Strategic Analysis of Mcdonald's and KFC - Essay Example

? Your & 2 November Comparative Strategic Analysis of MacDonalds and KFC MacDonalds and KFC are two of the largest fast food chains in the world today. They both started operating in the United States of America and have grown to cover the whole nation and are now present in different parts of the world. This paper will use the principles of strategic management to examine the two companies and their structures in operations. In doing this, the research will focus on a comparative analysis of key components of strategy and strategic management in both firms. It will begin by examining the core objectives and plans of both companies. The paper will then examine the leadership structure as well as the products, industrial matters and core competitive strengths of both companies. Vision & Mission The mission statement of a company defines the main reason behind the formation and maintenance of a business (Johnson et al 42). It justifies the reason why the firm exists and describes what it was set up to achieve. On the other hand, the vision of a company involves an outline of the things that a firm seeks to achieve in the foreseeable future (Johnson et al 42). In the case of KFC, the mission statement identifies that it was set up to provide the best chicken meals to customers. The mission is to provide different chicken dishes to customers and improve their core competency in doing this (KFC Website para 2). MacDonalds' mission is to become the customer's favorite place to eat and provide an experience that is unrivaled to the customers (MacDonalds Website para 1). In doing this, the spell out their vision which interlocks with the mission. MacDonalds identifies that their vision is to provide the best services to customers, employees, suppliers, investors and the community at large (MacDonalds Website para 4). This is to be done through a quest for continuous improvement in these areas through a system of ethical activities. The vision of KFC on the other hand states that they company will seek to grow through expansion into other countries and territories around the world (KFC Website para 3). This is to be done through improvement of their famous chicken brands and the inclusion of local systems and local conditions into their activities. In comparison, KFC is specialized and focused on chicken and related brands. MacDonalds seeks to provide a good eating experience in a general atmosphere. They both seek to promote their activities through enhancing customer experience and satisfaction. Internationalization and globalization are at the heart of their visions. Additionally, they hope to seek continuous improvement and development of their systems and structures. SWOT Analysis SWOT Analysis involves an examination of the strengths, weaknesses, opportunities and threats of a company. This provides a view of how they are faring and provides an overview of how they can reshape things to meet the competition that will come up in the future. SWOT Analysis of KFC Strengths Brand Equity: Everyone knows about KFC Large international presence Strong cashflow position, only second to MacDonalds in revenue. Variety Specialized and focused Weaknesses Legal issues with International Expansion Lack of focus on Research & Development Weak marketing systems Poor customer relations Opportunities Attach and improve delivery service. Potential to expand further internationally to developing countries. Meet demand for quick meals Diversify into providing healthy foods Threats The promotion of healthy eating which emphasizes that KFC is not so healthy The presence of many competitors. The growth of supermarket food joints. Source: Nick's Business Blog SWOT Analysis of MacDonalds Strengths Strong brand name Large partnership with suppliers Socially responsible Provides health facts Loyal employees and management Culturally sensitive Focused on children Weaknesses High employee turnover Too focused on children to the neglect of other sections of the population. Although they provide health facts, they are criticized for not providing healthy foods Sometimes faces quality issues Tries to impose American standards on international branches which is not always appropriate Opportunities Can expand to capture the online sales market Can provide discounts to entice customers. Introduce healthy and organic foods Use recyclable materials Promote social responsibility Threats Numerous competitors and substitutes Health issue with consumers & obesity matters. Currency risk with foreign branches Over-reliance on the US branch for revenue could be affected more if the rescission hits the US economy again. Competitive Position From the pointers indicated above, the two companies thrive through different focuses and means. KFC thrives through its focus on chicken and the different brands that they sell to consumers. McDonalds on the other relies more on its corporate systems and structures. Both companies are threatened by a highly competitive system in which numerous competitors and substitutes operate. Also, their international agenda is prone to international risks like cultural challenges as well as currency risks. Leadership Structure KFC is a subsidiary of Yum! Brands. It is one of several global brands that Yum brands runs. As such, its governance and control is under the direct supervision of the board of directors of Yum! Brands and they have oversight of the management and operating team. According to the Yum! Brands website, David C Novack is the current chairman of the board. He has been a director since 1997. Sam Su is the Vice Chairman and he heads the Chinese operations of Yum! Brands. Also, David Dorman is a senior member of the board and has been on it since 2005. There are 8 other members of the executive board of directors who steer affairs of governance and chair committees that supervise affairs in Yum! Brands which includes KFC. MacDonalds is ran by Andrew McKinna who has been chairman of since 2004. He has been a director since 1991. Susan E Arnold is the vice chairperson and she has been on the board since December 2008. Robert E. Eckert plays a senior role in the company's board and is the non-executive chairman who leads the committees for running MacDonalds. The MacDonalds board of directors has 11 other members aside these three top members. Both companies use the principles of corporate governance to guide their operations. They use the board as direct supervisors of the management who are legally bound to operate according to the rules of the board of directors. U Project-Priority Matrix This matrix shows how a company blends its