McDonald's Strategic Management - Case Study Example

McDonalds Strategic Management Course Name Course Code Semester Instructor’s Name Introduction McDonalds enjoys a global recognition due to their performance. The company has been able to thrive since 1955 gaining reputation as the best place to work. McDonalds has more than 250,000 employees and is one of the most admired companies. The company has been able to stay at the top position in the fast food industry despite the difficulties. Macdonald has a strong support due to their professional integrity. Their trust is also attached to their safe food, respect to stakeholders, quality service and cleanliness. McDonalds operates on franchising. As a franchise, the company grants the rights to someone to sell their products. McDonalds main responsibility is to ensure that the person given the rights can use the right operating methods and maintain the quality (McDonald’s Corporation). For a business to succeed, strategies form a vital part (Bahaudin & Bina, 127). The companies have to come up with methods for running a business and face challenge which will lead to increase in sales, market stability and enhances the customers’ loyalty. Macdonald has to adopt strategies that will enable them to stay at the top position in a fast food industry. This is due to the competitive nature of the fast food industry. Vision and Mission McDonalds mission and vision statement is “To be the world’s best quick service restaurant experience. Being the best means providing outstanding quality service, cleanliness, and value, so that we can make every customer in every restaurant happy” (McDonald’s Corporation). The vision and mission show that the company is centered in making sure that the customer is fully satisfied with their service. The company puts the customers as the most important asset that drives their success which means that for the company to achieve their present and future goals, they have to make sure that the customers are served well and given high quality products from experienced staff. To achieve this, the company hires qualified staff and train them so that they are effective and committed. Situation analysis SWOT Analysis In order to understand the current situation analysis at McDonald, it will be prudent to look at the company strength, weakness, opportunities and threats by conducting SWOT analysis (Bateman & Snell, 42). Strength Being the largest fast food company globally, McDonalds have the biggest market share globally. The company has the largest total sale which is at 8 percent. The company has more than 34,000 outlets which are capable of giving service to 69 million customers daily. The operations are spread in more than 119 countries which enable the company to have a large source of revenue. The company brand recognition has been estimated at $40 million which have given the company a position as the most recognized brand in the industry. The company brand enables it to make sales more easily. In advertising, McDonalds have been able to take the top position as compared to the competitors (McDonald’s Corporation). The amount of cash that the company spends on advertising is estimated at equal to the amount spend by four of the competitors. McDonalds advertisement is estimated to be at $2 billion. McDonald has been able to adapt the local taste in their country of operation. The company restaurants are located in countries with different cultures which mean that what the consumers prefers in Europe is different than what is proffered in South America. The company uses the local tastes in adjusting their menu. Franchising has acted to strengthen McDonalds. More than 80% of the restaurants that sell McDonalds products are franchised giving McDonalds ample time to concentrate on other issues such as marketing and perfection. Being able to target children has been a major advantage to McDonalds. The target has been achieved by giving the children toys and providing playgrounds which has made the company popular among the young consumers enlarging its market share (Bahaudin & Bina, 130). The company has great economies of scale. This is due to their sales that amount to ten times that of the competitors. The company has also gained great advantage in their location choice as they can be found on the convenient locations such as shopping malls, airports and Wal-Mart’s. All these help the company in their pricing and negations by giving them a competitive advantage. The company is located under varied geographical locations. Through this, the company has been able to reduce their risks and hence maintain a stable growth. Weaknesses McDonalds have of late faced negative publicity. The company has been criticized of giving unhealthy food to the consumers which promote obesity (Andreyeva, Kelly & Haris, 5). Their strong focus on young children has also been under criticism. McDonalds food menu have been categorized as unhealthy. Though there have been efforts to address the issue by introducing healthy food, the menu has a large proportion of unhealthy food. Unhealthy menu has led to protests by organizations against obesity making McDonalds less popular. The use of low paid and unskilled job focus by McDonald has led to high employee turnover and high costs of training. The employee performance is affected as they have negative views on the job. The company has also failed to use a comprehensive differentiation technique from other fast food companies. The company has opted to compete with price rather than use other tactics such as additional features. The company ability to increase their market share is hampered by many competitors in the fast food industry. This is due to fact that the competitors also keep pushing their prices down. The company advertising has mostly targeted to the young children. McDonalds has not been able to increase innovation in their menu. In lawsuits against the company, these have impacted on the company growth. The company has been under litigation such as unfair competition, trade practices, negligence and fraud among others. This has increased the company unnecessary expenditure in lawsuits (Bahaudin & Bina, 