Strategic Evaluation of McDonalds - Essay Example

? Strategic Evaluation of McDonalds Insert Insert Grade Insert Table of Contents Executive summary………………………………………………………………………………..3 Introduction……………………………………………………………………………...………. 4 The McDonalds……………………………………………………………………………………4 Strategic Analysis…………………………………………………………………………………5 Purpose……………………………………………………………………………………………5 External Environmental Analysis…………………………………………………………………6 Porter’s 5 forces model……………………………………………………………………………6 Political Environment……………………………………………………………………………..6 Economic Environment………………………………………………………………….………..7 Social-Cultural Environment……………………………………………………………..……….7 Technological Environment…………………………………………………………….………..8 Legal Environment………………………………………………………………………….……8 Environmental Factors………………………………………………………………….….…….8 Porter’s 5 forces………………………………………………………………………….….…...9 Internal Resource Analysis………………………………………………………………...…….9 Strategic formulation……………………………………………………………………...…….10 Opportunities and threats………………………………………………………………..…..…..11 Conclusion………………………………………………………………………………………11 Recommendation………………...……………………………………………………………...11 Bibliography…………………………………………………………………………………….13 Appendices ……………………………………………………………………………………...15 Executive summary Strategy is an essential component in the management of corporate and small enterprises in the current competitive business environment. This paper looks at the McDonalds in terms of evaluating the organization’s strategy. From a national giant in the early days, the company today boats of international presence in about 119 countries and in effect estimated to be serving over 40 million clients daily around the globe. The paper evaluates both the inner and peripheral environments in where the company functions through the use of various evaluation and analysis tools like: PESTEL, SWOT and Porter’s generic forces among others. All these sum up the company’s overall strategic position and what needs to be done to be able to counter the various challenges that it might face in the process of implementing strategy. Strategic Evaluation of McDonalds Introduction Strategy is an essential component of any organization that operates in a highly competitive industry or market. Strategic management can be classified into three broad categories (Lynch 2012). The first category defies the main aims of the organization and the formations it has developed to realize its objectives. The Subsequent category involves the identification of markets and exploring them in a way that guarantees competitiveness. The final classification involves the examination of the organization’s main objectives, purposes or goals and how it intends to achieve them through established frameworks. This paper will examine the various forms of strategic models by using a multi national food service industry organization – the McDonalds- as an example. The McDonalds The historical position of this company has been of great admiration to many upcoming businesses. This is a corporation that has risen from the mid 1950’s to become a valued player in the area of food service. The founder of the restaurant chains, Ray Kroc has an exceptional background and it is through hard work that this venture has become a household name (Waldron 2010). From a national giant in the early days, the company today boasts of international presence in about 119 countries and in effect estimated to be serving over 40 million clients daily around the globe (McDonalds 2012). In addition to this already massive statistics, the company has a net worth estimated to be around 25 billion US dollars. The company has been able to achieve this through properly formulated strategies and one of the organization’s strategies has been the development new dishes and favorite fast foods to suit new tastes. In addition, the corporation has been capable in infiltrating the market by largely using franchises that account for 80% of its operational stores (McDonalds 2012). To have a clear insight of how the company has been able to grow and the strategies it has employed, this paper will analyze the company by use of various strategy evaluation models. Strategic Analysis The approach used in the strategic analysis of the organization will be in terms of four main areas or components of strategy analysis that includes the purpose, external environmental analysis, internal resource analysis and strategic formulation. Purpose An organization’s purpose includes its vision, mission, objectives and ethical values in addition to the way it plans to use them to take care of all stakeholders. According to Lynch (2012), a vision is an involving picture in the imagination of the organization’s management that envisages the organization’s forecasted role that spans from the present environment and how the organization is best placed to counter competition. On the other hand, Lynch (2012) describes a mission an element of strategy that generally directs the path an organization intends to follow that also elucidates on why it intends to do so. The purpose also includes the ethical considerations as well as the stakeholders of the organization. Whereas ethics refers to the set moral standards that are expected within and without the organization, stakeholders are the people or entities that have stakes in the company and