McDonald’s is now the international market leader for fast food, and has been ever since its pioneering first restaurant was launch in San Bernardino, California in 1948. McDonalds is an almost perfect industrial system: a conveyor belt in an environment, which is inadvertently design as a blueprint of the traditional manufacturing organization in the factory as F. W. Taylor conceived it and his successors (Hussey 1992). Its geographical structure along with the bureaucratic culture supplements its low-cost leadership and analyzer business strategy. As a development strategy, franchising has become a major catalyst in the expansion of the McDonalds business throughout the world. The success of McDonalds based on a simple and effective strategic formula: standardization of service into a package of the smallest detail, strict quality control, and cost-effective production by young, cheap, unskilled workers supervised by managers on the shop floor. The growth comes from franchising out this concept and the brand name to entrepreneurs. Its human resource management policies are tightly and strictly controlled giving an anarchical power over the employees and dissuading them from becoming anti-organizational at anytime. This is evident from their history of anti-unionist stand (Royle 2002). The McDonalds HRM concept is so successful that it can handle a personnel turnover of more than 100 % a year, a rate that would grind any car manufacturer to a halt. At McDonalds, the system is greater than the individual is, the tasks of the employees simplistic is.
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Analyze “Strategy adoption of McDonald’s should be done according to the markets which they exit/operate in”
International research taught us that McDonald has had consent to change on from a globally schizophrenic brand approach to one that had ordinary appeal. Therefore, we united voices worldwide to sing the same product tune, delivering a value plan with universal petition among moms, kids, and teens alike: “Simple, Easy, and pleasure.”
McDonald’s global sales have increased seven percent yearly in 2008, in large part due to the adoption of the new product policy in markets like Europe and Asia where sales increases are averaging nearly 10 percent.
Introduction
History:
The original founders of McDonald’s, and the fast-food concept, were brothers Dick and Mac McDonald. In 1948, they modified their drive-in restaurant, creating the standard for the contemporary fast-food restaurant of modern times. From the introduction of a limited menu of just nine items, and by focusing on efficient production and service, the brothers were able to halve the price of their hamburgers to 15 cents. In 1962, the golden arches adopted as its corporate logo, with the introduction of Ronald McDonald as its mascot arriving the following year. In 1965, McDonald’s Corporation went public, and by 1966 listed on the New York Stock Exchange. In 1967, its first restaurants outside of the United States opened in Canada and Puerto Rico. From then on, it expanded rapidly.
Franchises:
The McDonald’s Corporation is the largest worldwide franchised food service organization. In the 1960’s, Ray Kroc franchised restaurants for the low sum of $950, demanding 1.9% of sales. McDonald’s are able to overcome cultural barriers that have previously hindered other organizations. Because the local people immediately translate both the product and service, there is little hint of what may be construed as US brand culture. McDonald’s is simultaneously global and local. Clearly, an increase in the number of franchised restaurants leads to the direct effect of an increase in McDonalds’ revenues. McDonald’s can also boast that it is the largest retail property owner in the world.
Mission and Vision:
Vision:
“McDonald’s vision is to be the world’s best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile.”
Mission:
McDonald’s brand mission is to “be our customers’ favorite place and way to eat.” Our worldwide operations have aligned around a global strategy called the Plan to win centering on the five basics of an exceptional customer experience – People, Products, Place, Price, and Promotion. We are committed to improving our operations and enhancing our customers’ experience.
Business Strategy of McDonalds:
a) Strategic Approach:
Considering McDonalds under Porter’s competitive strategies, it can conclude to have a low-cost leadership approach. McDonalds uses an overall low-cost leadership strategy to reduce costs and increase sales.
Using Miles and Snow’s Strategy, McDonalds follows an analyzer type of strategy, constantly introducing new products while defending their existing products (Daft 2000).
