McDonalds Strategic Management: Principles and Practice - Dissertation Example

McDonald’s Strategic Management: Principles and Practice McDonalds has been an international food outlet, which serves the best interest of every age group all over the world. In 1937, everything was set when Patrick McDonald opened “The Airdrome”. It was a restaurant located at Monrovia Airport, California (McDonald’s 2012). After the span of three years, his two sons relocate and opened a new restaurant “McDonald’s Bar-B-Que Restaurant” in San Bernardino, California. In 1948, a multimixer salesman by the name Ray Kroc entered into McDonald’s developing stage. In 1965, it issued the first public stock selling for $22.50 per share (McDonald’s 2012). In 1963, the company had reached 500 restaurants. After many developments, McDonalds ventured into various markets such as Canada, Japan, China, Australia, Europe, Southern Russia, central and South America, and Europe. As business continued to boom, the company has been diversifying its market, with its services being distributed to over 110 countries across the world. Another major change that McDonalds made was the establishment of the first drive-through, which was opened in Sierra Vista, Arizona (McDonald’s 2012). Since there were soldiers around Fort Huachuca who were not allowed to leave the car in army fatigues, McDonalds invented solutions to the problem by introducing the drive-through service. Currently, McDonalds owns more than 32, 000 restaurants across the world (McDonald’s 2012). The principle of this expansion has been highly contributed by safe and high quality food, affordability and convenience. This has been achieved through its underlying everything they do, which acts as a foundation of their values and a culture of doing the right thing. Mission, vision, and values McDonalds faces an array of complex issues that are well managed through cooperation between McDonald’s employees, suppliers, and outside experts. This means to integration of ethical, social, and environmental considerations in all aspects of its business (Heinemann 1999). With the help of well developed mission statement, all its challenges have been overcome with time. Its mission statement is "be our customers' favorite place and way to eat" (McDonald’s 2012). This has made it easy for them to build exceptional customer experience in regard to People, Products, Place, Price and Promotion. The vision of McDonalds is to be the best quick service restaurant in the whole world. This has helped it to offer excellent services to its customers, something that has enabled it to achieve growth as a result of high profits, which has also been as a result of its system of innovation and technology. Its core values revolve around customer satisfaction (McDonald’s 2012). In fact, the management of McDonalds has been cited to argue that one of its secret to success is its customers. The other most important value is its system. This includes suppliers, operators, and employees. For any business to thrive, these three components are as valuable as the customer, in terms of developing the business (Hussey 1998). McDonald’s PLC Since customers are rational in consumption, McDonalds has been flexible in terms of offering according to changes in customers’ prevalence. This means that what was fashionable in 1960s is no longer fashionable today, and McDonalds has been upgrading and adjusting its products to go in line with what its customers perceive to be fashionable as time goes. Innovation has been a driving force towards this effect. The normal life cycle of any product in the market has been fewer sales and demand during introductory stage, more sales and demand during growth, constant sales and demand during maturity stage, and a record of decline there after (Lynch 2006). However, to counter these changes, McDonalds has continuously introduced new products in replace of the old ones as they tend to reach the decline stage in their life cycle. Nevertheless, McDonalds has been attentive when introducing new products with cautions of not cannibalizing the products already in their growth and maturity stage (McDonald’s 2012). In this regard, their secret can be analysed to represent a strategy of maximizing profits with both the new and already existing products. Five forces framework Michael porter’s five forces of competitive position model offer a perspective analysis of the competitive edge of an organisation. These forces have been noted to have helped many businesses to recognize the dynamics of its industry so as to develop and maintain competitive advantage (Sadler and Craig 2003). These forces derive competition and competitiveness of a market, which forms the basis of competitive environment. A part from rivalry from the existing organisation and threat of new entrants into the market, it is believed that other forces such as supplier power, buyer power, and the threat of substitute products determines the success of n organisation. In fact, Michael Porter suggests that the intensity of competition is highly determined by the strength of these forces (Saloner, et al 2006). These forces are somehow interconnected with the ability of the company to offer quality products or services to its customers as well as making profit. Competitive rivalry In regard to McDonald’s competitive rivalry, it