Describe about the Strategy Management for McDonalds. assignment requires to choose the retail company.
This report contains an analysis of different strategies that can be employed by McDonalds in their operations for sustainability. It analyses the mission, vision and objectives of the company. Besides, the macro-environment has also been analyzed critically by the application of the PESTEL model and Porter’s five factor model. Internal factors have also been analyzed in the form of a SWOT analysis. The models applied in this report are essential in strategic management and they have been crafted to fit the operations of different organizations. Lastly, recommendations have been provided on how the strengths the company has can be utilized while minimizing the effects of the company’s weaknesses. Also, there are recommendations on how the company can seize opportunities and evade possible threats that may be harmful to business.
Strategic Purpose of the Organization
Various business aspects are covered by McDonalds’ vision and that is evident in their vision statement. The company embraces innovation because they need to satisfy their customer needs, and that is why they say they need to enhance the contemporary customer experiences. Their vision has a strategic link to it and that is why the company is ever improving their products to suit the current and future market needs (McDonald’s UK, 2016). They are determined to create products that will give satisfaction now as they work towards improving the products to give the market the quality of products they would need in the future. This shows that the main strategy to keep this reality is by embracing innovation which the company does effectively.
Also, the mission of the company as clearly stated in their mission statement is to provide a conducive environment for their customers to eat and drink while offering the best working conditions to the employees. Also, it includes the corporate social responsibility by clearly stating that they would like to have a positive impact in the environment (McDonald’s UK, 2016). These are factors that are strategic since they help the company to have a humble experience in the society and in so doing, they gain popularity and increase their sales.
Compatibility between Strategic Statements and Functional Objectives of the Company
From the vision and the mission statements discussed above, it can be deduced that there is a relationship between the statements and the functional objectives of the company (Dey, 2016). This is so because, McDonalds has managed to fulfill its promise to the market in offering the best quality food that they need and an ample environment from which the consumers can enjoy their meals.Besides, it has managed to give people good working experience by providing conducive environments from which they work. Their corporate social responsibility is also on point because they have activities that work towards improvement of the environment.
Macro-Environment Analysis (PESTEL Analysis)
McDonald’scorporate strategies address the different issues that are discussed in this PESTEL analysis. This model analyzes the external factors that that present different opportunities and threats to the business. McDonalds is mainly focused on the socio-cultural and economic factors. Nonetheless, the company’s success can be attributed to the effective strategies that have been employed by the company to deal with the external factors (Leekha Chhabra & Sharma, 2014). Since the company is the biggest fast food outlet, McDonalds needs to adapt its strategies to suit the ever changing industry.
Political factors play a vital role in the operations of a business. This relates to many factors that are politically influenced. For instance, when an organization wants to enter the global market, it needs to have strategies that will make it successful in such an environment (Shilei& Yong, 2009). In McDonalds’ case, the political factors include: increase in international trade agreements, which is an opportunity; the pending tax reforms which also is an opportunity and the changing public health guidelines and policies, which pose a threat to operations in the industry. The political factors have enabled McDonalds to expand in many international markets due to political stability (Verma, Gupta & Nangia, 2014). Also, the company has an opportunity to strategically change its operations to minimize the impact of taxation without necessarily violating the law. However, there is a threat of the public health policies which are increasingly discouraging people from consuming junk and fast food. Nonetheless, the company has a chance to change and improve its products to be healthy. In this analysis, the political factors opportunities outweigh the threats that are posed by the policies.
Economic factors address the wider economy. The economic factors include the growth rate of the economy, inflation, unemployment, costs of raw materials and energy costs among others. Changes and shifts in these factors affect the operation of an organization. Economic changes across the globe influence McDonalds working environment because it operates in different markets. The slow but steady nature of the US economy gives an opportunity to the company. McDonalds has a potential to grow because of the nature of the economy of the state. Another factor is the stable but risky economy in Europe (Sardar & Talat, 2015). This poses a threat to the company’s expansion in the region. Also, in Asia there is a rapid growth of the economy and it is offering opportunities to the local population. This is also a threat to McDonalds’ expansion in the Asian market. Analysis of the economic factors shows that the economy as an external factor poses a threat to the business (Bernhardt, et al., 2015).
