The Internal Analysis of McDonalds Company - Assignment Example

?Strategic Management – McDonald’s Table of Contents Strategic Management – McDonald’s Table of Contents 2 Section Introduction 3 Section 2: Issues Related To Internal Analysis of McDonald’s 4 Section 3: In-depth Internal Analysis 4 Resource Based View of McDonald’s 4 Value Chain Analysis of McDonald’s 6 Key Determinants of Success 7 Financial Analysis 8 The Financial Health of McDonald’s 10 SWOT analysis 11 Section 4: Strategic Plan 11 Strategic Issues of McDonald’s in Last 5 Years 11 Strategic Plan with Recommendations 12 Key Internal Strength and Weakness of McDonald’s 14 Conclusion 16 References 17 Section 1: Introduction The internal analysis of any company is basically the evaluation of significant aspects of the company to verify its strengths and weaknesses. The internal analysis of a company includes its financial condition in the market, the product demand of the company, marketing potential of the company, research and development competence, company’s organizational structure, company’s human resources, working facility and equipments and finally company’s marketing strategies. The analysis of these factors can reveal the internal strengths and weaknesses of a company (Barnat, “Internal Organizational Analysis”). McDonald’s is one of the biggest fast food restaurants with customer base of 47 million. McDonald’s operates in almost 119 countries in the world. It has complicated distribution channel and its supplier’s network is spread throughout the world. McDonald’s marketing strategy aims to raise the sales and to maintain its brand image. McDonald’s constantly alter the strategies according to the customer’s tastes, standard of living and opinions. McDonald’s is quite approachable in countries where people are sensitive towards consuming various foods, for example, the market of India (Scribd, “Internal Analysis on Macdonald’s”). Section 2: Issues Related To Internal Analysis of McDonald’s Though McDonald’s business has established internationally and it has good brand image, it has faced many negative issues in past 5 years. The major issue that McDonald’s has faced is that of the health. The fast food products of McDonald’s are reported to cause obesity, heart diseases, diabetes and asthma. In the year 2006, McDonald’s had faced criticism in Japan because of including forbidden foods and dishonest coloring of apple pies. Another critic stated that McDonald’s and its other fast food competitors demoralized native cooking and developed identical international culture. Besides, McDonald’s had faced bad reputation because of unhealthy food and bad employee relation in many of their outlets. There was objection against McDonald’s for making people work for lower wages (Gibison, “McDonald’s: A Good Image with Bad Ethics”). Section 3: In-depth Internal Analysis Resource Based View of McDonald’s The marketing strategy of McDonald’s is based on the internal resources. Tangible Resources: Product: With regard to fast food products there are many choices for a customer. Thus, McDonald’s focuses on creating a menu that most of the consumers require as well as prefer. McDonald’s always examine the preferences of customers as the preferences change from time to time. To facilitate the change in preference, McDonald’s continuously develop new products and replace old products (McDonald’s Corporation, “Marketing at McDonald’s”). Intangible Resources: Brand Reputation: McDonald’s has good brand reputation. In the year 2008, it was ranked number eight among other international brands. It had ranked in first position among other fast food international brands. The brand value was calculated to be around 49,499 million USD. In the fast food markets of North America, McDonald’s brand was ranked in seventh position (Millward Brown Optimor, “Top 10 0 B rand Ranking”). In the year 2010, McDonald’s brand was ranked sixth in the year 2010, among ‘most valuable global brands’ (Social Brand Value, “Brand Image – McDonald’s: The Dead”). Organizational Capabilities McDonald’s has the ability to serve fast foods from their thousands of outlets internationally, with outstanding consistency of quality. It provides good customer service and maintains cleanliness in their restaurants. McDonald’s has condensed their production structure into operating procedure which directs the operations and maintenance of every phase of the restaurant. The core of the McDonald’s system is the systemization of knowledge into a thorough set of rules that are maintained in every McDonald’s restaurant (John Wiley & Sons, “Analyzing Resources and Capabilities”). Value Chain Analysis of McDonald’s The objective of value chain analysis is to provide an insight about how a company develops customer value by evaluating the contribution of several activities within the operation to that value. Inbound Logistics: McDonald’s arranges the supplies of foods and products by ‘third party logistics operators’. The inbound materials are used in the preparation of food products and information about the food products are gained from nutritional knowledge (Scribd, “Internal Analysis on Macdonald’s”). Operations: The outlets of McDonald’s are structured as an autonomous business. Their Research & Development department focuses on fulfilling the preferences of customers. The product quality is developed by alliance with suppliers. Outbound Logistics: Outbound logistics is the main anxiety of franchisees of McDonald’s. McDonald’s had developed their outbound logistics as an element of reprocessing system by incorporating it in the logistics of supply center. Marketing and Sales: McDonald’s classifies their customers’ preferences and satisfy them in comparatively better way than other competitors. At the initial stage, McDonald’s searches