Its business strategy takes an efficiency approach and is associated with strong, centralized authority and tight control, standard operating procedures, and emphasis on efficient procurement and distribution systems. Also, employees perform routine tasks under close supervision and control and are not allowed to make decisions or take actions on their own.
Key elements of McDonald’s business strategy are:
– Adding 700-900 restaurants annually.
– Using new menu items, low price specials, ‘Extra’ offers.
– Value Meals to promote frequent customer visits.
– Being highly selective in granting franchises.
– Choosing sites convenient to customers.
– Focusing on limited product line & consistent quality.
– Careful attention to store efficency.
– Extensive advertising & use of Mc prefix.
Hiring courteous personnel; paying an equitable wage & providing good training.
Strategies of McDonald:
Mc Donald is one of the famous food chain all throughout the world known by both the child and adult alike. It has increased its sales despite some issues raised against the company. To further, increase sales on the business and improve its performance, business strategies done by person in-charge. It is in this stage wherein the company would improve what they lack thus making prospective customers to keep on coming back and ask for more. It says that McDonald has been able to use various strategies to uplift and sustain their competitive advantage in the market.
Part of its business strategy is its plan to phase out its Super Size French fries and soft drinks as it tries to create a healthier image for itself. The Super Size option is to be phase out in an attempt to slim down its menu amid increasing concerns and issues being raise about obesity (Crouch, 2004). The company is also planning other menu changes, such as switching to a cinnamon roll and a sausage burrito as its core breakfast offering, while bagels would become an optional item. The company also has to stop selling its 14-ounce McDonald is Fruit n Yogurt Parfait and replaced it with a smaller-sized version of the product (Crouch, 2004). All these changes in the menu are part of its strategy to provide a range of choices that support a balanced lifestyle. The company has also added that the simplified core menu would roll out to its entire restaurant.
Strategies in other areas of the organization is also made like the three-wheeled vehicle that is used to collect discarded cups and burger wrappings from the neighbourhood around the restaurant and the provision of good services to customer which naturally begins and commences with hiring the right kind of people (Livesey, 1999). Staffs are encouraged to smile, be optimistic and treat customers particularly with respect, tell them what a person wants and follow up on the performance and reward their behaviour. The restaurant’s bathroom is not spare. Issues are raise on the concerns about the said restaurant to be dirty and unhygienic. Customers want a clean area especially the bathroom to make they feel comfortable. Strategies like this should also apply (Livesey, 1999).
McDonald’s has developed three strategies for sustaining the competitive advantage. These are customer value, convenience, and optimal business operations. Together with the information technology strategies, it helps the company to create new and innovative ideas for the company. The McDonald’s restaurants are describe by the functions of the team as miniature manufacturing facilities. With the McDonald’s objective of improving the suite of its business systems, which supports the store, the management of McDonald has developed ways of using effective marketing and management strategy its overall operations.
In order to adapt with the latest trends of having healthier menus, the company extends their services for family retreats and as a centre of community for senior citizens. The means for the former one are its innovation with their products to offer healthier foods. As this trend continues, an extension of more people -oriented strategies is need. The company also conducts studies and surveys as part of their business strategy better know which among the different alternatives serves the objective of McDonald is the best.
To achieve customer convenience and satisfaction, one of their key initiatives is on the improvement of the ambience and looks of their stores in the country. The adherence of the company to put WIFI technology in their stores for instance has also become one of the attractive forces for customers. For the achievement of customer value, focus of the company remain on real-time information flow which permits instant corrections of the menu and prices in response to preferences and changing needs of the customers and competitive environment.
