Background information
The success of organizations that are established in different economic sectors depends on the managers’ effort in formulating and implementing effective strategies. Cox (2002) asserts that successful organizations have a clear vision and sense of direction and easily initiate major organizational changes. Moreover, successful managers have a comprehensive understanding of the prevailing market needs.
Hansen (2013) emphasizes, “The managers of successful organizations must have a strategic plan in order to ensure a strong competitive position on the market and therefore achieve desired outcome” (p. 95). This claim highlights the importance of adopting effective strategic management practices.
Aim
This report involves a strategic analysis on McDonald’s Corporation. The report provides a brief background information on McDonald’s by assessing its vision, mission, values and its strategic plan. Furthermore, the industry provides a description of the industry within which McDonald’s operates.
Company profile
McDonald’s Corporation is a public limited company that was established in the United States’ food and restaurant industry in 1940 at San Bernardino, California by Ray Kroc, Richard and Maurice McDonald. The firm has entered the global market by establishing over 35,000 outlets located in 119 countries.
The firm’s marketing expertise has increased its customer base to over 68 million customers. McDonald’s specializes in production and marketing of fast-food products such as cheeseburgers, chicken, hamburgers, milkshakes, french-fries, breakfast, salads and desserts (McDonald’s, 2014).
By the end of 2013, McDonald’s total human resource base was estimated to be 1,800,000. Moreover, its commitment towards strategic management has played a crucial role in stimulating the level of profitability. Between 2012 and 2013, the firm’s sales revenues increased from US$ 27.6 billion to US$ 28.1 billion.
Conversely, its operating income increased from US$ 5.5 billion to US$ 5.6 billion (McDonald’s, 2014). McDonald’s has positioned itself as the market leader in the global fast-food industry. Its success has originated from effective implementation of strategic management practices as illustrated herein.
Vision statement
McDonald’s is focused towards achieving long-term market success by positioning itself as the preferred place for customers to eat. Moreover, the firm’s global operations are guided by a ‘plan to win’ strategy, which emphasizes on creating exceptional customer experience amongst customers.
The strategy is based on the 4P’s of marketing [pricing, promotion, place, and product]. McDonald’s is also committed towards continuous improvement of its environmental and social performance in order to enhance customer experience (McDonald’s, 2014).
Mission statement
In its quest for market leadership within the fast-food industry, McDonald’s intends to position itself as the best employer in the world. Furthermore, the firm is committed towards achieving operational excellence in all its restaurants established in different countries.
Furthermore, the firm’s management team is committed towards sustaining the firm’s level of profitability through effective brand management, exploitation of technology and leveraging on the firm’s strengths (McDonald’s, 2014).
Values
In addition to the mission statement, McDonald’s operations are guided by a comprehensive set of organizational values. Gorenak and Kosir (2012) accentuate, “organizations can be successful when organizational goals are aligned with organizational values and those are aligned with personal values of people in the same organization” (p. 564). The firm’s values are evaluated below.
Customer experience
The firm recognizes the importance of customers in its quest for long-term existence. Thus, the firm is committed in creating unique customer experience by offering high quality products, customized services and a unique ambience in its stores.
The customer experience value is based on four main goals, which entail cleanliness, quality, service and value. McDonald’s ensures that its employees continuously adhere to these values.
Commitment towards its people
The firm is committed towards creating a strong and efficient workforce. Thus, the firm believes that a strong human capital base is paramount in achieving continued success. Consequently, the firm invests a substantial amount of resources in nurturing talent and developing leadership through training.
Additionally, the firm considers diversity to be a fundamental source of organizational success. Therefore, the firm fosters establishment of an environment conducive for working in order to drive engagement through teamwork amongst its workforce.
Business model
The firm has adopted an effective business model that recognizes three main components in its operation, which include suppliers, employees and owners/operators. In its business operations, McDonald’s ensures that the interests of these core groups are taken into consideration.
Giving back to the community
McDonald’s understands the strong correlation that exists between the firm’s success and the community within which it operates. Therefore, the firm is committed towards pulling its possessions, coverage, and magnitude in helping clients establish superior neighborhoods. The firm supports the community by establishing charitable organizations such as the McDonald House Charities.
