Strategic Plan for McDonald - Case Study Example

MCDONALD’s Introduction and History: McDonald is perhaps the most successful corporation of the world. There’s no magic formula to it, but the company believes that its success has come due to their insistence on their values and because of their belief in truthfulness and honesty. “At McDonald’s, success has always involved a not-so-profound formula involving one-part inspiration and four-parts perspiration. Our founder, Ray Kroc, coined the phrase “grinding it out” to characterize the determination and attention to detail that is required to be successful in our industry. “Grinding it out” was his way of saying the restaurant business is, and always will be, a labor intensive operation. It was hard work and determination that built McDonald’s — and today, those same qualities drive our success.” (McDonald’s Corporation Annual Report, 2008). McDonald’s Corporation had another very good year in 2008, during this period the total revenue that were earned by the corporation amounted to $23.5 billion (McDonald’s Corporation Annual Report, 2008). The company was also able to increase its market by an impressive 7% during the same period. These good results were reflected in a very generous dividend policy by the company, giving out around $6 billion, which is around 24% of what the company has earned during the fiscal year ending 2008. Comparing the current year’s results with past performance of the company, one can clearly see that the company is moving in the right direction- forward. In the financial analyses that are incorporated in the earlier part of this report it can be seen that all the ratios and financial figures have showed improved. It was only that the gross profit ratio has come down by 10%. This may be due to the fact that McDonald’s Corporation has lowered its product prices, faced by intense competition in the market. Price to Earning ratio is now 14% better off as less investment is needed to earn substantial amount of dividend. This may be due to the fact that the Board of Directors has announced a very generous dividend policy of around 22%. Similarly, the company has also started utilizing there equity properly, as the return on equity has seen an increased. VISION AND MISSION OF MCDONALD: MISSION STATEMENT: “McDonalds vision is to be the worlds best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile." This is a very well constructed mission statement. Here they do not talk about how they are going to achieve their plans but instead they talk about what McDonald’s wants to achieve. This is an example of a good vision and mission statement as it would help the company to innovate and think about new ways to achieve their vision. Similarly, by becoming the quick service restaurant, it will serve and save the time of busy people of USA and around the world. This will help them to have a good breakfast or lunch without getting late for their jobs or wherever they are needed. In doing so McDonald’s also plan not make any compromises on hygiene and quality. This would make sure that they keep their market share and attract consumers from competing markets as week. Similarly, McDonald’s being a consumer oriented organization it wants to make people smile and appreciate their services. For this, they have established certain guiding principle and are also coming up with new ideas that will make customers happy and will build goodwill for the company on its way. VISION STATEMENT: McDonald’s vision statement is divided into three core objectives, where they will try to achieve these SMART goals. Be the best employer for our people in each community around the world, Deliver operational excellence to our customers in each of our restaurants, and Achieve enduring profitable growth by expanding the brand and leveraging the strengths of the McDonalds system through innovation and technology." This vision statement clearly shows the worth of how the company is going to go about achieving its objectives. It will try to make use of cultural diversity management, consumer oriented approach and the use of new technology to achieve its mission. This again is a well written vision statement as it talks about the ways the company considers to achieve its final mission. STRATEGIC MANAGEMENT: THREE STRATEGIES 1) FINANCIAL STATEMENT ANALYSIS: According to Richard L. Daft, in order assess the success of an organization, you do not look at only the financial figures of the company, but you also assess factor such as internal strengths and weakness of a company, competitive forces, outside environment and management policies. Looking at these factors will tell you whether the success of the company is long lasting or is it only for a short period of time. This also allows investors and creditors of the company to make investment and lending decision respectively. Many people also believe that it is only by this way that you assess the strength of a corporation and its performance. (Richard L. Daft, 1997) Taking a leaf out of Mr. Daft’s book, I will also look at the performance of McDonald Corporation with the help of strategic management tools such as SWOT Analysis, BCG Matrix, and Porter’s five forces and through ratio analysis. These are important tools used by the managers all over the world to assess the performance of their companies and to find out what could be done to strengthen the company. Ratio Analysis is important tools to convert the financial statements of companies into common statements and to asses the performance of the company over a period of years. This allows us to see the financial trend of a company. This also allows us to look at various aspects of the company, such as: Profitability, Liquidity, Financial Leverage and how well is it carrying out its operations. (Haka and Bettner, 1999) Similarly, I will also analyze the financial statements of