Competition:
One of the major issues for McDonald’s is it competitors. Burger King is the second largest hamburger fast-food chain in the world and is the number one competitor for McDonalds. Burger King has 11,400 locations in 58 countries and derives 55 percent of its revenue from the drive-through window. Burger King reported 1.72 billion in 2002 in revenue which is a 17 percent increase compared to a 4 percent increase reported by McDonald’s over the same period. Burger King’s distinct assets include the unique Whopper with its one of kind charbroiled taste and the company policy of preparing the hamburger any way that the customer wants it. Burger King has distinguished itself over the years in many ways including being the first in the fast-food industry to enclose its patio seating in 1957 thereby offering customer indoor dining experience. Burger King also differentiated itself when it installed the drive-through window in its restaurants in 1975. In addition to the Whopper Burger King also offers a few set items on its break-fast menu that differs it from it competitors including the Croissan’wiches and French toast sticks. The rest of the menu also offered the unique veggie burger and chicken Caesar salad.
Wendy’s is the third largest fast-food chain with 9,000 stores in 33 countries worldwide.
Hardees’s is the fourth largest fast-food chain in the nation. It holds 2,400 locations in 32 states and 11 countries.
Jack in the Box, another major competitor in fast-food industry, has of 1,850 restaurants in 17 states.
Sonic yet another major competitor owns 2,700 locations.
Value Chain Analysis
The value chain at McDonald’s is very competitive in the global fast-food industry. The following table shows the costs and markups associated with McDonald’s signature hamburger, the Big Mac, bought at a McDonalds.
The Big Mac’s average price of $2.80 compares favorably to the various signature items at other fast food retailers, such as Burger King and Wendy’s. The royalties paid by franchisees back to the McDonalds.
McDonalds Corporation has evolved in different ways and in different areas due to inappropriate or outdated processes and the changing internal and external global environment. It is during these changes that process determination, manipulation, and management reach their height of importance. The first process change that McDonalds went through in order to enhance its value delivery is automation. This required the company to change the application of its entire value chain in order to reorganize its food processing, cooking and food delivery to provide benefit to its customers. Raw food processed through an assembly line utilizing a strict process with each worker assigned to a single specific task. Cooking done by strictly following a process and food delivery removed dine-in space to speed up the process of fulfilling orders.
The second process change that McDonalds had to manage was its expansion into other countries and different business environments. The company realized that it had to adapt to the unique customer demands in different countries if it were to succeed in taking hold of the global market. McDonalds had to adjust its food preparation, cooking and delivery service to meet new demands. Originally, hamburger patties are made of processed ground beef. However, in India, cows are deeming sacred and the people do not eat beef. The company had to change their food ingredients from beef to mutton for the burger patties and change the process of preparing french-fries from seasoning it with beef-based flavoring to the use of substitute flavoring to respect the reverence for cows and its consideration as a non-food source.
The third process change that McDonalds Corporation had to address is the intensity of the negative publicity that the company faced from animal rights and human rights advocate criticizing the manner that the company treats animals in growing and preparing these as food raw materials as well as the treatment of their workers and employees. In terms of animal rights, advocate groups claim that the company supports the practices of commercial farmers of keeping cows and chickens in closed spaces to obtain optimized weight gain through lack of movement and physical action implying the lack of consideration for animal welfare. In relation to human rights, labor groups claim that McDonalds runs a restrictive and anti-labor organization by not allowing its workers and employees to create unions as well as providing only minimal wages and benefits, particularly in developing countries, that do not meet international labor standards. McDonalds took years to shift its processes to accommodate these issues, which is still a continuing endeavor. Instead of applying a uniform standard for all its franchises, McDonalds is shifting to customized food and service based on the demands of a given market. McDonalds opted to pull out unprofitable chains due to strong negative publicity and concentrate in areas with positive reception.
These process changes are important to organizations in channeling their resources towards activities that work for the company. McDonalds directs different facets of organizational processes in creating and delivering value by evaluating the appropriateness of inputs and the corresponding methods and then linking the inputs and methods to achieve desired results. Without processes, McDonalds does not have the mechanism by which to assess changes in market conditions and rising issues, redirect its inputs and methods to meet these changes and issues, and integrate inputs and methods towards desired outputs.