Business ethics
The firm is focused towards adhering to the values of honesty, integrity and fairness in its business operation. These values are based on the philosophy that ‘we are individually accountable and collectively responsible’ (McDonald’s, 2014).
Continuous improvement
McDonald’s has positioned itself as a learning organization which is committed towards adjusting its operations in order to align with the changing system, customers and employees needs through continuous innovation and evolution.
Profitability
McDonald’s operates as a public limited company. Thus, the firm’s operations are aimed at maximizing profitability in order to satisfy its shareholders’ wealth maximization objective.
Comparison of mission statement
McDonald’s faces intense competition from Burger King Corporation, Yum Brands Incorporation. Burger King is focused towards creating an environment conducive or its employees to work in and to attract and retain a large number of customers. The firm also intended to achieve business excellence by ensuring consistency of its service provision (Campbell, 2008).
This mission statement is similar to that of McDonald’s Corporation, which seeks to achieve business excellence and fostering a favorable environment for working. This shows that working environment is one of the key aspects considered by major players in the fast-food industry (Thompson, Peteraf, Gamble, & Strickland, 2011).
Industry analysis
Pressures that originate from internal and external business environments affect McDonald’s operations. The internal forces are within the management team’s capacity to control while the external forces are beyond the management team’s ability. Regardless of the source of pressure, organizational leaders have a duty to ensure that the occurrence of such pressure does not adversely influence business operations.
However, this duty can only be accomplished if the organizational leaders understand the prevailing environmental issues. Some of the tools that organizational managers can utilize in evaluating the industry dynamics include the PESTLE, Porter’s five forces and the SWOT analysis.
PESTLE analysis
Political elements
Business processes are extensively determined by the guiding principles that are implemented by the administration of the country in which a company operates. Therefore, the degree of political risk varies from one country to another.
Thompson et al. (2011) assert that political risk can originate from different sources such as the incumbent government agencies and departments, social unrests, changing economic conditions, and the stakes of government and non-governmental organizations. McDonald’s has ventured into different countries in an effort to maximize profitability. Thus, the firm’s likelihood of the firm experiencing intense political risk is high.
In its European, the United States, and Indian markets, the firm is experiencing pressure from the respective governments concerning health implications that are associated with fast foods. These governments are increasingly being concerned with the high levels of cholesterol in fast foods.
Such cholesterol is associated with obesity. In its Indian market, McDonald’s is currently experiencing legal dispute because of its infringement of religious laws on food products. The firm’s operations are also affected by trade restrictions in some countries such as tax rates.
Furthermore, the political instability in some regions such as the Middle East and North Africa sections may affect the firm’s quest for growth through market expansion.
Economic factors
Businesses that operate in the international fast-food market are exposed to diverse economic factors that are unique to the respective markets. Some of these factors include tax, inflation, and exchange rates. Exchange rate fluctuation may negatively influence the production capacity of firms in the fast-food industry that depend on raw material imports.
Additionally, firms in the fast-food industry are also exposed to global economic changes such as economic recession. Such economic changes have adverse effects on the consumer purchasing power, and hence the firm’s ability to maximize its profitability. In 2012, McDonald’s earnings declined to $1.34 billion from $1.41 billion in 2011 (McDonald’s, 2014).
To succeed in such environments, businesses must adjust their strategic management practices to align with the economic environment. This goal can be achieved by adjusting marketing strategies such as the pricing tactics.
Socio-cultural factors
The fast-food industry is undergoing remarkable evolution because of the prevailing socio-cultural changes. One of the most notable changes relates to increased consumption of fast-food products because of increase in disposable income and high rate of urbanization. Another major socio-cultural trend relates to change in consumer behavior towards food products.
Thompson et al. (2011) are of the view that the development of information communication technology has increased the consumers’ level of product knowledge. Thus, consumers are inclining towards healthy and safe products. This trend has also affected the fast-food sector whereby consumers are seeking healthy food products (Gasparro & Jargon, 2012).
This trend presents an opportunity for firms in the fast-food industry to invest in new and continuous product improvement. For example, in 2012, McDonald’s announced its intention to venture into the Indian market in 2013.
The firm had to do away with its pork and beef products in its menus in order to adhere to the Muslim and Hindu religious practices, which prohibit the consumption of pork and beef. Gasparro and Jargon (2012) assert that McDonald’s respects cultural diversity in all markets that it has entered by diversifying its product portfolio.