131). Opportunities At the moment, demand for healthier food has been on increase (Andreyeva, Kelly & Haris, 9). By introducing healthy food in their menu, McDonalds can be able to make its weakness become strength. The company has been trying to put efforts in making a healthy menu as seen in their efforts to open a vegetarian restaurant in India. Convenience is another opportunity that MacDonald can seize through introducing home meal delivery. The method can work to enhance the company reach to the consumers. Remodeling the company restaurants will enable the company to grow its market share. Of late, the company has redesigned the logo and restaurants. The process started in 2006 and has been ongoing. The results from the first phase of remodeling helped the company to increase their market growth by 8-9 percent. If McDonald continues with the trend to remodel their restaurants, there is high possibility that they will be able to increase their market share. Remodeling should be accompanied by introducing new practices in their operations. There have been changes in the consumer tastes and preferences. The change presents an opportunity for the businesses as they can adapt to the new tastes of the consumers and increase their business. Macdonald has been able to respond to the changes by introducing Mccafe, McExpress and McStop (McDonald’s Corporation). The initiative has been triggered by the change in consumers’ behavior. This has the capability to attract the untapped customer potential. The growth of franchise is a major opportunity for MacDonalds. There has been growth in franchise globally which have led to an increase in income. McDonalds have been able to benefit from this initiative over the past years and have shown great interest in continuing with franchising. The company has been extending their franchises to master franchise agreements which last for 20 years. There has been a steady growth in the beverage market. The hot drink market has been predicted to continue expanding with an average of 13.1 percent while the coffee market has been predicted to expand. If McDonalds continues increasing their presence in the beverage industry, there are high chances of growth (Bahaudin & Bina, 133). Threats The developed economies have a saturated fast food market. The market is overcrowded with many fast food restaurants being in operation (Andreyeva, Kelly & Haris, 7) acting as a major threat to the expansion of McDonalds. In 2012, the company was not able to show any growth rate due to competition in the market. There have been trends in which most of the consumers have been avoiding fast food due to health issues that have been associated with them. In an attempt to fight obesity, the governments and other organizations have been on forefront to condemn fast food. People have been avoiding McDonalds menu in preference of healthier food. Though McDonalds have put a lot of efforts in adapting local menu, the local restaurants are more capable than them. Local restaurants are capable of offering food taste that is representation of the community. The increases in the number of local restaurants that have lower prices have presented McDonalds with a great competition. Currency fluctuations are another threat that has been faced by McDonalds. McDonalds being a multinational have to send the profit back to US which are affected by the exchange rates in situations where the dollar has appreciated against other currencies (Bahaudin & Bina, 134). The situation was seen in 2012 where the profits were greatly affected by the appreciating dollar. Another threat to McDonalds has been lawsuits. The company has been under a number of lawsuits which costs them a lot of money and time. If the company continues with its current method of operation, there is a threat of more lawsuits that are to come. The company also has a major threat from the consumer expenditure downturn. The consumers have started reducing their unnecessary expenditure due to financial crisis, especially during recession where even the growing economies were affected. The company is dependent on the consumer traffic. If the consumer expenditure decreases, there is a pressure on the company profits (Bahaudin & Bina, 129). PESTEL Analysis PESTEL analysis is another tool that can help much in understanding both the internal and external environment of McDonalds. The analysis involves looking at the political, economic, social, technological and legal environment of the company (Bateman & Snell, 61). Political factors Operations of any company are affected by the set laws and government policies. The government policies on regulating fast food have a direct impact on the McDonalds revenue. Most of the developed country governments are regulating fast food due to associated health risks such as obesity, cardiovascular and cholesterol. The regulations have led to control of licensing on the fast food industry and any related franchising. For the company to succeed, it must have a good relation with the government. This is through provision of tax returns and employment which acts as a mutual benefit between the company and the government. This is very important, especially in the foreign market. The company is supposed to comply with the set rules and regulation by the government in order to succeed (Bahaudin & Bina, 135). Economic factors Economic variables are vital in any business. This is due to fact that the company has to deal with multinational operations that are subject to economic conditions. For example, McDonalds has to outsource some of their materials this means that they will be subject to the foreign currency exchange. Most of the products used by McDonalds such as beef and potato come from export. The company is also subject to the tax on the profit that is imposed by the local governments. Each of the country where they operate has their own mode of taxation and they have to follow it if they want to succeed. Due to their operations as franchise, the company has to pay certain amount of the revenue to the parent company located in USA (McDonald’s Corporation UK). The economic growth of the country of operation is an indicator of