The analysis of social cultural factors refers to the social conditions that favor or limit the business of the company.Socio-cultural factors involve shared or common attitudes and beliefs of a population. They also refer to how the population reacts to trend changes. For McDonalds, the external social factors include: First, the widening wealth gap. This brings opportunities for the company to increase revenue due to an increased customer base. Since the company targets the middle and the low income earners, this creates great potential for growth. Secondly, cultural diversity gives the company an opportunity to improve the product mix to suit the diverse market (Brown, Bessant & Lamming, 2013). This is also an opportunity since it increases the company’s revenue through more sales. Lastly, there are lifestyle and healthy trends, which give the company an opportunity to improve healthfulness of its products. The analysis of the socio-cultural factors gives the company more opportunities than threats and hence an increased chance for future business.
The technological factors also play a vital role in the success of a company. The ever changing technological techniques offer opportunities to those companies that also grow with the technology while the ones that do not improve their technologies are threatened. Such factors as improved communication, production techniques and distribution channels impact a business greatly. For McDonalds, research and development activities help the company to come up with improvements that enhance efficiency. Also, automation by the company helps in increasing production and hence a larger market is easily satisfied. Moreover, online marketing and sales increase the market base for the company (Erickson, 2016). Generally, the technological factors existing offer the company an opportunity for better business. Self service is one of the operational functions that technology enhances. Self service creates efficiency for both the organization and the customers. Also automation makes the production of different products easy and faster. This improves the general performance of the organization.
Factors like climate change affect the business negatively hence posing a threat to the company. Although, emphasis on strategies that emphasize on sustainable business offers an opportunity, and also the increased corporate environmental activities help in popularization of the company. The company has a CSR policy because it is concerned with the environmental matters (Stembridge, 2014). The company encourages reusing of waste products to protect the environment. Also, they engage in occasional activities that clean the environment.
Legal factors act as threats more than opportunities to a business. For instance, regulations limit operations of a company. The new minimum wage levels in the US affect the company negatively since they increase the operation costs, also the animal welfare regulations also threaten the business because they produce animal products too (Pingali, 2016). Legal factors are a major threat because they keep on changing and what is legal today may be illegal tomorrow making business difficult.
These factors offer different opportunities and threats to the company. Since McDonalds is still a leader in the fast food restaurant business, it can be ascertained that they have the right strategies to tackle the challenges that are posed by these factors. Besides, the company can also seize the opportunities that the factors bring due to their strategic positioning. The analysis shows that there are opportunities that the company can use to gain a competitive advantage in future and that is how the company can be sustainable into the future. Also, the company should lay down strategies that deal with threats that these factors offer.
McDonalds exhibits different levels of strength in the five forces. This model analyzes the most effective factors that directly or indirectly affect the business. For McDonalds, the focus is on the fast food industry. The company’s success in the industry indicates that, effective strategies are being utilized to manage the external forces that may negatively affect business (Azadi&Rahimzadeh, 2012)
Competitive Rivalry (Strong Force)
The company faces stiff competition because the fast food restaurant industry is already saturated. Some of the players in the industry include KFC, Domino’s, and Pizza Hut among others.For McDonalds, the external factors that create a strong force include the high number of competitors, the level of aggressiveness of the competitors and low switching costs. All these pose a threat to the company since they are strong forces and entry is easy for other firms.
Bargaining Power of Customers (Strong Force)
Customers have a chance to easily impose their demands on the company since switching costs are low. Moving from one restaurant to another is easy. Also, the large numbers of service providers acts as a threat to their operation and customers can influence their operations (Rosenberg, 2015). In addition,availability of substitutes give customers the strength to bargain since they can readily get substitutes of what the company offers, hence the bargaining power of customers is a strong force.
Bargaining Power of Suppliers (Weak Force)
The bargaining power of suppliers does not affect the company’s operations. This is due to the large number of suppliers of raw materials in the market. Also, there is an abundance of the supplies that the company utilizes which makes it possible for them to have options to choose the best bargains. This is a weak force and it gives an opportunity to the company to cut costs.
Threat of Substitutes (Strong Force)
The analysis of this force focuses on the effects of the availability of substitutes on the firm’s performance. High performance, low switching costs and substitute availability are strong forces that influence the operations of McDonalds. This factor is harmful to business although the company has managed to retain its popularity in the industry for long (Dey, 2016). Such a force can be managed through strategies like product quality enhancement and improvement.
Threat of New Entrants (Moderate Force)
In all industries, the threat of new entrants exists. It is a force that threatens the market base of a business. In the case of McDonalds, the force is not so strong because there are some limitations in terms of costs. These costs relate to capital, switching costs and brand development. McDonalds is already popular and there are minimal chances of new entrants taking over their market space. Besides, McDonalds has developed a loyal customer base. Again the high cost of capital does not allow new entrants to invade the market easily and that is why this force is moderate and is controllable by the company.