may also have indirect or direct influence on the mission, aims and the general strategy of the organization (Lynch 2012). McDonalds is a very ambitious company as outlined by its mission and vision statement. The company’s vision is to be the top leader in provision of fast food in the global front whereas it mission is centered on customer satisfaction through provision of world class delicacies and improvement of eating environment as well as eating habits (McDonald 2012). The company’s values are hinged on providing value and hospitable environment to its clients (Bhardwaj 2010). The organization’s values as stated in the company’s corporate information are based on seven major areas which include: “customer experience, commitment, the MacDonald’s system, ethics, business growth, continuous improvement and social responsibility (McDonald 2012). Stakeholder analysis According to Henry (2008), stakeholders of an organization include both internal and external parties who have interest to the organization or are involved in the organization’s operations like the customers, employees, shareholders and suppliers. Being a global brand, McDonalds obviously has a wide pool of stakeholders in each of the stated categories. For instance, while its primary focus is on customer satisfaction, the organization has to ensure that its financial performance accords its shareholders value for their investment. According to recent financial reports by McDonalds (2012), the corporation’s revenue grew at a 4% average translating into a $1.46 billion profit as at the third quarter of 2012. (Sales analysis attached in appendix). External Environmental Analysis The external environment is another major factor that determines whether the company is competent to realize its tactical targets or overall goals (Carpenter and Sanders 2007). The common tools of evaluation that will be employed in this analysis are the PESTEL analysis and Porter’s 5 forces model. To begin, PESTEL refers to a close look at the organization’s political, economic, socio-cultural, technological, environmental and legal aspects of the environment (Lynch, 2012). It involves looking at the listed elements of the external environment so that the organization is aware of the various factors that might be hindering success, or otherwise, in accordance with the stated objectives. The McDonalds operates in an international environment and the various components of its external environment may vary from one nation to another. Political Environment As stated in the preliminary part of this piece, the political environment of the company is influenced by varied country policies and general political environment. With concerns for healthy living a priority of various nations of the world, MacDonald’s has to face different policies formulated by government by lobby groups in different countries like the United States, U.K, Canada and others who have pushed for lower calorie diets (Jeffery et al 2006). This is because obesity has become a major concern among populations because of the way it has been associated with coronary conditions among other health problems. The aspect of different regulations and conditions of the different countries is also a major characteristics of the environment in which the organization operates. Examples include labor laws, public safety and business regulation among others. As a result, the organization must be able to follow the different requirements or demands of the mixed political environment in which it operates. Economic Environment The global economy has not been its best in the recent years. The global financial crisis that has been further compounded by the euro zone crisis has greatly impacted on the economic environments in which the organizations’ franchises operate on. There has been rising inflation for instance that has an impact on the sales volume and has also increased completion in the food service industry where consumers have been looking for alternative and cheaper sources of nutrients at the expense of high end food joints. Since the organization is also dependent on the global supply chain, it has had to cope with changing exchange rates that has an impact on pricing of the final product. As the company engages its market expansion strategy, it therefore has to research on the shifting tendencies of the highly globalised economic environment. Social-Cultural Environment The MacDonald brand has been smoothly sailing in this environment and the various products in offer have been differentiated to the effect of creating a certain eating culture amount the regions it operates in. the organization has to carefully analyze the different cultural and social backgrounds from which the consumers of its different products may be coming from. This social-cultural diversity is much an issue when it involves specific countries or regions. For instance, the organization has to avoid the serving of meat and pork products in certain Asian countries like India. In effect, for the organization to be positioned strategically in the market, it has to listen to individual customer needs as well as those of the regions in which certain franchises operate in. Technological Environment Technology has been fast changing in the 21st century and the organization has had to contend with