Technological factors
The 21st century has been characterized by remarkable technological innovations, which are affecting various business aspects. The development of diverse social media platforms such as Facebook, Twitter, Google Ads, and YouTube has transformed marketing activities.
For example, businesses in different economic sectors are adopting online marketing practices in their effort to create sufficient market awareness and/or to increase customer base (Thompson et al., 2011). Additionally, techno-savvy consumers are increasingly adopting diverse web-based technologies such as online purchasing in their consumption processes (Pipes, 2014).
Technological innovations have led to the emergence of technologies, which are aimed at cutting the cost of operation, achieving operational efficiency, and providing fast-food customers with a high degree of flexibility in their purchasing process.
Examples of such technologies include the inventory management software, which enables organizations to manage their inventories, for example through timely and efficient replenishment of raw materials.
Legal factors
The modern fast-food industry is experiencing numerous legal issues that are arising from government and non-governmental agencies. For example, fast-food companies are increasingly being compelled to reveal the ingredients of their fast-food products.
This issue has been fuelled by the high rate at which health practitioners and nutritionists are associating some diseases such as obesity, kidney diseases, high blood pressure, heart diseases, and diabetes with fast-food consumption (Tanamas, 2013). In an effort to cope with such legal issues, McDonald’s has a policy that requires the revelation of the raw materials that are used in producing its fast-food products.
Environmental factors
Firms have a duty of ensuring that their operations are environmentally sustainable. The high rate of climate change that is being experienced in the 21st century has raised concern amongst governments and non-governmental groups on the role of businesses in protecting the environment in which they operate by adopting effective corporate social responsibility practices.
West (2014) asserts that “Currently, there are no federal laws or regulations targeting fast-food companies in the US; however, they have an obligation to protect the environment” (Para. 1). Some of the practices that are increasingly being advocated include adopting the concepts of reducing, reusing, and recycling of materials.
Porter’s five forces
The Porter’s five-force model is one of the strategies that organizational managers can adopt in understanding their organization’s competitive situation (Hansen, 2013).
The analysis below illustrates the competitive situation in the fast-food industry by assessing the threat of entry, degree of rivalry, buyers and suppliers bargaining powers, and threat of substitute products.
Source: (Abauwad, 2013)
Rivalry; high
The fast-food industry is experiencing significant increment in the intensity of competition because of its profitability potential.
The industry players are adopting diverse competitive strategies such as pricing, product quality, consistency of service delivery, diversified product portfolio, style, presentation, and store location (Abauwad, 2013). Furthermore, fast-food companies are increasingly developing new products in an effort to satisfy their customers’ tastes and preferences.
Threat of entry; low
Few large players such as McDonald’s, Taco Bell, and Tyson Food Incorporation dominate the global fast-food industry. The industry players have managed to attain competitiveness through technological advancement, economies of scale, and efficient product distribution.
Although the cost of entry is relatively low, new entrants cannot compete effectively with large firms. Subsequently, new entrants do not pose a threat to the large firm’s market share.
Threat of substitute; high
Fast foods are considered discretionary food items and hence can easily be substituted by other meals (Abuawad, 2013). The risk of replacement products amongst firms in the fast-food industry is increased by the high rate at which expediency warehouses such as large retail chains are offering consumers dissimilar foodstuffs within their retail stores.
Moreover, the restaurant market is characterized by the emergence of dine-in restaurants, hence minimizing the cost of switching from one product to another.
Additionally, consumers have become more knowledgeable on the importance of healthy eating. Abuawad (2013) asserts that the rate at which consumers are inclining towards consuming alternative food products that they consider healthier is high. Hence, it has increased the threat of substitute.
Supplier bargaining power; moderate
Most fast-food companies source their raw materials from the local and international markets. Thus, their relationship with suppliers is an essential element in the fast-food firm’s success. Abuawad (2013) asserts that suppliers have the capacity to influence product prices.
On the other hand, the fast-food companies have an opportunity to bargain the offered market price. Additionally, the evident large number of suppliers moderates the supplier bargaining power.
Buyer bargaining power; moderate
Despite their inability to influence the price of fast-food prices directly, fast-food customers have a significant impact on product pricing.
