Introduction
Strategic management is about establishing visions and missions of a company. The missions and visions provide the direction to the company concerned and help it defines its position in the market amidst stiff competition from other industry players (Brubaker, 2005).
Corporate strategy management is viewed as the best way through which a company can easily establish a competitive edge over competitors. The role of establishing the mission and the vision of the company is the sole responsibility of the top management, but for these missions and visions to be fully acceptable, all levels of managements and employees in general should be involved in a way in the process (Mourier and Smith, 2001). Once formulated the mission and the vision should be communicated clearly to the employees for implementation.
This report aims at presenting the findings of an investigation that was carried out to find out the process involved in the formulation of the corporate strategies at McDonald’s corporation, the worlds leading Fast Food Franchise Corporation. The report also establishes the areas of their applications, levels of strategies that a company can employ and the implication of these strategies on the company’s well-being.
Scope
The investigation was done on McDonalds as it is a company with a national and international outlook. The reasons for the selection of this business included intense competition that exists in the fast food industry. This competition has led to the need of extensive research and development of advanced corporate strategies to counter the competition and to establish a strong presence in the market. Therefore, McDonalds provides a good source of information on the study of corporate strategies, their applicability, their usefulness as well as their role in business success.
Report Structure
The report will be presented in the following manner: first we will discuss the scope of corporate strategy, then the level of corporate strategies, process of formulation of these strategies, areas of application of these strategies and the importance of these strategies to the business before giving a final summary in form of a conclusion. All these issues will be discussed in regard to McDonalds Inc.
Overview of the Company
McDonalds Corporation prides itself as the leading global fast food chain with a special appeal among many residents of America for its burgers and french fries. The company started off in 1954 and has since grown many branches that are spread in all states of the United States of America as well as in other continents. Today, McDonalds serves millions of hungry customers across the globe through its franchised and fully owned branches.
The path to McDonald’s success has been shaped by its creativity and innovativeness that has made it remain focused to a particular market segment. Although there is nothing much to be differentiated in a fast food restaurant, McDonalds has over the years defied this and has always come up with innovative products that has seen the chain gain continued revenues.
Among the most innovative products to have ever been produced by this chain were Big Mac and Egg Muffin whose market response was positively overwhelming. The chain is also famed for its innovative tag of “Happy Meal” which was essentially useful in pooling children into eating at McDonalds.
From the short overview of the company; it is evident that McDonalds has a way of doing things in a sharp contrast of what others in the fast foods industry do. It is this uniqueness portrayed by McDonalds that the report seeks to examine.
Scope of Corporate Strategies
Corporate strategy planning involves the process of formulating corporate missions and visions. The missions define the main purpose of the corporate body. They give an overview of the company’s intent and the reasons for its existence. Missions give a big picture of what the company aims to achieve in both the short-term and in the long run.
The visions on the other hand are aimed at explaining what the company aims to achieve in the long run. This can be either to be a market leader or to be a low cost leader in the market in the foreseeable future (Saunders, Lewis, and Thornhill, 2006). The visions should be formulated in a way that leads to the achievement of the mission of the corporate body on the implementation. The process of corporate strategy formulation should also take into account the goals the corporate body aims to achieve.
The goals define what the company aims to achieve in the short term. Other issue to take into consideration is the objectives the company aims to achieve. Strategies should be formulated to help the company achieve its missions, visions, objectives and goals.
Factors Shaping McDonalds’ Competition
McDonalds operates within a highly competitive market. Due to this high competition, every player in this industry must formulate survival tactics that shall ensure that the firm remains sustainable within the competing market.
With little restriction on entry of new players and little sunk cost being required for an investor to invest in this industry, strategies are of critical importance for a firms’ business survival. To clearly understand the competitive forces that face this company, two major tools of analysis shall be utilized.
The two tools shall prove of vital importance especially in indicating the position of the company in regard to internal and external environments. It is from this internal and external environment positions that the strategies for success are to be formulated. These tools are;
- Porter’s five forces
- SWOT analysis
Porter’s five forces analysis
- Bargaining Power of Buyers. In the fast food industry, the bargaining power of buyers is relatively small. This is because food is a necessity and thus one has to buy it. However, due to increased competition, the bargaining power of buyers has constantly been increasing. One can opt to purchase from another fast food restaurant which makes the issue of bargaining power of buyers be of critical importance to McDonalds.
- Potential Entrants. Threats from new entrants are rife in this market. There are little restrictions that may hinder an investor from entering into fast food industry. The industry lacks government restrictions which makes it easy for any entrant to start operating in the market. Besides this, the initial startup cost especially sank cost is little and thus there are many new entrants into the fast food industry. To avoid this threat, McDonald must remain abreast in strategic management to ensure that it remains relevant to its customers.
- Substitutes. Substitute products also cause a major threat to McDonalds. Customers have a wide variety of fast food restaurants to choose from and thus strategic management at McDonalds remain of critical importance to ensure that innovative strategies meant to retain customers are put in place.
- Suppliers. There is little bargaining power of suppliers in the fast food industry. These therefore do not pose any threat to the sustainability of the firm. From the porters five analysis, it is important to note that strategic management remains of critical importance in the management of MacDonald’s. It is through formulation of various strategies that makes the chain remain relevant to the market.