frequent changes in the methods of production, inventory management, customer service and billing among others (Theodora et al 2010). Large corporate are, as a result of an emerging online market, shifting towards online promotions in social sites and through websites and blogs. The technological environment therefore has provided an opportunity for customer interaction, market research and branding of company products and general image. Legal Environment The fast food joints have often received opposition from the various groups that have often resulted in legal battles (Fields 2003). McDonalds, in particular has had to deal with a bad reputation from such cases and in some parts of the globe it is associated with junk and unhealthy products. Conformity which is in the company’s value statement is another issue that has arisen in the legal operational environment. In some regions, for instance the predominantly Muslim states, there have been conditions set on products such as meat that has to be certified by the Halal bureau of standards. As a consequence, the organization’s strategy must be geared towards attainment of the different internationally acclaimed quality certifications or standards. Environmental Factors The consumer conscience on the responsibility of environmental conservation and preservation has been heightened in recent years with the effects of global warming (Prakash et al 2003). The fast food industry has therefore had to cope and adjust to the newly established standards. For instance, the use of biodegradable plastics and elimination of Styrofoam materials has been an issue in the industry. McDonalds has to be therefore socially responsible by adopting environmental conservation measures. Porter’s 5 forces Porter’s 5 forces is a framework for evaluating a firm’s relative external environment in the operational industry through threats posed by the various stakeholders, existing and potential industry players (Henry 2008). McDonalds operates in a highly competitive environment that means that the threat of competition is very high. Secondly, the industry is filled with new entrants because of the low capital outlay required to start a food chain store. However, the company is moderately threatened by substitute products because it has highly differentiated its products. The supplier power is also weaker because of the multinational nature of the company and besides it being a sponsor of some of its suppliers. Lastly, the buyer is also relatively lower because of the nature of fast food products that are bought in lower quantities although it sometimes can be strong. Internal Resource Analysis Internal resource analysis examines a company’s value chain and the order of resource distribution in the company. A value chain may refer to a system of basic and complementary processes carried out by an organization to enable the inputs be converted into quality outputs for the benefit of the final consumer. As stated by Lynch (2012), value chain analysis points out the various value-addition sectors of the organization as well as providing linkages with the functional sections of the organization so that it is able to effectively communicate through unique characteristics. On the other hand, Lynch (2012) describes hierarchy as the four distinct flow points of resources that make up the organization’s complete resource base. The top most level of these resources is important in determining the effectiveness of the organization’s competitive capability. An organization’s resources can be classified in terms of the tangible and intangible ones (Grant 2010). The tangible and intangible resources have a major role in the strategy implementation. They may range from an organization’s: assets, finances, technological prowess, the human resources and even the organization’s goodwill. McDonalds is one of the world’s largest in terms of operating fast food chains and restaurants with several millions of customers served daily (Tilotson, 2008). With a global presence that makes it a world beater, the company has a massive human resource that numbers almost to the region of two million people. The organizations value chain can be said to be consisting of the various sections that include inbound logistics that ensure that there is adequate and efficient delivery, the normal operations that involves the preparation of the meals using delivered ingredients and the outbound logistics that help in distribution of the finished products. Moreover, the organization also has the human resource department, the procurement and even a stronger asset portfolio that span in several countries. Strategic formulation Strategic formulation is very essential for organizations because it facilitates the identification of the most appropriate courses of action to be followed by the organizations (White 2004). This paper uses the SWOT matrix and Porter’s generic strategies in this section with reference to identifying McDonalds’ appropriate strategy. The SWOT matrix evaluates the organization’s strengths, weaknesses, opportunities and threats in relation to its environment (Warren 2008). Generic strategies are, “The three basic strategies of cost leadership, differentiation and focus (sometimes call niche) which are open to any business,” (Lynch, 2012). Strength refers to