how the company products will be in demand. McDonald's products are priced above the cost of normal foods. This means that if the country experiences economic turndown, few people will manage to buy the products. If the economic conditions are good, there is an increase in demand for the McDonalds products (Bahaudin & Bina, 137). This is due to fact that most people have more disposable income and they can spend on McDonalds. Social factors The lifestyle of the population in the country of operation has a great effect on the McDonalds operations. When there is a high number of populations who can afford a fast food restaurant, the company can gain more revenue. While more people are able financially to eat at expensive food outlets, McDonalds benefits. The young generation has been more attracted to high technology and hence services such as wireless transfer, and credit cards are more attractive to them. These are issues that need to be taken into account when McDonalds enters into a new location. Cultural sensitivity is an issue that should be upheld in McDonald operation. Each country has a unique culture which differentiates them from one another. This can be explained in instances such as where the Hindu does not eat beef. The menu is affected by the social condition in the country of operation. McDonalds has put efforts in designing their menu to cater for different tastes (Bahaudin & Bina, 136). Environment Being branded as the world largest consumer of beef products and potatoes, McDonalds have an environment responsibility. The methane that comes from the cow ranch increases due to large amount of livestock to supply McDonalds. Large scale plantations which are set with an aim to provide for McDonalds have an effect on the environment (Bahaudin & Bina, 140). This is through reduction of the forest cover due to farming activities. Some of the organizations aligned with vegetarians have been on the forefront in criticizing animal cruelty through slaughtering. The company was once forced to change its packaging from polystyrene. This is due to pollution that was caused by polystyrene packaging. The increase in environmental awareness has large impact on business as they have been criticized not to operate just for the business. The companies have been required to be more vigilant on their activities that can cause environmental issues. Environmental laws have impacted McDonalds as they have to operate within the legal boundaries to reduce pollution. Legal issues There are set rules that food operators should follow. These include certifications such as Halal that are set for the Muslim consumers. McDonalds has a legal obligation to ensure that all the set processes and requirements are followed. Adhering to law will protect the company integrity and maintain consumer confidence. There are set legal requirements for the business such as tax requirements, registration, labor laws and certifications (Bahaudin & Bina, 141). This enables the business outlet to be legally recognized. Failure to comply with the legal requirements may lead to the operator being arrested, or their business prohibited. This is disastrous to the operation of the business. Developing the strategies McDonalds haS been able to maintain the status of the most famous fast food chain despite the issues facing them. For the company to increase their sales and maintain a competitive advantage, they have to adopt strategies (Bahaudin & Bina, 131). The company must work on what they lack so that they are able to retain their customers Creating a healthy image McDonalds have been associated with unhealthy menu which have been claimed to lead to obesity and other health conditions. There is need to address the issue of the unhealthy menu and come up with a menu that is more acceptable. Of late, the company has tried to remove the super size French fries as well as soft drinks. The effort is targeted to slim down the menu and come up with a healthier one. There is also need to remove the contentious breakfast menu and replace it with a healthier one. Some of the products have been associated with high levels of unhealthy food such as the 14 ounce McDonald’s fruit. Changes in the company menu are necessary to ensure that the company can retain the market and improve its overall image on healthy products. The company has to make their strategy more long term focused (Bahaudin & Bina, 135). This is through being more aggressive in their marketing so that they can maintain their growth. This is due to expansion of the competitors both at national and global level. Food industries have a priority to maintain hygiene and cleanliness. The customers are more attracted to clean areas where they can feel more comfortable. McDonalds have to use this strategy by ensuring that all their areas of operations are maintained to the highest standards. Product modifications and differentiation Being a company that operates in a diverse environment with different cultures, there is a need for product modification. This strategy has been implemented in various companies where McDonalds have been in operation (McDonald’s Corporation UK). For example, the type of burgers differs depending on the country especially in Asia. This is in accordance with the changes in international tastes. This trend needs to be carried out in all the countries of operations. In some countries, there is a need for more modifications due to different ethnic groups. Modifications enable the global companies to enter new markets more easily. McDonalds should ensure that their products are differentiated to suit the market through the price, packaging and formulation. In order to overcome the cutthroat competition in the fast food industry, McDonalds have to enhance their products as well as introduce new ones. This should be done in accordance with the market demand. New products should be introduced which are unique from the competitors. New products will also work to increase the company market coverage. Having unique products enables the company to attract new potential customers (Bahaudin & Bina, 140). Integrated marketing communication and emerging markets The company has also to