SWOT Analysis
To further the understanding of the strategies that are used by McDonalds to ensure that it remains relevant in the market, an audit of both external and internal forces that are relevant in business process was conducted. The results of this audit have been tabulated as follows.
External Audit.
Internal Audit.
Analysis of the Market Share
Despite its operation in a highly competitive industry, the company enjoys an impressive market share compared to its competitors. At 19 percent, McDonalds remains the undistinguished giant of the fast food industry. For the firm to gain this market leadership position there must be well defined strategies that have overseen its growth to this position. The chart below indicates the market share of McDonalds compared to its competitors.
From the chart, it is evident that its closest competitors such as Burger King Corporation, Wendy International Inc., Jack in the Box among others are way too far down to be put to the scale of the giant McDonalds Corporation.
Strategies Followed by McDonalds to Establish Competitive Edge
The investigation revealed that McDonalds establishes a competitive edge through following one or all of the following strategies:
Low cost leadership
McDonalds is known for its low cost on various meals. To achieve this, the company must ensure that its operating costs are equally low to guarantee profitability. Fixed cost per unit in the company is reduced by the reduction in overall cost, which could be used to give them an advantage over other industry players. This advantage is attained in some cases through offering low prices than other industry players at the same quality level or by charging premium prices that help them generate high profits.
These profits in turn are used by the business to produce high quality products that meet the needs of customers better than the competitors (Porter, 1980; Wankel, and Malleck, 2008). In this way the company is able to position itself as the market leader and customers’ choice in provision of fast food services.
Price leadership strategy
McDonalds also uses price leadership as a strategy to woe its customers. Most of the products at McDonalds have premium prices which makes it appealing to the major target markets. The strategy also is boosted by low cost policy that the company has utilized over the years.
Differentiation strategy
This strategy was found to be highly employed by the company. The aim of this strategy was to give a notion to the buyer that the product offered by the company was different from that offered by the competitor and offered better features than any other similar product in the market. The strategy is mainly employed through packaging and the design of the product (Treacy, 2005; Swift and Piff, 2005).
Trendy names are also used by the company to brand its food that makes it appealing to the populace. Through successful differentiation, the company in question is able to charge premium prices for its premium products, develop further market for its product and to maintain its current market for its products (Purcell, 2008; Stanton, 2007)
Market Niche Strategy
Customers are generally known to have diversified needs which are very dynamic in nature. To meet all these needs, a great challenge to any company for this requires application of large amount of resources both financial and human. Therefore, to satisfy all these needs a company should devise a way to understand the needs, know their likely direction of change and the best way to meet them.
At McDonalds, this strategy aims at understanding a particular need of the customer and trying to meet this need better than the competitors. Therefore, instead of dealing with a varied area of needs, the company in question concentrates on the few areas of need.
For instance, McDonalds does not serve breakfast, instead it focuses on the lunch market as well as dinner clients, with lunchtime clients topping its list. Due to this concentration of market niche, the chain is able to meet the needs of customers better and therefore able to establish a competitive advantage over competitors (Hatton, 2007; Swift and Piff, 2010)
Strategy Formulation
For McDonalds to remain competitive in the market there is a need to have a strategic plan towards its future success. Since its inception in 1954, McDonalds has remained a household name among many Americans as well as among the populations where its international franchise outlets operate. This therefore indicates that there is something that McDonalds do that is not done by some of its competitors. The company strategies are formulated by following the following steps
Identification of the current position of the business
The process of strategy formulation starts with identifying the current position of the business. This helps the business to identify the strength, weaknesses, opportunities and threats it faces as a result of both internal and external environment of its operation (Conger, 2008).
The result of this analysis is usually compared with other industrial players to help identify the position of the business in relation to the similar businesses in the industry. This analysis also helps the business to identify the gap that need to be addressed.
Define the missions of the company
Once the company has identified its position in relation to other industrial players, the next step is to state exactly what it intends to achieve in the long run (Waters, 1994). The mission was found to be formulated with the aim of positioning the company in the marketplace.
In the process of defining this mission, one question remains critical to McDonalds, does the chain live to its mission day in day out? This helps the firm to remain focused on the mission of the firm that has driven the firm to its current success status.
Defining the vision of the company
The vision is derived from the mission of the company. This vision also helps define the direction of the company by stating what the company aims to achieve in the long run. The vision also helped define the activities of all employees to be in line with the missions and visions of the company.
Establishment of goals to be achieved.
Once missions and visions are established, the next step involves the establishment of goals to be achieved. These goals broke down the missions and visions into components that can easily be achieved on a daily basis. Achievement of these goals contributes to the achievement of the overall missions and visions of the company.
Formulation of strategies
Finally strategies are formulated in different areas and levels to help in the achievement of company’s missions and visions.
Conclusion
From this study, it was established that McDonalds have succeeded due to its unique strategic formulation of success policies that have constantly ensured that the company remained focused to its core objectives. The company also has survived in the fast food industry, which is highly fragile due to its unique differentiation strategy. It is through these unique approaches that McDonalds has remained a focused firm to succeed.
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