the unique characteristics that give the organization a competitive edge. For instance the organization’s image, market leadership, buyer supplier relations, financial resources are some of Mc Donald’s strengths. On the other hand, consumer choices and preferences change and this might expose the organization’s weaknesses. With a wide coverage, the company has to contend with the general tendency of consumers to look for new areas to have their favorite meals or just new environment. Opportunities and Threats With an organization’s strengths and weaknesses come its opportunities and threats. The new technology that has improved accessibility to markets and the high levels of globalization are some of the major opportunities that have presented themselves for the organization to exploit. Conversely, technology has also brought a threat to the organization because of its nature of being dynamic and hence the organization has to be ready to keep up with its fast pace. Conclusion McDonalds has largely employed the differentiation strategy. Since geography is a major influencing factor in the company’s operations because other strategies like cost may not be effective. The company has to ensure that it satisfies the needs of individual customers in the large geographical area it serves. The company has been very innovative and has continued to train its human resources so that different customers’ needs are catered for (Lunn et al 2011). The organization has well stated function as seen in its mission and values. Recommendation It is clear from the internal and external environmental analysis that the organization needs to strengthen its brand image because it has been increasingly associated with unhealthy products. The best way to do this is to implement a calorie lowering initiative and market it mostly through online platforms that will lead to further market expansion. Since the organization operates in a multifaceted global environment, its research and design should be allocated more resources to ensure that each region is served according to requirement of its particular operating conditions. Generally, the company should look further into its strategy formulation by reviewing its purpose to reflect its global presence. Bibliography Bhardwaj, D. (2010). Presentation on McDonalds Corporation. (Online) available at: www.slideshare.net (Accessed 29 Nov, 2012). Grant, RM. (2010). Contemporary Strategy Analysis, 7th edition, John Wiley & Sons Ltd: Chichester White, C. (2004). Strategic Management, Palgrave Macmillan, Basingstoke. Warren, K .(2008). Strategic Management Dynamics, John Wiley & Sons Ltd, Chichester. Henry, A .(2008). Understanding strategic Management, Oxford University Press, Oxford. Carpenter, MA and Sanders, WG. (2007). Concepts and Cases - Strategic Management - A Dynamic Perspective, 2nd edition, Pearson Education, New Jersey. Jeffery, R.; Baxter, J; McGuire, M and Linde, J. (2006). Are fast food restaurants an environmental risk factor for obesity? International Journal of Behavioral Nutrition & Physical Activity, 2006, Vol. 3 pp 1-6 Lunn, J.; Howie, M.; Hughes, C.; Fenwick, H.; Read, L.; Richardson, A.; Casson, R.; and O'Kennedy, E. (2011). The food industry perspective: a collection of case studies, Nutrition Bulletin, Vol. 36 no.4 pp 468-476 Lynch, R. (2012). Strategic Management, 6th edition, Pearson Custom Publishing, New York. McDonalds, (2012). About McDonalds. (Online) available at: www.mcdonalds.com (Accessed: 29 Nov, 2012). Prakash, M and Stuchul, L. (2003). Fast food and environmental awareness, Encounter, Vol. 16 no. 4 pp49-54 Fields, S (2003). ‘Another Fast Food Fear,’ Environmental Health Perspectives, Vol. 111 no. 16 p872 Theodora, I and Chang, T. (2010). Sustainable business strategies and PESTEL framework, The International Journal on Computing. Vol.1 no. 1 pp 73-80 Tilotson, J (2008). Fast food-Ray Kroc and the dawning of the age of Macdonald’s, Nutrition Today. Vol. 43 no. 3 pp103-117 Waldron, J (2011). The Ray Kroc Story: The Rise of McDonalds. (Online) Available at: www.helium.com (Accessed 29 Nov, 2012). Appendix 1: Revenue Table: Sales indicators for McDonalds in the last 2 years % Increase/Decrease Comparable System wide Sales Sales As Constant Month ended November 30, 2012 2011 Reported Currency McDonald's Corporation 2.4 7.4 3.2 4.8 Major Segments: U.S. 2.5 6.5 3.5 3.5 Europe 1.4 6.5 0.5 4.2 APMEA* 0.6 8.1 4.5 4.9 Year-To-Date November 30, McDonald's Corporation 3.4 5.2 2.8 5.7 Major Segments: U.S. 3.6 4.3 4.4 4.4 Europe 2.7 5.5 (2.0) 5.5 APMEA* 1.9 4.5 5.9 5.4 * Asia/Pacific, Middle East and Africa  Source: McDonalds group financial analysis 2012 Appendix 2: Three strategic options for McDonalds to exploit 1) Market options matrix The company should be strategically placed to enjoy the benefits of development and expansion. 2) Expansion options matrix Options the company can explore for further expansion both home and globally Company Inside Outside Home Geographical location Internationally 3) BCG matrix Evaluating the company’s performers and non performers through relative market shares versus industry’s market growth reveals that it lies in the stars. However there is need for more market and product penetration. High market share High growth Low market growth rate High market share low market share Read More