McDonald Corporation to find out the financial position of the company. This will not only give us a snap-shot of the company’s assets and liabilities, but it will also give us important details about the profitability of the company. Other tools that will help us determine the corporate performance of the company are SWOT analysis and BCG Analysis. These tools are important as they tell us where the company should invest and where should it divest. These are important decision and can make or break a company as its success depends on accuracy and guile of such decisions. (Peter Drucker, 1980) These tools will help us determine which products of McDonald Corporation are doing well and to assess whether the company is investing and divesting the right product, or are they need to be more cautious? McDonald’s Corporation is the world’s largest fast food restaurant chains, serving nearly 50 million customers daily. McDonald’s Corporation is primarily engaged in selling hamburgers, cheeseburgers, French fries, chicken products, soft drinks, breakfast items, milkshakes and desserts. This business was initiated as a family business by two siblings, Dick and Mac. Their family name was McDonalds, so they named it after their family name. They opened with a sole branch in San Bernardino, California. The business was an instant success and numbers of branches were increased. However, the fate of the business was turned with the introduction of “Speedee Service System” in 1948. The greatness of McDonald’s Corporation lies in the fact that it not only produces standard products all over the world, but it also make slight alterations in line with the diverse cultures of the different countries in order to produce a product that is in concert with the religion, culture, values and trends of the home country in which the franchise is operating in. This respect given by McDonald’s to different culture has clearly played its part in making McDonald a big fish in the current global market. As we are told that big things just don’t happen, they have to be planned, let’s analyze a statement of Mr. Richard Kroc. He once said: “The basis of our entire business is that we are ethical, truthful and dependable”. The packaging policy of McDonald’s corporation serves a dual purpose of cost-effectiveness as well as keeping the product hygienic. However, the packaging material that is used varies from different products. Some burgers are packed in a box, whereas others are wrapped in a paper. Though, all the package material carries McDonald’s logo. McFries are also served in a red-colored box containing a McDonald logo. The pricing policy of McDonald’s is very simple and they charge a very reasonable price to their customers. As a result of their reasonable price, McDonald’s Corporation target market is vast and people from all age-groups and income-groups enjoy the delicious food offered by McDonald’s. McDonald’s corporation started a “SuperSize” retirement plan for its employees in order to provide them secure future once they retire. As a part of this plan, employees were given a return as high as $3 for every $1 invested in the company. This policy helped McDonald’s in retaining good employees and improved the morale and motivation of the employees. There are various strategies or methods that are used by the management to assess the performance of the company or to analyze the trends of the company. These methods are usually computed from the data that is already available and using past company policies and records. SWOT analysis of McDonald’s can be conducted to give us the snapshot of McDonald’s condition. The Porter Forces model and BCG matrix can also be used to further asses the McDonald’s condition. These tools are used by strategic managers throughout the world to give them better understanding of where there business stands. Porter Forces are competitive forces identified by Michael E. Porter, from his studies of various organizations. These forces could be use to assess and formulate a business-level strategy as it takes into account various factors that may be very useful in the important business decisions. STRATEGY 2: BCG MATRIX BCG matrix adopted was developed by Boston Consulting Group in 1970, to assess the position of various product lines of particular business with regard to their relative importance. This approach is used by strategic manager of all the big companies to decide on which products should they invest and which products should be divested. A question-mark is a business that has low-market share in the rapidly growing industry the case of McDonald’s corporation, McDonald’s Europe falls under the category of a BCG Matrix “Question Mark”. CASH COWS: Cash-Cows are those businesses that carry out their operations in a matured or low-growth industry having a very high market share. In the case of McDonald’s Corporation, McDonald’s Asia fulfills the description of a BCG “Cash Cow” A dog is a business located in a highly matured industry having very little market share. McDonald’s Americas (Latin America) can be considered as a BCG “DOG” STRATEGY THREE: PORTER FORCES MODEL Potential New Entrants- High- Due to easy entry into the firm. New firms providing stiff competition to McDonald can easily enter the market and hence McDonald’s is vulnerable to new competition. Buyer Power- High- Buyers have a lot of choices other than McDonald’s like Burger King, KFC and other companies. So, McDonald’s cannot exploit the customers or can charge exceedingly high prices. Supplier Power- Neutral- Supplier Power in this industry is less as McDonald’s is one of the largest corporations and hence buys supplies in bulk. So it has an edge over the supplier. Substitute Products- High- There is a lot of substitutes over McDonald’s offering like, Pizzas, Broasts and other eatables. Rivalry- Low- It is low because no one is producing as good