McDonalds Strategic Management - Assignment Example

Introduction………………………………………………………………………….……..3 Overview of McDonalds………………………………………………………………..…..3 Mission and Vision of McDonalds……………………………………………………….…3 External Environment Analysis……………………………………………………………..4 PEST………………………………………………………………………...………4 Five Forces Analysis…………………………………………………………..…….4 SWOT Analysis…………………………………………………………………………...…5 Strategies adopted and implemented by McDonalds……………………………..…………6 How McDonald’s strategies are influenced by environment and its business structure…….7 Evaluation of Company’s Strategic performance………………………………………...….8 Conclusion…………………………………………………………………………………...8 References…………………………………………………………….……………………..9 Introduction McDonald’s is the most recognized brand today with millions of customers and revenue earned annually. McDonald’s has achieved this respectable status due to the implementation of some successful strategies in terms of cost efficiency and differentiating itself from its competitors. This paper is an attempt to analyze the strategic structure of McDonald’s with external and internal environment assessment. How its business strategies are affected by different factors and how they have been successful forms the core of this report. A critical evaluation of the implemented strategies has also been taken to understand what contributed to the success and what hindrances were faced. Overview of McDonalds McDonald’s, promoted by Ray Krov is the largest fast food restaurants chain in the world and is also the most popular brand worldwide. With both local and global presence, it kills the competition by providing healthy meal options at considerably cheaper rates and personalized service. Its business and competitive strategies are spread across categories like quality systems, operations, training and others. A 360 degree view of the above sections and complete analysis will follow in the sub heads to come. Mission and Vision of McDonald’s McDonald’s follows the Q.S.C & V philosophy which summarizes the values involved in its mission and vision statement. It aims to be the favorite eating place for customers where trained people offer impeccable service, quality, cleanliness and values to delight the customers. McDonald’s culture is formed of the following tenets: Customer forms the core of its business focus. Commitment towards its employees through better career development and mutual success (“Restaurant Management” n.d). Strong belief in McDonald’s system of owners, employers and suppliers group. Through honest and fair dealings, it promotes sound ethics as one of the critical components of its business culture. External Environment Analysis (PEST and Five Forces) External environment plays a vital role in shaping up and execution of a firm’s strategies. In this regard, McDonald’s external environment is assessed through PEST (Political, Economical, Social and Technological) and Five Forces Model Analysis. PEST Political- McDonald’s is highly prone to political regulations in different economies as new health standards, employment and labor laws, trade rules, safety guidelines and environmental issues may have a bearing on the company’s operations. Economical- McDonald’s follows standard pricing menu which is directly hit by price and currency exchange rate fluctuations. Also, inflationary trends limit its revenues. Social- McDonald’s employs a large work force from diverse cultures and backgrounds. As such, it holds greater responsibility of their well being, career development and overall community welfare. Technological- quality improvements in health products propositions, flexible supply chains and information systems have urged the need of integrating technology into core business processes. This demands huge investment and recruiting expert employees which can be cost extensive. Five Forces Analysis Threat of entrants- though the fast food industry offers a plethora of opportunities to players to enter and capture the unmet market demands, yet cost of entry and development and research costs are high. In this regard, high end firms like one of McDonald’s find it easy to present a sort of blockage to new entrants by placing stiff competitive criteria. Competitive rivalry- there is cut-throat competition in the market, especially from large established firms. First it started with McCafe and then it entered into breakfast section. Rivals like KFC, Wendy’s and Burger King are adopting aggressive strategies to enhance their local and global market share. Buyer power- buyer power is termed low in this industry due to price wars between large firms. Supplier power- supplier power is also not very high due to readily available material. Substitutes- substitutes are immense in this category. People can either go for burgers or dairy products or beverages or simply a meal cooked at home. Thus, uniqueness and innovation alone could avoid substitutes. SWOT Analysis SWOT analysis is a tool which compares the internal capabilities of a firm against external pressures. For McDonald’s its SWOT analysis goes as follows: Strengths McDonald’s has been successful in registering its global presence through more than 31000 restaurants in almost 120 nations. Moreover, location of its outlets at airports, highways, parks and tourist places also imparts a strategic touch. Cross-cultural management is dominant in the business culture of McDonald’s which encourages it to adapt to the traditional system of the region where it operates. The product portfolio at McDonald’s carries both branded as well as non-branded items which serve many classes. McDonald’s fares well in the social responsibility and food hygiene category due to its preparation styles, nutrition facts and food safety by adhering to health standards. This gives it a clean image in the eyes of the customers. McDonald’s arranges for specialized training of its employees at all levels to equip them of the customer focused strategies. Weaknesses Due to increased competition, it has to get itself engaged in price wars which lead to reduced customer base and revenues. Innovation is still waiting to find vent in the strategies as McDonald’s prime focus is on fast food products only with no mention of organic supplements. Children and teenagers form the major chunk of customers for McDonald’s which takes it away from other potential market segments. Despite specialized training, employee turnover is quite high due to a host of career opportunities in other similar firms for employees. Opportunities Health conscious customers are increasing rapidly which present a cornucopia of business opportunities for McDonald’s. It should go for more innovative product line by coming up with diet products and others. Even low cost combo meals and similar ideas can work miracles for it. As an extension to its social responsibility regime, it can shift its focus to ‘green energy’ resources which will earn it a respectable image and also save costs. Expansion can also be slowed down which will result in greater profitability across its existing outlets. Threats Biggest threats facing McDonald’s is the fierce competition ahead as Starbucks, Wendy’s, KFC, Burger King and many other players have entered the industry