Porter’s Value Chain:
Mc Donald’s support
Activities
Margin failed
In India & pulled
Out in USA
Margin now outstanding in Singapore & Australia.Procurement: with expertise sought partners on down trade distribution.
HRM Specialists in R & D and expertise, in food formulation, Support education to raise awareness of issues & raise demand.
Technology & development research are developments in Quality assurance, packaging was readdressed to lower cost.
Infrastructure :- International organization more than 50,000 employees works in more than 50 countries, company goal to developing low income products
McDonald’s
Primary
Activities
In bound Operations Out Marketing Service
Logistics bound
Logistics & Sales provided
By the
Inbound R & D in Lack of Lack of companies
To be used field control under enrollment
In products research of out standing standards
Needs of bound between
Information end users. failed the
formed in India customers
from substitute
nutritional Quality products
studies. Development were
in easily
collaboration launched
With good in India.
suppliers.
The goal of these activities is to offer the customer a level of value that exceeds the cost of the activities, thereby resulting in a profit margin for McDonalds. The primary value, chain activities:
Inbound Logistics: the receiving and warehousing of raw materials and their distribution to manufacturing, as they are required.
Operations: The processes of transforming inputs into finished products and services.
Outbound Logistics: The warehousing and distribution of finished goods.
Marketing & Sales: The identification of customer needs and the generation of sales.
Service: the support of customers after the products and services sold to them. These primary activities are supported by:
Technology & Development: Technologies, to carry value-creating behavior.
The value chain model is a useful analysis tool for defining a firm’s core competencies and the activities in which it can pursue a competitive advantage as follows:
Cost advantage: by better understanding costs and squeezing them out of the value-adding activities
Five Competitive Forces:
The quick-service sandwich industry faces competitive pressures from a number of forces. The major competitive threats originate from competing sellers in the industry as well as firms in other industries that offer substitute products. McDonald’s main competitors within the quick-service sandwich industry are continually deriving new strategies through offensive and defensive tactics in order to gain customers and market share. In 1989, Wendy has implemented the 99-cent value menu as an offensive strategy to gain customers looking for a quality product at a value price.
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Substitute Products:
In addition to competition from rival sellers in the industry, sandwich firms also face intense competitive pressure from firms in other industries selling substitute products. The substitute products for the fast-food industry are probably some of the most diverse in the world. These substitute products may include products purchased from the local grocery store, food from sit-down restaurants, or delivery foods such as pizza. The primary issue with these substitute products is that they are readily available to the customer and the customer tends to view them as being comparable or better in terms of the quality of fast-food products.
New Entrants:
The threat of potential new entrants and the bargaining power of suppliers is not a significant competitive force in the fast-food industry. Occasionally, new entrants will come along and compete with firms in the fast-food industry and offer substitute products. However, in order to compete on a large scale, it will require a great deal of capital to invest in real estate and build physical restaurant locations. In addition, the market is already so saturated that the new competitor might find it difficult to establish a customer base and become profitable. Suppliers in the fast-food industry do not have substantial bargaining power due to the fact that firms in the fast-food business tend to purchase their materials from various outlets. One company might purchase their meat supplies from a couple different meat manufacturers, then purchase their dairy needs from a number of different dairy companies, and also purchase their bakery products from a variety of sources. Since the fast-food firms divide their purchases among a diverse array of suppliers, the suppliers tend to have little or no bargaining power or leverage since there are multiple suppliers for the same products.
Driving Forces:
There are a number of driving forces which have molded the current state of the fast-food industry. In the beginning, fast-food companies typically focused on being the low-cost provider and sought to expand into as many markets as possible. As these national brands have grown, the markets they are competing in have become overly saturated with restaurant options. As a result, the fast-food industry has begun to focus on the needs of the customer. The buyer has a great deal of leveraging power due to the fact that if they are dissatisfied with one brand they can easily switch or purchase from an alternate brand with little or no monetary repercussions. The fast-food firms have implemented strategies to improve the quality of customer service and the cleanliness of the restaurant locations in order to please their customers in hopes that they will become a repeat customer.