products as McDonald’s. McDonald’s External Environment: STRENGTHS: A good brand name: McDonald’s is a very well developed brand name through efficient management and marketing policies. Similarly, McDonald’s is operating in the market for more than 50 years now, this long presence of McDonald’s in the market has made it a very trusted and successful and trusted brand. Largest fast food Company: McDonald’s is the largest fast food retailing chain. According to factual information, the company operates in approximately 120 countries, having more than 30,000 retail outlets at its disposal. This extensive size of the organization enable McDonald’s Corporation to reap various benefits associated with size such as economies of scales and marketing cost reductions. McDonald is known as to be a socially responsible brand that elevates its prestige: McDonald’s charity programme, which is commonly known as “The Ronald McDonald House”, targeted towards helping children of all ages, has created awareness among people about the social responsibility, and the fact that such a big organization is rendering services to society, encourage more people to come and do something good for the society. This increases the goodwill for the company and McDonald’s reap advantage of this in the form of increased sales. McDonald’s is a diversified organization: The fact that all McDonald’s eggs are not in one basket saves the business from volatile economic conditions in the market. Other sources of revenue for McDonald’s include property investment and their huge business of franchising their prestigious brand name. A branded business: Most of the products produced by McDonald’s are branded, such as Big Mac, Happy meal, Fillet-O-Fish etc. This allows McDonald’s to create a unique personality for their products and in turn allows them to charge higher prices. This results in increased profits for the firms. Customer-Oriented Approach has increased the brand-loyalty: McDonald’s approach of focusing on one customer at a time has resulted in increased brand-loyalty and sales as customers feel important when they dine at McDonald’s. Weaknesses: Controlling/Planning such a humongous organization is a problem: The facts that McDonald’s has grown four fold during the past few years create problems for the management and planning department of the company. It has become increasing difficult to difficult to create a one unified policy to all the retail outlets/franchises operating in the different parts of the world. For example, Cultural and Demographics of India will be completely different from that of the USA. Therefore, the policies that McDonald’s must choose have to be flexible and changeable according to the differences in the culture of different countries. It has, therefore, become very difficult to control such a large organization centrally. McDonald’s prices are higher than its competitors: McDonald’s prices are usually higher than its competitor’s prices. According to the conventional demand theory, high prices usually result in low demand as people look for alternative or substitute products. Similarly, demand for McDonald’s products is on a decline, due to the pricing policies of McDonald’s. Advertisement policies are not coherent: Most of the promotion and advertisement techniques target children and people from lower income group. This is not appropriate because the actual target market of McDonald’s is adults and people from higher income groups or these groups also make a major chunk of McDonald’s sales. Opportunities: Advances in modern technology have reduced the marketing costs for various firms including McDonald’s: Technology has revolutionized the way firms promote their products. The costs of advertising is much lower for companies when they advertise through SMS on cell-phones or use direct mail as a medium of advertising, rather than advertising on TVs and Newspapers. This has resulted in reduction in the marketing costs for the firm’s which are in turn passed on to the consumers in the form of lower selling price of products. Environmental friendly material used by various fast food businesses: With the passage of time, the introduction of environmental equipment, packaging material and cooking ingredients has resulted in increased environmental-issues awareness among the various businesses in the food industry. Threats: Current Economic global downturn: Although McDonald’s Corporation is protected against recession; however, the longer this recession goes on, the more negatively it is going to affect the business as it decreases the purchasing power of people. Increased health awareness and possible adverse effects of eating fast food: Increased cases of obesity in various countries and negative press by documentaries such as “SuperSize Me” by Morgan Spurlock, has resulted in people demand more healthy food such as salads and fruits. This has resulted in plummeting demand for various fast food companies including McDonald’s. Increased competition in the industry: This industry was known for its high profit margins in the past, but this has resulted in influx of more and more firm in the industry, leading to increased competition. This increased competition and fight for more and more market share has resulted in price wars. As a result of this, Profit Margins in the industry have been considerably reduced. References: About McDonald’s. (2009). Cause that counts. Retrieved June 30, 2009, from http://www.aboutmcdonalds.com/mcd/students/mcdonalds_does_good/cause_that_counts.html. Kotler, P. & Keller, K.L. (2006). Marketing management (12th Edition). Pearson: Prentice-Hall. McDonald’s.com. (2009). Retrieved June 29, 2009, from http://www.aboutmcdonalds.com/mcd/investors/corporate_governance.html. McDonald’s.com history. (2009). Retrieved June 29, 2009, from http://www.aboutmcdonalds.com/mcd/our_company/mcd_history.html. Read More