Organizational Capabilities and Core Competences
The company has different capabilities that enable it to manage the operations of the company such as having a secret recipe, core intellectual assets, a strong value chain and other capabilities and core competences are discussed below.
Secret recipe-McDonalds has a secret recipe that cannot easily be imitated. They have strict confidential contracts signed by people who offer their services.
Core intellectual assets-The employees in McDonalds are trained in the way the organization operates and how to prepare different products. Quality is highly upheld and they are highly motivated.
Strong value chain-The organization has a strong value chain, which helps in the achievement of the companies objectives.
Financial physical assets and technology-The Company has a huge asset base and that makes its expansion easy because of the competitive advantage it enjoys. In addition, it employs technology in most of its activities and that makes it have superior products.
Business Functions Analysis
The main business functions include, administrative functions, franchising, which is a kind of business model that gives different organizations a right to use their brand name and business model for a specified period of time, human resource, supplies and product development. These functions are essential and helped the organization to gain the success that it enjoys currently. Although there are other functions, the ones mentioned are the ones that promote the strategic wellbeing of the organization.
Basis of Competitive Strategy
The generic strategy the company uses is the one of cost leadership. The company engages in cost minimization so that their products can have low prices. This strategy has helped the company in market penetration. The company operates on position 2, 3 and 4 which are, low price, hybrid and differentiation. Innovation and creativity are the practices that enhance the company’s competitive advantage (Wittmann& Reuter, 2008).
Strategic Choice and Strategy Evaluation
Key Direction of Future Growth
It is essential for McDonalds to grow its business and possibly diversify because of the changing trends in the business environment. Changes like people’s tastes and preference, production techniques and environmental conservation policies affect business. This can be done by exploring new products and new markets. The Ansoff matrix can be applied in the process to come up with suitable strategies for improved business operations (Richardson & Evans, 2007).
Market penetration involves the presentation of the existing products to an already existing market (Taylor, 2012). McDonalds has chicken products, Hamburgers, French fries, soft drinks, desserts and salads. The strategy for market penetration for the new products is offering them at a reduced price (Goldman, & Nieuwenhuizen, 2006). This strategy is effective for the penetration of a new and existing market since people like to spend little and gain more.
New Product Development
The company has always provided innovative products to its customers. This relates to unique recipes that they employ in the production of their products. McDonalds seeks innovation from one market and employs it in the rest of the world’s markets. This strategy is a little risky but it has helped the company to build its over 47 million customers across the world. The strategy is the one responsible for the company’s growth.
New Market Development
McDonalds is a global company and its franchise system helps it to reach its customers in the international market. The organization has over 31000 outlets and is operational in 119 countries and still is expanding (Pride & Ferrell, 2010). The franchise system, the company is successful in entering new international market and the strategy has proven to be significantly effective.
Diversification is a marketing strategy in which an organization engages in exploring markets which in which it has not been having operations (Taylor, 2012).
It is difficult for the company along its normal operations to diversify. The franchise system is not suitable for diversification since the processes involved may be long and insignificant. The strategy employed is the acquisition of other companies with different products. For instance, McDonalds acquired some stake in Chipotle Mexican Grill & Pert a Manger and Donatos Pizza. This is the strategy that can work for diversification since the company has a competitive advantage.
Ansoff’s Matrix Analysis
This is a strategic planning tool that is used by marketing managers and other executives in coming up with ways they will operate in the future.
The option in the matrix chosen is market penetration strategy.
The strategy employed by McDonalds in market penetration is taking in new products to existing markets at low prices and that edges competition making it a suitable strategy (Richardson, & Evans, 2007).
The strategy is acceptable because, the company operates at low costs and that gives them a competitive advantage over other players who have high operational costs.
The strategy is feasible because the company has a huge financial asset base which enables it to enter the new markets at low prices without significant effects on their financial status.
Conclusion and Recommendations
McDonalds has different strengths which enable it to survive in the competitive fast food industry. Having a strong financial base enables them to navigate through various economic cycles. To reduce risks, the company should diversify since it has a high financial asset base. The nature of the food that the company produces acts as a weakness because there are campaigns against fast foods in the world. The company should start producing healthy products that will help them remain afloat in the market. Also, all legal requirements should be fulfilled to reduce risks. There is an opportunity in the fast growing fast food industry because people don’t have time to prepare their food and so this opportunity should be used by the company to increase its business. Besides, the company should explore green energy which will help in conservation and reduction of costs. The threats the company faces include competition, public health matters and environmental issues. Competition can be edged by improving quality while public health and environmental matters can be resolved by having the right certifications and processes.
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