New Menu Items:
Mcdonalds have, for the most part, always been related to an unhealthy lifestyle. As a result, customers who are health-conscious have tended to take their business elsewhere to restaurants that offer nutritious alternatives. In response to the health-conscious lifestyle that people have adopted, the majority of the national chains have created new menu items to cater to this demographic. Customers are the main driving force behind the daily operations of fast-food firms. They are the reason that companies have attempted to upgrade the quality of their customer service and their needs have lead to the creation of new products to satisfy their demands.
Strategic Moves:
A number of competitors in the fast-food industry have expanded beyond their traditional offering of generating revenues from their mcdonalds. Major chains such as McDonald’s have acquired smaller chains Boston Market, Chipotle Mexican Grill, and Donato’s Pizza. Wendy’s has also grown by acquiring smaller companies such as Tim Horton’s and Baja Fresh Mexican Grill. These acquisitions were executed in hopes of generating revenue from multiple sources and also to help support the company’s growth over the long term. Over the past couple of decades, the major chains have also begun to expand into the global marketplace and have opened franchises up around the world. McDonald’s currently operates in over 120 countries around the world with over 30,000 stores. Burger King has 11,400 stores in 58 countries and Wendy’s operates 9,000 restaurants in 33 countries worldwide. These fast-food firms have seen countries outside the U.S. as markets that have an enormous growth potential. In order to cater to the different cultures, companies such as McDonald’s and Burger King have offered menu items with a distinctively local flavor.
Strategic Groups:
The fast-food industry is primarily composed of national chain brands. As a result, there are just a couple of strategic groups associated with the fast-food market. The major national chain brands such as McDonald’s, Burger King, Wendy’s, Hardees’s, and Jack in the Box compete in markets throughout the United States and around the world. Their strategies are focused on providing a product that is based on low-price convenience. Their strategic group is associated with many geographic locations and low price and quality. In competition with these large multinational firms are local McDonalds. Local McDonalds focus on providing their customers with a quick, cheap alternative to the national brands. These businesses offer a low price and low quality product in few localities.
Fast Service:
Over the past couple of years, there has been a growing trend in the restaurant industry to provide customers with a higher quality product in a short amount of time. These restaurants are typically refer to as “fast casual” or “quality quick service.” They aim to provide freshly prepared, made-to-order meals. Their operations combine the speed and convenience of traditional fast food with the food quality and appealing décor of casual-dining restaurants. There are a number of national chains that fall into this strategic group of providing a high quality product in many geographic locations and there are also some businesses that function in a couple locations and provide a similar high quality product.
Cost Analysis:
Analysis suggests that McDonald’s needs improvement in cost control. Their depreciation and extraordinary expenses rank below average compared to competitors; indicating cost financial areas McDonald’s must address in order to remain competitive within the industry. As a result of their better than average selling, general, and administrative costs this helps improve their overall cost situation. Interest and cost of goods sold are among average in the industry however, they are located on the low end of the spectrum. This again indicates areas of improvement about cost management by the company. Although many of the costs were, incur during Greenberg’s tenure as CEO Financials show cost control improvement. Despite their below average ratings and un- weighted trend of 0.4 and a weighted trend of 0.02 suggest that among all cost ratios McDonald’s is on the road to improvement.
How McDonald’s business structure influences its strategy?
The McDonald’s business structure based upon a geographic structure. When log on their website, you will ask to choose the country that you are interested in. Actually, McDonald has divided its operations into five geographical divisions.
So each full functional geographic unit of McDonald’s was required to wholly response for producing and marketing its products in that region. Through this regional structure, McDonald’s could not only satisfy the local consumers’ needs in different geographical areas but also pursuing ‘maximum local development’. Actually, they produce and market slightly different types of products in different areas, and they even have different prices.
