the new market strategy is always risky. However, if the new product line offers the taste of the regional area then there are probabilities of reducing the risk. This strategy has been implemented in New England and Canadian Maritimes as itinerant menu item offering lobster rolls, known as McLobster. This model can be replicated in other markets or new markets to increase the business. For example, in China there can be different products introduced to attract more Chinese customers in the store that is based upon Chinese culture of food consumption. Through the strategic development and with support from the Ansoff Growth Matrix, McDonald’s can identify different strategies and implement them according to the changing international business environment in the fast-food industry. Conclusion McDonald’s has been successful in establishing its brand image globally. There were problems in the development phase but due to Jim Cantalupo’s innovative ideas which have been implemented in the business strategy, provided the opportunity for the company to expand its operations and increase its profitability. After the death of Jim Cantalupo, McDonald’s continued to develop new strategies and has altered its business operations and strategic approach according to the changing business environment and till date, it is successful in the retail food industry. References Air University, 2010. Strategic Vision. Strategic Leadership and Decision Making. [Online] Available at: http://www.au.af.mil/au/awc/awcgate/ndu/strat-ldr-dm/pt4ch18.html [Accessed February 19, 2011]. BBC, 2007. Sale Costs Bring McDonald's Loss. Business News. [Online] Available at: http://news.bbc.co.uk/2/hi/business/6914049.stm [Accessed February 19, 2011]. Cohen, D., 2004. McDonald's To Close 175 Restaurants. McDonald’s. [Online] Available at: http://www.rense.com/general31/mcdonaldstoclose175.htm [Accessed February 19, 2011]. California State University, 2011. McDonald’s Strategy. Management Strategy. [Online] Available at: http://www.csuchico.edu/mgmt/strategy/module1/sld036.htm [Accessed February 19, 2011]. 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