Comparison of Value Chain and Porters Five Forces of McDonalds and Tesco - Assignment Example

Name: Tutor: Course: Date: Management Information System Comparison of Value Chain and Porter’s Five Forces analysis of McDonald’s and Tesco Description of each of the organizations Tesco Tesco Private Ltd Company is a retail firm that specializes in retailing groceries as well as general items. Tesco was founded in 1919 and started its first store in Edgware, London in the United Kingdom 1929. The firm holds third place globally as a retailer after Carrefour and Wal-Mart. The firm has close to 2440 stores and employs over four million people. The market share of Tesco in UK retailing industry is about 12.5% (Kroenke 67). It is the world’s largest online grocer. Tesco has diversified geographically into widely-separated market sectors. Tesco operates in different business sectors within the retail industry like apparel, books, grocery, internet services, and DVD rentals. Tesco has a customer base of one million and above two-hundred fifty thousand orders per week. McDonald’s McDonald’s is the world’s leading chain of hamburger fast food restaurants which serves close to 68 million customers daily across 119 countries. The firm headquarters is in United States. The company commenced business in 1940 as a barbecue restaurant being operated by Maurice and Richard McDonald. The business was reorganized in 1948 as a hamburger stand applying production line principles. The worldwide growth of the chain was overseen by Ray Kroc who joined the company as franchise in 1955 but later purchased it from the McDonald’s brothers (Porter, 2008). McDonald’s revenues are generated from royalties, rents, and fees paid by franchisees and sales in company-operated restaurants. Products sold by McDonald’s include hamburgers, chicken, cheeseburgers, French fries, soft drinks, deserts, milkshakes, and breakfast items. The company has responded to changing customer needs by expanding its menu to include fish, smoothies, wraps, salads, and fruit. How information is managed and autonomy of MIS division Tesco Information management at Tesco is done by IVIS Group that came up with award winning Sonetto Channel Information Management (CIM); that Tesco.com use to manage its online marketing programme. Tesco outsources IT functions. Sonetto CIM is a component of Sonetto Retail suite that enables a business to control, manage, and publish information across multiple channels. A single feed is taken by Sonetto CIM and specifically tailors the information for every channel in a multi-channel setting. Sonetto CIM is connected to other pricing or product systems therefore ensuring real-time, dynamic and accurate information delivery to every channel (Kroenke 67). McDonald’s McDonald’s has an autonomous MIS division. McDonald’s has large information concerning any part of operations related to McDonald’s like financial operations, competitors, suppliers, and employees. The database at McDonald’s is managed by a database administrator (Wood, 1424). Value Chain and Porter’s Five Forces of the two organizations. Value Chain Analysis Value chain analysis is a means the increasing customer satisfaction and managing cost is a more effective way. Value Chain refers to the systematic approach to evaluating the development of competitive advantage. A value chain defines a chain of activities for any firm operating in a given industry. The value chain enumerates the generic value-adding activities of a firm. The activities are divided into support activities and primary activities. Primary activities comprise of inbound logistics, operations/production, outbound logistics, sales (demand) and marketing, and services (maintenance) (Porter, 2008). Support activities comprise of human resource management, administrative infrastructure management, procurement, and technology development (R&D). The value and cost drivers are pointed out for each value activity. Each phase of this generic chain accumulates costs while adding value to the product. McDonald’s Value Chain Analysis McDonald’s head office handles the inbound logistics by collecting the raw materials like meat, vegetables, and bun from suppliers. They process the raw materials and deliver them to the respective franchisees or store (outbound logistics). McDonald’s focuses on cost leadership. Retrogressively there is a lot of products wastage owing to wrong forecasting and product expiry. There is no centralized database for materials’ ordering. The entire process beginning from ordering till delivery to the franchisees takes 3-4 days. Tesco’s Value Chain Analysis Inbound logistics of Tesco include leading market position and economies of scale ensure it gets lower cost from suppliers. This has enabled cost leadership. Improvement in order as well as store processes has helped in improving the overall efficiency and effectiveness of Tesco’s inbound logistics operations. Under operations Tesco has focused on reduced wastage, no excess in stocks and consistent delivery of service. Under marketing and sales Tesco is committed to assisting families during tough times through Big Price Drop that saw an invested of £500m used in lowering prices on daily products. Price campaigns like the Big Drop Campaign launched in 2011 aimed to cut prices across thousands of products. Tesco is committed excellent service. McDonald’s and Tesco’s Porter’s Five Forces The Five Forces model was created by Michael Porter in 1979 to understand how five main competitive forces affect an industry (Porter, 2008). The diagram showing the five forces is illustrated below: Threat of New entrants McDonald’s For McDonald’s the threat of new entrant is low. Despite it not being expensive to start a fast food restaurant, it is a big challenge to compete successfully with established market leaders like McDonald’s, Wendy, and Burger Kind. Established brands like