is apparent that there is immense competition in fast food industry that is marked by many existing and upcoming small fast food businesses, who scrabble against each other in order to intensify their customer base. As such competition becomes eminent, McDonalds tends to focus on how to maintain its competitive advantage even harder. This has made it lead its main rivals such as Taco Bell and Burger King (McDonald’s 2012). Buyer bargaining power In the fast food industry, buyers order fast food at the local restaurant over the internet, or telephone or even consuming from the restaurant. McDonalds has designed a system whereby, by standing the demand of the fast food industry, it has been able to lower the bargaining power of its customers (McDonald’s 2012). For example, McDonalds has understood that the US fast food customers compose of one-fifth of the US population. In light with this, they do not have to worry much about customers’ loyalty. After all, through advertisement and quality fast food, its products have always stood out against the flooded fast food industry. In addition, it is apparent that in fast food industry, buyers are very rational in consumption. They quickly switch over to restaurants that offer best qualities. Supplier bargaining power McDonald’s suppliers bargaining power is high because its restaurants use the same products acquired from the same suppliers. McDonald’s restaurants concentrate on using the same products from the same suppliers and above all, wherever the part of the world one is, one gets the same products (McDonald’s 2012). This is a feature that McDonalds has held throughout its existence. To maintain the pace, McDonalds has sough of strategies that keeps its suppliers intact. This is an important concept because McDonalds knows that losing one of the suppliers means losing supply of certain products, which would force it to change the whole menu. In turn, McDonalds is well aware that such a move can lead to loss of loyal customers. The threat of substitutes It is believed that several factors determine the likelihood of a threat of substitute products in a given industry (Green and Keegan 2012). Firstly, if customers have little of anything stopping them to buy a substitute of the industry’s product, then it is apparent that the threat of substitute products is high. Another determining factor is when the substitute product is cheaper than the industry’s product (Henry 2008). In such a case, there is also a high risk of threat of substitutes. In addition, if the substitute product has equal or superior quality, attributes, or performance to the industry’s product, the threat of substitute is also high. In this regard, McDonalds has been able to eliminate the low switching costs. BCG matrix The Boston Consulting Group (BCG) is a tool used to evaluate organisation’s position in terms of its products range (Hill and Jones 2009). It enhances organisations focus on its products and services in regard to making a decision on which it should keep, which should let go, and which to invest in further. BCG is also a useful way to of screening organisation’s available opportunities and also helps to think about the best location to allocate resources in the bid to maximise profit (Reuer 2004). In bringing out the picture of how BCG functions, two strategic parameters are put into consideration; market share and market growth. Market share is the percentage of the total market being serviced by an organisation measured in terms of revenue or unit volume (Sadler and Craig 2003). It has been documented that the higher the market share, the higher the proportion of the market an organisation controls. Boston Matrix assumes that if an organisation under consideration enjoys a high market share then it is highly likely that it will make more money. This notion has been developed on the idea that for a company to reach such a position, it must have been in the market for a long time and have learned how to be profitable thus enjoying the scale economies (Saloner, et al 2006). Sigismund et al 2009 noted that organisations use market growth as a measure of market’s attractiveness. It is apparent that markets that experiences high growth experience total market expansion, meaning that it is easier for businesses to maximise their profits, even when market share remains stable. Even as competition in low growth markets is sour, and even as one might have high market share, chances of retaining that market share without aggressive discounting are low (Tallman 2007). In fact, this is what makes low growth markets less attractive. In regard to McDonalds, its BCG Matrix is a star. This is indicated or marked by high growth and high market share. In regard to McDonald’s, this has been attributed to its high market growth and high market share in most of its markets. An example of this fact is on the Pakistan market. McDonalds have made its competitors lose their market growth due to its dominance in the market (Ungson and Wong 2007). In order for a company to be ranked as being a star under the matrix, it is believed that several aspects of its operations have improved. For example, it is true to argue that McDonald’s strategies are well articulated upon. This is mainly the direction the company decides to take over the long-term. In addition, McDonald’s structure/ the