The consumers in different countries having different foods requirements, McDonald’s keep launching new products for their regional consumers. In this, case China and France can be very good examples.
Strategic Allies:
A strategic ally is an organization working together with one or more other organizations is a joint venture or a similar arrangement.
McDonald’s has formed a strategic alliance with Wal-Mart, Chevron, Amoco, Disney and Coca-Cola.
Wal-Mart, which is a large shopping mall chain in the U.S. and several neighboring countries, allied with McDonald’s, which offers great opportunities for both companies. McDonald’s has restaurants in each Wal-Mart, offering its customers conveniences and excellent fast food at a low cost ease of accessibility. McDonald’s corporation describes it best in this scenario: “Imagine a busy shopping day at your local Wal-Mart and having the ability to sit down with the kids and enjoy many of our McDonald’s favorites, like ‘Big Mac’ sandwiches, world famous fries and kids favorite ‘Happy Meal’. McDonald’s understands your busy lifestyles and the demands on your time. That’s why we are making it easier for you to do more things in less time.”
McDonald’s is engaged in an alliance with two petrol companies, Chevron and Amoco. This alliance represents the ultimate in convenience. At these locations, one finds a full-menu McDonald’s restaurant with dining room service. Nothing can be more convenient, because one can fill up the car with gas and get a meal all in one stop.
Another important alliance that McDonald’s has is with Disney. Here McDonald’s has the sole right to sell fast food in Disney’s theme parks around the U.S and other Disney operations in the world. Under the terms of the agreement, McDonald’s will operate restaurants and Disney will promote its films through McDonald’s.
Alternate Strategies
Strategic Possibilities
Stay-on-the-offensive strategy: The main goal of the stay-on-the-offensive strategy is to be a proactive market leader. The principle of this strategy is to continually stay one-step ahead of your competitors and force them to play catch up. McDonald’s is already the industry leader in the fast-food industry with a market share of 33 percent compared with the number two chain in the industry, Burger King at 13 percent market share. They can stay out front by implementing technological improvements in their restaurants to enhance the production methods or to improve the ordering process of the customer. In addition, they can also introduce new or better product offerings to satisfy the needs of their customers. The best approach that McDonald’s can take through this strategy is to improve their customer service. McDonald’s customer service ranking was the lowest in the fast-food industry and was even lower than the Internal Revenue Service. To improve upon this substandard attribute, McDonald’s should revamp their training process for newly hired employees and introduce new educational modules for currently employed personnel.
Fortify-and-defend strategy: The purpose of this strategy is to make it harder for challengers to gain ground and for new firms to enter. A fortify-and-defend strategy works well with firms that have already achieved industry dominance. Since McDonald’s is already the industry leader in the fast-food market, they can opt for a number of tactics using this strategy to maintain their industry position. They can continue their expansion tactics by continuing to open more stores around the world. This expansion would help defend against and help to discourage smaller companies from increasing their market share. In addition, they can also elect to invest capital in R&D to aid in developing new technologies for their operations. These new technologies will help them remain cost-competitive and technologically progressive.
Global Strategy: McDonald’s already holds a strong position in the global economy. Our recommendation is that they decrease expansion in the almost saturated domestic markets, and continue their expansion in foreign countries, such as Asia, and the Pacific. Companies generally expand into foreign markets in an attempt to gain new customers and capitalize on core competencies. McDonald’s core competency is that they are able to produce and sell quick and cheap food to a large number of customers. With this concept, they have been able to expand into other countries, and they currently are the largest global fast-food chain in the world. Since they already hold this lucrative position, they should continue expansion in an effort to drive out competition. One strong recommendation would be for McDonald is to expand into emerging markets. Since they focus on low-priced food, it is likely that many could afford their products, and therefore, McDonald’s could expand into a stronger company.
Diversification: One strategy that McDonald’s as well as many of the other fa
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