be vigilant in emerging markets. This should be carried out through advertising and promotions. Using integrated marketing promotions, the company will be able to promote their products in emerging markets. IMC enables optimization of all promotional media. It is also possible to optimize all the communication channels using IMC. Using IMC, McDonalds will be able to coordinate all the elements of the marketing mix such as promotions, advertising and public relations. IMC offers more benefits that the traditional marketing methods. The company is also able to benefit from identifying and using the most appropriate channel of communication. This leads to good customer, employees and other stakeholders’ relationship. McDonalds have to maximize their use of IMC to increase their benefits (Sustar & Sustar, 66). Expanding to emerging economies can help McDonalds retain their competitive advantage (Bahaudin & Bina, 138). For example, the company expansion to China has seen rapid growth in the market. The company has been able to open more than 960 restaurants and provided employment to more than 60,000 people. In China alone, the company has been operating in more than 100 cities. This shows that emerging market has a great potential for McDonalds. The company should work more on entering the emerging economies to counter the competition. There is also need to try to acquire other fast food companies in order to strengthen its market position. Advertising The company should also work more on their advertising campaigns. This is through promotional offers and collaborating with other related companies in promotions (Jonson, Scholes, & Whittington, 57). For example, McDonalds should collaborate with healthy drinks company in a promotion. This will work for the mutual benefit of the company. The advertising images should be focused more on creating a family comfort. This is in addition to advertising the company as fast food restaurant with quality meals. Updating menu McDonalds menu needs to be updated to address the need for variety. There have been complaints that McDonalds have limited variety as compared to their competitors. For example, in the Asian market the company lags behind Burger king and Wendy in variety. The company can increase their efforts in producing the vegetarian burger and food (Bahaudin & Bina, 140). This will enable the company to compete better in the global market. Website enhancement There have been complaints that McDonalds website is not user friendly. This may act to deter the consumers from using the company’s online resources. The company has to work in redesigning their website to be user friendly and optimize it. There should also be a change in their sales promotion in the major markets. The main tools used by the company are billboards, sponsors and television advertisement. The company should adjust their sales promotion and focus on the promotional mix that will give maximum response. There is also need to increase their online advertising. This is due to increase in the access of internet by the consumers (McDonald’s Corporation). Use of technology For competitive growth, the company is required to use customer convenience, value and optimize their operations. This will help the company in coming up with new and better ideas that will enable them maintain their customs and acquire new ones (Bahaudin & Bina, 139). In optimizing their operations, the company has to increase their use of technology and make their manufacturing systems lean and efficient. The company has also to increase their use of service oriented technologies. These can help McDonalds in making automated surveys and also service to the customers. To make the consumers more convenient, McDonalds have to increase their rate of opening new stores. There is a need for a company to scout new locations where there is a potential for growth (Bahaudin & Bina, 137). This can enable the company to reach the customer targets that are far from their areas of operation. Customer value can be achieved through use of real time flow of information. There should be instant changes on the menu according to the changes in the consumer preferences and market. Conclusion McDonalds has the largest market share in the fast food industry. Despite this, competition in the industry is increasing with more fast food industries being set up. The company must implement strategies that will enable them to retain their market share and competitive advantage. This can be achieved only by evaluating the current internal and external environment which has a direct impact on the company performance. The organizational strategy that is set above will enable the company to meet their goals through maintaining a competitive advantage. The company top management should be keen on establishing what works for the company and what to eliminate. The management has to ensure they create an environment where it is possible to implement the strategies. It’s recommendable that McDonald should ensure that all the strategies as well planned and implemented. These strategies are determinants of the organizational success or failure. References Andreyeva, Tatiana, Kelly, Inas, R. & Haris, Jennifer, L. Exposure to food advertising on television: drink consumption and obesity, Cambridge, Mass, National Bureau of Economic Research , 2012, Print. Bahaudin, Mujtaba & Bina, Patel. McDonald’s Success Strategy And Global Expans Through Customer And Brand Loyalty, Nova Southeastern University, 3 (3), 2007: 123-144. Bateman, Thomas. & Snell, Scott. Management: The New Competitive Landscape. New York, NY: McGraw-Hill Company, 2004, Print. Jonson, Gerry, Scholes, Kevan & Whittington, Richard, updated. Exploring corporate strategy, London: Pearson, 2009, Print. Sustar, Boris. & Sustar, Rozana. 2005, “Managing marketing standardization in a global context.” Journal of American Academy of Business, 7.1 (2005):302. McDonald’s Corporation. About McDonald’s/McDonald’s History. McDonalds, 2014. http://www.mcdonalds.com/us/en/our_story.html. 25 June 2014. McDonald’s Corporation UK. About us. McDonalds, 2014. http://www.mcdonalds.co.uk/ukhome/Aboutus.html. 25 June 2014. Read More