the potential customers who are the major audiences for McDonald’s. After classifying the major audiences, McDonald’s guarantees a marketing mix which appeals particularly for those customers (McDonald’s Corporation, “Marketing at McDonald’s”). Procurement: The procurement of McDonald’s goes through a certain sequence of strict quality verification. In production procedure, McDonald’s requests suppliers to improve each phases of management (Forwarder, “McDonald’s case study of third-party 3PL logistics”). Service: McDonald’s provides standard services and maintains its brand image. Human Resource Management: McDonald’s conducts several activities to handle their human resources. It is the duty of managers to select, inspire, develop, stimulate and examine the performance of employees. The employees of McDonald’s carry out certain tasks and McDonald’s anticipate their task to be of adequate standard (Winslow, “HRM - McDonald's”). Infrastructure: McDonald’s has strong infrastructure. It has instant messaging system, electronic communication, and distant access with the clients, file sharing support and easy management system (McDonalds IT, “IT Infrastructure”). Key Determinants of Success The major reason for the success of McDonald’s is their cost efficiency, product improvement, good marketing strategies and promotions. In the year 2003, McDonald’s had established renaissance plan focused on the health conscious people and to strengthen the financial position by proper order. McDonald’s had improved basically by expanding new outlets. The managers of McDonald’s are concerned more about the expansion of McDonald’s restaurants compared to producing more wealth. McDonald’s had developed many new food products, for example, more chicken options in the menu which helped the health conscious people to choose from variety of selection. For improving their operations, McDonald’s had also modernized and developed the employee training and operation system. As a consequence, its customer satisfaction had increased. McDonald’s had maintained its financial discipline quite strictly which was one of the major determinants of success of McDonald’s. It had always reduced their debt and capital expenses. By this way, McDonald’s had saved money and distributed more to the shareholders (Reynolds & Et. Al., “Valuation of McDonald’s Corporation”). The other determinant for success of McDonald’s is the appearances of their restaurants. McDonald’s ensured regular cleaning of the restaurants and provides matching modern environment. McDonald’s has wireless technology in their restaurants and has extra coffeehouses in several of their outlets. McDonald’s even restructured and repositioned many restaurants to develop a sociable and pleasant atmosphere in their outlets. With respect to price, McDonald’s puts much emphasis on the value of the products. The prices of the products are set in such a way that it can be affordable for the price sensitive customer’s. McDonald’s always tries to maintain the trust among customers and also the brand loyalty. Their advertisements and promotions are focused on the growing youth customer segments. Financial Analysis McDonald’s has strong position in the international field and it has maintained enormous growth in terms of sales. In the year 2010, the sales had increased by 4.9% and in June 2011, the sales increased by 3.1%. The good relationship with customers, many choices of foods, affordable costs and proper tuning with the current lifestyle are the vital reasons for growth in sales. In the US only, the sales had raised by 2.4%, in Europe 2.3% and in Asia, Africa and Middle East markets the sales had raised by 4.3%. The high increase in sales is contributed by good performance in China. Percentage Increase Comparable Sales 2011 2010 2009 McDonald's 3.1 4.8 2.2 Major Markets US 2.4 3.4 1.7 Europe 2.3 5.7 3.5 APMEA Region 4.3 3.8 0.5 Source: (Brook, “Financial Press Release”) & (Brook, “Recent News”). In the year 2010, the revenue of McDonald’s was 16,233 million USD, which was 6% more, compared to 2009 figure of 15,459 million USD. The significant part of the income of McDonald’s has been created from outside of the USA market. Amount in Million USD 2010 2009 2008 Revenue 16233 15459 16561 Source: (McDonald’s Corporation, “2010 Annual Report”). The Financial Health of McDonald’s 2010 2009 Current Assets Liquidity Ratio= Current Liabilities 2.53 2.82 Total Debt Leverage Ratio= Total Assets 0.35981 0.34998 Net Sales Activity= Total Assets 0.5077 0.2411 Net Income Profitability Ratio= Sales 0.3047 0.2944 Net Income Return on Asset= Total Asset 0.1547 0.1506 Source: (McDonald’s Corporation, “2010 Annual Report”) & (Pearce II, J. A. & Robinson, Jr, R. B., “Strategic Management: Formulation, Implementation and Control”). SWOT analysis Strengths Good brand name New innovations Focus on marketing mix Good financial performance Strong international presence Weaknesses Bad reputation due to unhealthy food Losses of customers Many legal and social issues Dissatisfied customer service Opportunities Strong market in Asia, China and India Diversification of business New innovative food products Threats Strong competitors Increasing consciousness about health Economic recession Section 4: Strategic Plan Strategic Issues of McDonald’s in Last 5 Years Obesity: Obesity is the major issue which McDonald’s had faced in recent times. There was strong dispute against McDonald’s because of poor nutritious food. In the UK, McDonald’s had been alleged in relation to its role in obesity. The growing consciousness of eating healthier food had resulted in closure of almost 25 branches in Britain in 2006 (Hickman, “Fast Food Titan Mcdonald's Finds Latest Attack on Its Reputation Hard to Swallow”). In Europe, the sales had dropped significantly. In every year, 