basic organisation of the company such as departments and expertise are up-to-date. Its staff have been cited to have relevant skills and highly motivated. In light with this, when all these factors are combined, the end results are a company being positioned as a star in the market. McDonald’s Environmental Strategy One of the most effective strategies of McDonald’s has been environmental strategy. This comes in terms of its wide environmental policy in the effort to protect the environment for future generations (McDonald’s 2012). This involves a total lifecycle approach that entails reducing and managing solid waste. McDonald’s has also been proactive in educating its customers on its concerns about the environmental positions. This has been achieved through availing brochures in restaurants, which informs customers about its stand on environmental concerns such as ozone depletion, rain forest, and packaging. McDonald’s environmental affairs officers have been mandated to enforce adherence to set standards. In order to achieve environmental strategies, McDonald’s has collaborated by its suppliers in effecting some of its strategies. McDonald’s do this by developing an annual environmental conference, which aims at training suppliers on environmental issues. Some of the waste reduction efforts employed by McDonald’s include reuse, recycling, and composing (McDonald’s 2012). McDonald’s PEST analysis Political factors The international operations of McDonald’s are greatly influenced by individual state policies, which are mainly put in place by the government. A good example of such policies is the situation where certain states in Europe and the United States emphasise on regulations of fast food eating habits. This has been attributed to increased cases of harmful elements such as eating cholesterol, which has adverse effects like obesity. Such policies make it difficult for fast food companies in terms of maximizing their businesses (Witcher and Chau 2010). In another dimension, McDonald’s is controlled by individual policies such as health, environment, and worker protection. These elements add up to government controls in terms of licensing restaurants. One of the major impending political issues is the legal dispute of McDonald’s franchise in India where there has been allegations of infringement of rights of violation of religious laws regarding the contents of the food. It is alleged that the existence of meat in their menu is somehow offensive to the Hindu religion in the market. Other setbacks related to political issues include labour and employment laws in certain markets (Kotler 2005). This also goes in line with requirements of individual states requiring fast food companies to comply with tax obligations. Economic factors It is apparent that firms in the fast food industry have got their own concerns about economic factors. In fact, branches and franchises of like McDonald’s has been cited to have a tendency to experience hard times when the economy of certain states is hit by inflation as well as the exchange rates. With such deliberations, customers are faced with a stalemate of whether their budget is viable to cater for foreign fast food chains. This highly affects the operations of a company like McDonald’s when operation in a foreign country (Kotler 2005). However, in order to avoid such problems, McDonald’s imports much of their raw materials in situations where there is a dearth of supply. In regard to a situation stated above, McDonald’s stores have taken some steps forward in ensuring their microenvironment. Its international supply and existing exchange rates are merely a part of the overall components required to ensure success for foreign operations. McDonald’s also takes consideration of the fact that when its franchise operates in an economically weak economy, it has to take some adjustments in order to maintain economies of scale, since their products would cost higher than the already existing ones in the market. Social economic factors McDonald’s has tried to improve on establishing a positive mind-set especially from their customers. McDonald’s is argued to indulge in variety of customers with different types of personalities. In some states like the United Kingdom, McDonald’s has given an option regarding their dinning needs. In fact, it has been states that McDonald’s has set some sensibly valuated set of food that tenders a dependable level of quality in particular markets where it operates (McDonald’s 2012). There has also been a strategy employed by McDonald’s in order to establish a viable system that determines the needs of the market. The concepts it employs mainly focus on consumer behavior and purchasing preference (Wong 2010). Technological factors McDonald’s is believed to be generating a demand for its own products. Its key marketing tool has been by means of television advertisements (McDonald’s 2012). Since youth are highly associated with preference for fast foods, McDonald’s tends to use certain advertisement tips that targets the youth. Another strategy involves employing of celebrities in promoting their products. In addition, new technologies have been employed by McDonald’s in its operations. For example, inventory system as well as the management of the value chain enables easy payments for their suppliers and other merchants. Legal