This power has been increased by development in information communication technology, which makes it possible for consumers to exchange ideas and opinions regarding product characteristics through online mediums. Subsequently, fast-food companies have an obligation to manage their brand reputation whilst developing a unique customer experience to make clientele feel satisfied (Abuawad, 2013).
SWOT Analysis
In addition to the aforementioned aspects, McDonald’s has managed to develop a number of strengths as illustrated by the below SWOT analysis.
Company strategy
McDonald’s Incorporation has adopted internationalization as one of the market expansions strategies. Cox (2002) asserts that internationalization increases the likelihood of achieving profit maximization because a firm is able to tap market potential in the international market in addition to coping with the intensity of competition in the domestic market.
To be successful in its internationalization efforts, McDonald’s has adopted the franchising strategy.
Cox and Mason (2007) assert, “Franchising is a proven business concept that many investors are adopting to maximize profitability compared to independent business start-ups” (p.1054). One of the benefits that are associated with franchising is that a firm is able to standardize its operations.
For example, in its Indian market, McDonald’s has introduced alternative hamburgers such as chicken meat hamburgers in an effort to adhere to the Hindu’s and Muslim culture, which prohibits the consumption of beef and pork. Consequently, one can deduce that McDonald’s Incorporation has adopted a winning strategy.
Strategic objectives and performance targets
Currently, the firm has ventured into a number of key international markets such as Germany, Australia, and Japan. However, the firm has experienced a significant reduction in the level of profitability in all its markets. Bagshaw (2014) asserts that the company’s global sales declined by 2.5% in June and July 2014. To restore its market performance, McDonald’s focuses on implementing the following objectives.
- Improving its value proposition-The firm intends to improve its market reputation and global recognition by improving the quality of its products. This goal will be achieved by integrating healthy items in its menus.
- Market expansion-The firm intends to attain growth by venturing into new markets through acquisition. Currently, the firm targets to acquire well established firms such as The Noodle & Company, Potbelly Corporation, and Chipotle Mexican Grill (Mourdoukoutas, 2014).
- Leveraging on its capabilities-McDonald’s intends to attain market growth by leveraging on its franchising capability and logistics. Furthermore, Mourdoukoutas (2014) asserts, “The company intends to create two separate units , one that caters for low-calorie cholesterol consumers and another that caters for the local and semi global segments of the world economy” (Para. 7).
The above strategic objectives are aligned with the firm’s vision, mission, and values. First, the objective to improve the company’s value proposition by integrating healthier fast food depicts the firm’s commitment towards creating a unique customer experience. This move will increase the chances of the firm appealing the customers’ demand for high quality and healthier food products.
Furthermore, this proposition is also aligned with the firm’s commitment to invest in continuous product improvement. On the other hand, the firm’s commitment towards leveraging on its capabilities such as franchising will increase the firm’s profitability.
This goal will be achieved by ensuring consistency in the firm’s product and service delivery processes. Moreover, the firm’s strategic objective to expand into the international market will enable McDonald’s to improve its market performance by increasing its level of profitability.
Conclusion
The firm’s vision, mission, and values illustrate its commitment towards diverse internal and external stakeholders. McDonald’s vision statement depicts that the firm focuses on achieving market success by fostering unique customer experience, hence developing a high level of customer loyalty. Moreover, the vision statement illustrates the firm’s commitment in adhering to social responsible business operations.
On the other hand, the mission statement shows the firm’s commitment in achieving a high level of profitability by creating a favorable environment for employees to work whilst achieving operational excellence, which means that the firm is concerned with efficient and effective business operations.
Similarly, the firm’s value propositions communicate its commitment towards satisfying the internal and external stakeholders, for example by satisfying the investors’ wealth maximization objective. Moreover, it also shows the firm’s commitment towards ethical business operations.
Recommendations
To achieve long-term success, McDonald’s should take into account the following aspects.
- The firm’s management team should continuously assess the prevailing market environment to determine the most effective way of adjusting its operations, products, and services.
- In its internationalization strategy, McDonald’s should consider investing in product adaptation to increase the likelihood of success of its franchise.
- McDonald’s management team should effectively analyze the international market that it targets to access to understand the prevailing market situations.
Reference List
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