16th October is observed as Anti McDonald’s Day internationally (Veggies Catering Campaign, “27th International Day of Action Against McDonalds, to mark World Food Day”). Legal Issues: McDonald’s also faced certain legal problems because of misleading advertising, insufficient revelation of food contents and nutritional information. Besides, McDonald’s also faces issues regarding employment. In certain countries, McDonalds had made their employees to work extra hours and at times with minimal wages. McDonald’s also faced grievance against improper working condition in the outlets of McDonald’s. Other Issues: The inflation and changes in value of currency also have had significant influence on the profit of McDonald’s. In the international market, there are many issues regarding maintaining good relation with the shareholders, franchises, which McDonald’s had faced in last five years. Strategic Plan with Recommendations Though McDonald’s had faced many issues regarding employment, obesity and shareholders’ relations, it has great capability of expanding the business. Despite bad reputation in certain countries, McDonald’s had performed better in the emerging markets of Africa, China, and India where it has enormous growth opportunity. As McDonald’s is already established in the fast food market, it can also diversify its business in other sectors as well, for example, in the hotel industry sector. For health conscious customers, McDonald’s can develop healthy products and in every product it can provide all nutritional information in details. In the markets where McDonald’s has weak presence, it can modify the products according to customer’s preferences and implement the penetration strategy. It can increase the loyalty by developing ‘loyalty programs’. McDonald’s needs to maintain good relationship with the employees and should aim to provide better working condition to the employees, as these in turn can lead to enhanced customer satisfaction. In the market of China and India it can expand by inculcating enhanced investment. Key Internal Strength and Weakness of McDonald’s Strengths Flexibility: The major strength of McDonald’s is that it can adjust to any business environment according to the custom and background of the country. The menu and food products of McDonald’s differ from country to country. The sales force is investigative and they adopt according to the society. It can adopt the needs and preferences of customers of any country. Pioneering Technology: Globally, McDonald’s has preserved itself in the top position in the fast food market. In almost every restaurant of McDonald’s, there is internet access workstation which provides customers to order online. Besides this, McDonald’s has many innovative technologies which lead to efficient operation and less time between ordering and delivering. Socially Sensitive: McDonald’s is quite sensitive in terms of making its image in the society. McDonald’s has their charity department in almost 34 countries which provides support to the society. In their charity, McDonald’s provides huge finance each year. Excellent Marketing: Marketing is a major strength of McDonald’s. Almost every children and adult throughout the world is familiar with Ronald of McDonald’s. This is the consequence of good marketing strategy. McDonald’s conducts detailed market analysis which makes McDonald’s a successful company. Weaknesses Customer Service: In many restaurants of McDonald’s the workforce is not appropriate which makes customers to wait for long time for their service. At times, the bad behavior of employees leads to customer unhappiness. Currency: The weakness in value of Euro Dollar has an impact upon the revenue of McDonald’s. The fluctuations in currency generally lower the revenue generation of McDonald’s. This is a major weakness for any international company. Disappointed Franchisees: The franchises of McDonald’s are not pleased with the extra charges the company is making them to provide for. Ever since McDonald’s is increasing its business internationally, it had raised the charges of franchises for their brand. This dissatisfaction had made certain franchises to vend their business. Children Demographic: Majority of McDonald’s profit comes from children segment. However, many of children after growing up do not prefer to eat sandwiches, which are major specialization of McDonald’s (Banton, “McDonald’s Corporation: The Past, Present, and Future”). Conclusion McDonald’s had faced many challenges in the international market. With the help of good strategic planning and management McDonald’s has strengthened their brand internationally. McDonald’s puts emphasis on the customer relations, it has developed new strategies, introduced new menu for different customer segments, strengthened the relationship with clients to make it a successful brand. McDonald’s financial performance has enhanced in 2011 compared to 2010 and 2009. For improving the company’s business there is need to improve the operations system, introduce better technology, better training and development of employees along with better remuneration package which can motivate the employees and increase the service of restaurants. By keeping fast food business as a foundation, McDonald’s can persist to diversify its business through various ways. It will make the brand more powerful in the international market and will help McDonald’s to achieve success on a global basis. References Brook, Oak. “Financial Press Release”. July 3, 2011. Media Center, 2011. Brook, Oak. “Recent News”. July 4, 2011. Financial Press Release, 2010. Barnat, Ryszard. “Internal Organizational Analysis”. July 3, 2011. Strategic Formulation, 2005. Banton, Mernoush. “McDonald’s Corporation: The Past, Present, and Future”. July 4, 2011. Projects, No Date. Read More