McDonald’s offer standardized services and products at low prices and have a strong brand making it hard for new entrants to compete effectively against them. Tesco The threat of new entrants in the grocery UK market is quite low. The sector is ruled by subsisting market participants like Safeway, Tesco, and ASDA which possess more than 60% market share together with the number of small corporations who hold about 10% of the market share (Porter, 2008). This is makes it challenging for new entrants to come in and establish their companies. Bargaining power of buyers McDonald’s There is low bargaining power of buyers. McDonald’s and other established business are highly competitive with their product pricing. With low prices already set in the industry, the bargaining power of buyers will definitely be low since fast food restaurants provide selections that cater for a variety of budgets. Tesco The bargaining power of buyers is very high with regards to retail enterprises. Existence of related service providers make it easy for consumers to switch loyalty when they realize a better commodity with regard to prices or quality. Consumers can access substitutes easily. Tesco deals with the high power of buyers by offering what they want, at the right time and at affordable prices. Bargaining power of suppliers McDonald’s The bargaining power of suppliers for McDonald’s is somehow moderate. McDonald’s has good relationship with suppliers making the bargaining power to be fairly stable. Suppliers and MacDonald’s rely on each other. There are substitute suppliers that are capable of effectively replacing current supplier, for instance, Pepsi can be replaced by Coca Cola. Tesco The bargaining power level of suppliers in the retail industry can be considered as moderate. Tesco has several suppliers to meet its needs. Suppliers are compelled to offer discounts and other enticements in order to stay in the business and cope with complexities created by dealers in the market. Power of suppliers is compromised by accessibility of substitutes. Threat of substitute products and services McDonald’s Threat of substitute services and products is very high. McDonald’s can be labeled as a fast food service franchise. Other fast food restaurants can be classified as substitute products. Restaurants having same hamburger substitutes are nationwide chains Wendy’s, White Castle, Burger King, and Sonic Drive-In. Tesco The threat of substitutes is high. There are many retailers who are aggressively competing with one another using various business strategies. This fact leads to increased availability of goods and long range for customer’s selections for substitute or similar products. High substitute rate is a threat to the firm. Tesco is trying to counter this challenge through acquisition. Intensity of rivalry among competitors in the industry McDonald’s The level of rivalry among competitors in the fast food industry is a record high. McDonald’s brought into the market premium customizable coffee beverages to compete effectively with higher-end Starbucks coffee. Tesco Rivalry amidst subsisting players in the market is high. Tesco contends with various types of retailers, stores and related firms who offer products that are comparable to those stocked by Tesco. There is direct competitive rivalry with ASDA Group, Carrefour, and J. Sainsbury. The role of MIS department in generating business intelligence to achieve competitive advantage Tesco The global IT infrastructure of Tesco is highly heterogeneous. Information systems tools are used at Tesco for managing, effectively running departments, and managing. Information offers past, present and future material. The information system is used at Tesco to determine monthly statements of expenses that assist managers when it comes to decision making. Information systems is used by managers in interpreting customer behavior and trends which in return helps in pricing analysis as well as loyalty schemes (Rainer & Turban, 36). More than half of Tesco’s customers who buy electrical goods from Tesco.com can access the website through online partners. There is increased business agility. McDonald’s MIS at McDonald’s is used in producing periodic reports like daily list of employees as well as hours of work, or a monthly report with regard to expenditure against the set budget. MIS provides profitability and information that help managers and employees to interpret the performance of the company and plan for its future. Information systems used at McDonald’s include transaction processing system, decision support system, and scale of points system (Wood, 1424). Improving business effectiveness and efficiency to achieve better competitive advantages Management of information system is very important to both McDonald’s and Tesco. The companies have to use latest systems to monitor changing trends of customers in order to keep pace with emerging needs. The value chain contributes to the creation of value to products and has to be enhanced. MIS divisions have to be expended to include all departments in the two organizations. The long term objective to achieve competitive advantage and increased profitability can be achieved if there is consultation and cooperation. Value chain and effective use of Management Information System will strengthen the competitive advantage of the organizations. MIS can play a critical role in ensuring consistency and quality of products and services. Customers are forever connected with the organizations. Work-cited Wood, D. (2009) ‘Are We Cooked Yet?’ Treasury & Risk Management, 15(6), June 2009, p.1424 Kroenke, D.M., Using MIS, 2nd edition, Routledge, Upper Saddle River, New Jersey, 2009. Porter, M.E. (2008) The Five Competitive Forces That Shape Strategy, Harvard business Review, January 2008. Rainer and Turban, Introduction to Information Systems (2nd edition), Wiley, 2009, pp 36–41. Read More