different projects and activities that are meant to be conducted to promote its affairs and meet its objectives. It is as follows Effort Low High Impact High Quick Wins Major Projects Low Fill-ins Hand Slogs Simple Project Priority Matrix KFC According to recent media reports, the following project priority arrangements have been made for KFC to attain its goals for the last quarter of 2012. One of them was added a week ago Effort Low High Impact High Feed hungry and displaced persons in Hurricane Sandy* Develop four healthy brands Low Rewards and promotions for customers in December Complete 15 expansion projects in China *Announced a week ago MacDonalds This is the cases and preferences that have been announced by MacDonalds in the bid to meet its plans and objectives Effort Low High Impact High Promote global warming campaigns to prevent hurricanes and floods* Expand to 20 new developing countries Low Increase number of minorities working in MacDonalds by 7% Complete research on the feasibility of using recyclable materials in selected units * Announced after Hurricane Sandy Porter's Five Force Analysis The Porter's Five Force analysis shows the important elements and aspects of a business industry. It indicates the kind of competition that exists in a given industry and how the threats can change due to some variations of specific variables. The fast-food industry is one of the industries that is subject to this model. Both KFC and MacDonalds are affected by some common changes as well as some specific changes which can determine their future. Risk of New Entrants This is a moderate threat for both KFC and MacDonalds. This is because there are little barriers in the industry. With moderate capital, many new entrants can enter the market and compete with both KFC and MacDonalds. A brand like Chick-Fil-A operates franchises that have monthly operational costs of just about $4,000. This shows that many new entrants of that model can enter the industry and try to capture a share of the market fro MacDonalds based on the Chick-Fil-A model. Threats of Substitutes The two fastfood joints are prone to competition by substitutes. Basically, they produce foods that are served at the convenience of customers. They provide foods that are in a unique category. However, other producers like fish fastfoods and pizza outlets can become competitors. This is because if these two types of outlets succeed in getting consumers to develop a taste for their products, they are likely to get a significant proportion of the market for fast foods. This means that KFC and MacDonalds who operate chicken and burger oriented fastfoods would lose out to these competitors. It is worthy to point out that MacDonalds and KFC are both substitutes to each other. The expansion of one can prove to be a threat to the other. Bargaining Power of Buyers This is a remote threat for both KFC and MacDonalds. It is not likely that customers can buy anything more than 1% of what they produce. This means that there is a limited chance that they can buy KFC or MacDonalds products, rebrand them and resell to consumers. Hence, this is not really a threat in the industry that these two companies operate in. Bargaining Power of Suppliers Theoretically, suppliers can pose a threat to both KFC and MacDonalds. This is because they can decide to process what they produce and sell to consumers directly. However, both KFC and MacDonalds source for products from a wide variety of small farmers and producers. Due to this, the collective strength of these suppliers is low. It is practically difficult for them to come together, pool resources and begin a business entity that is at the level of MacDonalds. Competitive Rivalry This refers to direct competition between each of the two companies and other firms that produce the exact, selfsame things that they produce. In the case of KFC, brands like Steers and Chicken Lickin who produce chicken products and brands can be seen as the competitive rivals. They all compete for the same kinds of customers because they produce the very same things. For MacDonalds, direct competitors include Burger King and other burger producing companies. Porter's Generic Strategy Porter identifies that there are three main ways through which businesses formulate corporate strategies: cost leadership, differentiation and cost focus (42). This means that a company will have to build a strategy on one or more of these generic strategies. In terms of cost leadership, KFC can be seen to be a cost leader. This is because when compared to other chicken fastfood companies, KFC has the best prices and the most affordable products. This meas that they are pursuing a cost leadership strategy. MacDonalds' prices are slightly higher than their competitors. This means that cost leadership is placed behind the need to maintain quality and reputation. Differentiation is the best idea that describes MacDonalds. They differentiate on many levels. First of all, their premises, operations, logo and other things are unique and distinct from other competitors. Due to this, it can be said that they pursue a different strategy. KFC seeks to differentiate, but they do so through the use of different brands and spices. Cost focus is common to both companies. They both seek to reduce cost through the use of the best and most efficient technology at all points in time. This means that they cut down costs through innovation and tecnhology. Also, they choose their suppliers carefully and find small suppliers who cannot control costs. Capabilities & Competence Competitive advantage is attained through the creation of systems and structures that enables a firm to remain profitable over the long-term (Porter 2). In doing this, each company tries to build core competencies and capabilities to ensure this. KFC's core competencies are centered around the production and sale of spicy products. Their chicken products are unique and they taste really different from other similar products. They offer free delivery in most parts of the world. KFC hires qualified staff and they use a top-to-bottom approach where the expertise of top managers are used to prompt changes where necessary. MacDonalds' competitive strengths lie in its burgers and French fries. These are of a high quality and they have branded them in a way that most people can easily go for them. They do not offer free delivery. They charge money and make profits from deliveries. MacDonalds employs trained graduates. They use an emergent strategy of management. In other words, things that come up on a contingent basis are integrated into their affairs and operations to improve operations. Social, Environment & Health Concerns KFC is known for its efforts to reach out to the poor and needy. KFC has many schemes and activities that are meant to feed the poor and hungry and also provide a meaningful life to destitutes in communities that they operate in. MacDonalds has various initiatives that are meant to get their customers to become more responsible towards the environment. Also, they focus on nutrition and other communal activities that are localized around the world. Business Model MacDonalds operates a business model which enables it to invest in property. They build properties and real estate around the world. These properties are rented to franchisees. These franchisees pay franchise fees, marketing fees and rent. This goes on to fetch MacDonalds profits for their operations. Only 15% of MacDonalds restaurants are owned by MacDonalds Corporation. KFC on the other hand, is a subsidiary of Yum! Brands. The Yum Brands group includes KFC, Taco Bell, Wing Sheet, Pizza Hut and East Dawning. KFC has 17,000 outlets around the world and these are ran as franchises. Value Chain The companies, KFC and MacDonalds operate by creating value for their customers. In doing this, they blend the activities of core operations, which include acquiring raw materials, processing them and selling them. In doing this, the two companies have the following units: 1. Production 2. Marketing 3. Research and Development 4. Information Systems 5. Supply Chain Management and 6. Human Resource Management. Organizational Culture It is identified that KFC's culture was developed through long term employee stability. Due to this, the company is made up of people who are involved with the creation and maintenance of loyalty in their commitment to the company. In the international arena, KFC operates with a blend of American and local customs and systems. In foreign countries, they add local recipes to their foods and servings where there is a need to do so. Also, Colonel Saunder's method of management which was liberal in handling matters and personal in nature, dominates the KFC branches. There is a general informal culture which is not so rigid. This supports innovation and improvement. MacDonalds also maintains a kind of informal environment. Aside the uniforms that people are to wear, most workers put on jeans and other not-so-formal cloths which makes them look very informal. The culture involves a structured as well as unstructured method of interaction between superiors and their subordinates. However, the focus is on continuous improvement and information flow which encourages participation by all members of the company. TOWS Matrix and Competitive Strategies KFC TOWS Matrix External Opportunities External Threats Internal Strength Brand equity must be used to continue to improve market share Large international presence can be improved further and expanded due to the demand for quick foods. The innovative nature of KFC can be used to promote the production of healthy foods. Cashflow can be used to sponsor research into better services and diversify into other areas KFC can capture market share in light of the competitors by investing more in marketing and expand production. KFC can improve its offerings by doing more research to produce more healthy foods. Internal Weaknesses International expansion should be examined further and changes made where there are legal challenges before venturing into a new nation. Research focus should be expanded as the company continues to expand its market share. Marketing systems should be improved as the number of customers increase. Customer relations can be made to grow further Improve research in order to enhance offerings and entice more buyers Improve marketing and customer relations in order to keep consumers happy and satisfied. KFC needs to pursue a therapeutic strategy in other words, they will have to make changes in their internal structures. This will include improving research and development, customer relations, and marketing. Once this is done, they can pursue an offensive strategy of expanding their market share through investment and offering healthier foods to consumers. This will complement the therapeutic strategy that they will set up. MacDonalds TOWS Matrix External Opportunities External Threats Internal Strength The MacDonalds brand can be expanded to include online sales and the online market MacDonalds can invest in research into organic and healthy foods for health conscious customers around the world. MacDonalds can invest in marketing and quality to win a significant share of the market ahead of the many competitors. MacDonalds can hedge its currency risk through financial intermediaries in order not to feel the effects of currency risk. MacDonalds can invest in other international branches to prevent over-reliance on the US operations Internal Weaknesses Market segmentation should be carried out to aid expansion to different parts of the world and meet needs of the markets. Health facts must be backed with some more organic foods to win over health-conscious consumers Localization of international culture Health issue must be addressed significantly through diversification Expansion into global arena with a currency risk management plan can reduce reliance on US branches MacDonalds will need to get defensive on the US markets and get more offensive in the international markets. In doing this, they will have to fix issues identified in the US markets. This will mean spending more money in order to reduce lapses and meet consumer needs. On the other hand, they need to be more aggressive in foreign markets. When they are confident of achieving their targets in the United States, they can replicate the models and systems elsewhere. Works Cited Johnson Gerry, Scholes Kevan and Whittington Richard. Exploring Corporate Strategy. New York: FT Press. 2011. Print. KFC Website. About Us. Retrieved: http://www.kfc.com/about/. November 1, 2012. Web. MacDonalds Website. Our Company: Mission and Vision. Retrieved: http://www.aboutmcdonalds.com/mcd/our_company/mission_and_values.html November 1, 2012. Web. MacDonalds Website(b). Board of Directors Biogrphical Information. Retrieved: http://www.aboutmcdonalds.com/mcd/investors/corporate_governance/board_of_directors.html November 1, 2012. Web. Nick's Business Blog. KFC SWOT Analysis. Retrieved: http://nickbusinessclass.blogspot.com/2012/03/kfc-swot-analysis.html November 1, 2012. Web. Porter, Michael. Competitive Advantage. New York: Free Press. 1985. Print. Yum! Brands. Company Board. Retrieved: http://www.yum.com/company/bod.asp November 1, 2012. 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