factors There has been continued trend of bellowing especially to the fast food industry. In regard to McDonald’s, this has made the company apply a more careful concern on its corporate social responsibility. This helps the company address the need for the company to build a solid corporate reputation. This matters a lot to McDonald’s. In the bid to indicate their concern on this issue, the company has gone further to provide customers with the relevant data regarding the nutrition substances of their products. Surprisingly, the company also provides a freedom for customers to decide to use their products or not (McDonald’s 2012). In order to comply with individual states laws and regulations, McDonald’s conforms to every state requirement. Implementation of the strategy One of the best ways for an organization to maintain its strategy is by designing a plan on how to sustain the advantage in a highly competitive market (Green and Keegan 2012). McDonald’s has in the recent year dealt with plans on how to thrive in the market. Some of the considerations McDonald’s had to consider when planning are, for example, the fact that can not rely solely on its traditional menus in the American consumers due to their growing health consciousness. This development has made McDonald’s to develop alternative strategies to sustain high performance in the industry. The second plan involves building advantage. For a firm to achieve this, it must seek ways of diversifying its operations. McDonald’s has been able to seek market opportunities. This has been through provision of quality products, promotion, and continued innovations to meet customer’s needs. In addition, it is also believed that firms that discover capabilities they have developed on one business can utilize the same in another (Haberberg and Rieple 2008). McDonald’s believe that its highly refined capabilities can be used for managing a highly complex system of hamburger restaurants. Some of the steps taken include purchase of Chipotle Mexican Grill and Boston Market Corporation in the bid to broaden McDonald’s market reach. Evaluation Studies have noted that the environment through which an organization operates changes over time, more so, when the organizations operated in different states (Tallman 2007). This helps firms to reexamine their existing approaches and institute new measures that adjust their performance in order to be in line with the new trends. However, McDonald’s value-pricing policies have enabled it to overcome such challenges. Nevertheless, prolonged recession could lead to McDonald’s slow down expansion of its new markets. It is also apparent that the issues that managers confront during strategic management process differ due to competitive environments facing their firms (Pradhan 2007). In this regard, each firm needs to tailor its strategic management process in such a way that suits its own situation. Conclusion McDonalds was established by Ray Kroc in 1948. In 1965, it issued the first public stock selling for $22.50 per share. After many developments, McDonalds ventured into various markets. Currently, McDonalds owns more than 32, 000 restaurants across the world. Its mission statement is "be our customers' favorite place and way to eat." Its vision is to be the best quick service restaurant in the whole world. Its core values revolve around customer satisfaction. McDonalds has continuously introduced new products in replace of the old ones as they tend to reach the decline stage in their life cycle. It has been attentive when introducing new products with cautions of not cannibalizing the products already in their growth and maturity stage. The five forces model offers a perspective analysis of the competitive edge of an organisation. In the focus on competitive rivalry, McDonalds tends to focus on how to maintain its competitive advantage even harder. In terms of buyer bargaining power, McDonalds has designed a system whereby, by standing the demand of the fast food industry, it has been able to lower the bargaining power of its customers. McDonald’s suppliers bargaining power is high because its restaurants use the same products acquired from the same suppliers. BCG Matrix is a star. This has been attributed to its high market growth and high market share in most of its markets. One of the most effective strategies of McDonald’s has been environmental strategy. The international operations of McDonald’s are greatly influenced by individual state policies. Economically, McDonald’s has been cited to have a tendency to experience hard times when the economy of certain states is hit by inflation as well as the exchange rates. In terms of social economic factor, McDonald’s is argued to indulge in variety of customers with different types of personalities. McDonald’s key marketing tool has been by means of television advertisements. In terms of legal issues, McDonald’s has gone further to provide customers with the relevant data regarding the nutrition substances of their products. Bibliography: Green, M. and Keegan, W., 2012. Global marketing. New York: Prentice Hall. Oxford: Heinemann. Haberberg, A and Rieple, A., 2008. Strategic management: theory and application. Oxford; New York: Oxford University Press. Heinemann, O, D., 1999. Managing in a business context. 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