aggressively. Healthy eating has always been a vulnerable point for McDonald’s due to its ‘cradle to grave’ marketing strategy. Children tend to continue the fast food trend to their adulthood which affects their health. Even health standards, emergence of various diseases and such other issues have cropped up due to its fast food trend. McDonald’s invests hugely on promotions due to price wars which ultimately get reflected in declining revenues and market share. Strategies adopted and implemented by McDonald’s McDonald’s makes use of different bases to implement its strategies that provide a combined effect to the business in terms of greater satisfaction, profitability and competitive edge. As quoted by Corporate Social Responsibility Report (2004), “At McDonald’s, making customers happy is what our business is all about. And we know it takes a lot to make that happen. We work hard to provide every customer with a choice of meals and an experience that exceeds their expectations.” This feat is achieved through making efforts in the field of nutrition, speed and cost. Quality system @ McDonald’s- to make operations more effective and efficient, quality management is integrated with information technology to reduce time taken by processes. TTL (Total time in Line) is a measurement of customer spending time in line. The standard target is 90 seconds and it offers a benchmark for services to be provided within this timeline. The ‘Made For You’ system makes use of touch screens to facilitate the order processing system by integrating the kitchen and counter operations (Chase, Jacobs & Aquilano 2004). Color packaging of different items help the employees to better differentiate between orders. A standard Food safety book compiles a list of items and guidelines to be checked for each item- temperature, expiry, food hazards, seasonality damages, etc. Regular Food safety inspections are done twice a year at every restaurant. Five Ps @ McDonald’s- the five Ps of product, price, place, promotion and people hold a very important place in defining the strategy at McDonald’s (Kerin, Berkowitz, Hartley & Rudelius 2003). McDonald’s uses these five forces as below: Product- represents price, taste and quality Price- represents value and productivity Place- represent cleanliness, relevance and modern settings Promotion- is characterized by trust and leadership. People- present service, pride and hospitality. Forecasting and Supply Chain- McDonald’s uses qualitative system of forecasting from information available from customers, restaurants and suppliers. This helps reduce wastage and match the demand and supply. McDonald’s also boasts of a flexible supply chain due to its electronic Foodservice network. All the restaurants and suppliers are interconnected through this network. How McDonald’s strategies are influenced by environment and its business structure? McDonald’s follows a regional structure where it aims for ‘maximum local development’. Its products are somewhat standardized yet they are customized as per the needs and local tastes of customers in different regions. This regional structure helps the company to carry on its expansion spree while focusing on major regions simultaneously. For instance, in China, furniture selection and counter desks are designed keeping the height and shape of Chinese people in mind. Similarly, they included breakfast menu in Canada and added more upscale food items in France. Such personalization and alterations have been done keeping in mind the tastes and preferences of local customers across regions (Mead 1994). In terms of external environment, the major factors that affect the strategies of McDonald’s in global scenario are competition, health concept and uncertainty reduction which are briefed as below: Competition- in the initial years, McDonald’s was vanishing in the competition race of providing hot and fresh food items at reasonable price. However, it soon realized that to cope up with this pressure, it has to adapt to the changing market demands. As such, it started offering premium products at cheaper rates to entice customers. Concept of ‘Happy Meal’ was also introduced which was later on extended for adults also. The shift then changed to ambience formation where through enriching experience and providing wireless technology platform, McDonald’s moved a step ahead to attract teenage group and professionals. Health concept- with economic and social development, people are getting more health conscious and give preference to lighter food menus. Earlier, McDonald’s faced the largest hurdle of healthy diet in its development when its offerings were termed causing obesity and cancer to young ones. To respond to the emerging trend, McDonald’s fast incorporated salads and other light items into its product portfolio. It also started providing nutrition facts on all its products which was seen as an encouraging step towards healthy living. Uncertainty reduction- children form the major chunk of customers for McDonald’s and this focus is not without reasons. The brand culture of ‘happiness’ is complemented by children only. By adding on toys, games and new menu options, McDonald’s has always concentrated on this segment because it believes that happy children will bring happy families and further its brand culture. McDonald’s aims to pursue this strategy in future also as children provide a stable base and also a means to bring the entire family to the counter (Han 2008). Evaluation of Company’s strategic performance Uptil now, McDonald’s efforts have reaped in numerous benefits for the company in terms of increased revenues and turnover. Stakeholders are also benefitted by increased dividend rates. However, the strategic approach of McDonald’s has to be leveraged in order to match with the growing competition. McDonald’s defines the following key areas to sustain its global growth- balancing value and price, investing capital by optimum use, sustaining the quality of core menu items, eliminating redundant operations and evaluating success measures continuously. Conclusion McDonald’s has fared well by opening new restaurants and modeling its strategies according to changing demands. However, it is also obvious that failing to respond quickly will result in lost market share to its rivals. Its future endeavor should be to build upon customer loyalty and attract new customers by offering healthier options at reasonable prices. References Chase, R., Jacobs, F., Aquilano, N 2004. Operations Management for Competitive Advantage (10th Edition). McGraw-Hill Irwin; Boston. Han J 2008. The Business Strategy of McDonalds. International Journal of Business and Management, vol.3 (11) [online] available from http://www.ccsenet.org/journal.html. [Accessed Oct 14, 2010] Kerin, R., Berkowitz, E., Hartley, S., Rudelius, W 2003. Marketing (7th Edition). McGraw-Hill Irwin; Boston. “McDonald’s Worldwide Corporate Responsibility Report 2004.” Accessed online on October 14, 2010 at: . Mead, R. (1994). International Management: Cross Cultural Dimensions, Oxford: Blackwell “Restaurant Management.” McDonald’s Restaurant Management Careers. Accessed online on October 14, 2010 at: http://www.mcdonalds.com/usa/work/manage.html. Read More