McDonald's Digital Innovation Strategy

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AI Summary
The assignment discusses McDonald's efforts to innovate digitally to maintain a competitive edge and achieve business sustainability. The company prioritizes digital innovation, focusing on store restoration, digital ordering and delivery, and menu innovation. This strategy aims to create a restaurant of the future for customers and counter competition from Burger King and Hungry Jack.

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Running Head: Business Strategy
Mc Donald
Business Strategy
Management Report

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Business Strategy P a g e | 1
Executive Summary
The assignment here on McDonald gives insights on the Need for innovation at McDonald in
context of the industry rivalry and PESTLE framework. Both the factors point towards an urgent
need of competition to ensure the sustainability of McDonald. BCG Matrix has been used in the
assignment to evaluate the options available for the innovation along with the McKinsey GE
framework. Towards the end it has been suggested that McDonald gives higher weightage to its
digital innovation strategy to increase the engagement with the consumers, create a digital
restaurant for the future and improve the customer experience, the same has been support by
the MACS framework.
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Table of Content
Brief Introduction............................................................................................................................................................ 3
Need for Innovation........................................................................................................................................................ 4
Threat Identified from Analysis of Porter Model........................................................................................... 4
Threat identified from the PESTLE model........................................................................................................ 4
Identify and evaluate the current growth (Innovation) strategy of McDonald......................................5
BCG Matrix..................................................................................................................................................................... 6
McKinsey GE Framework for McDonald............................................................................................................ 7
Evaluation of one of the Innovative opportunity using the MACS Framework......................................8
Conclusion........................................................................................................................................................................ 10
References........................................................................................................................................................................ 11
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Brief Introduction
McDonald is an American Fast food company which was founded in the year 1940 as a
restaurant which was operated by Richard and Maurice McDonald in California. It was Ray Kroc,
a businessman who purchased the chain from the brothers and started opening the stores
across the globe(McDonald & Wilson, 2016) The fast food chain company at present has over
36,900 stores across the globe and employees over 375,000 people. The fast food chain whose
product offering include Hamburgers, chicken, French fries, salads, desserts, wraps, coffee,
breakfast earned a revenue of over US $ 24 billion in the year 2016. The sustainable strategy of
McDonald is to customize its menu according to the country in which it is operating and
providing fast delivery to millions of its customers (McDonald, 2016).
The underlying purpose of the assignment here is to understand the strategic innovation and
threats posed to McDonald in its highly dynamic business ecosystem, and to understand how
the business organization is responding to the threat and the opportunities. In order to assess
the threat to McDonald an analysis of PESTLE model will be done and its current growth
strategy will be analysed using the BCG matrix and McKinsey GE frameworks. Towards the end
using the MACS model one innovation opportunity the company is pursuing will be analysed.

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Need for Innovation
In the earlier days, the average life cycle of a business model used to be easily over 50 years, but
it is not the same anymore. Due to high degree of innovation and technological advancement the
average lifecycle of a business model has reduced to 20 overs. Hence, it is the need of the hour
to consistently bring innovation in the business model to ensure sustainability in the business
model (Christensen, Raynor, McDonald, 2016).
Threat Identified from Analysis of Porter Model
Threat from industrial Rivalry-The fast food market segment is highly saturated, due to this
high saturation there is a threat to McDonald position from KFC and Hungry Jack. Moreover the
consumers have low switching cost and large number of firm’s competing for the same market
share. This implies that the company has to innovate to sustain and achieve competitive
advantage over its competitors (Cox, McDonald, Wang & Hallen, 2015).
Threat due to high Bargaining power of the buyers-Low switching costs, large number of
players in the market and more substitutes available in the market means the buyers has high
bargaining power. Thus McDonald has to innovate to reduce the effect of higher bargaining
power of the buyers.
Threat due to Suppliers Power-McDonald as of now does not possess threat from the
suppliers, because of large number of suppliers available in the market. Moreover the secret of
McDonald is safe with them; this implies no threat to innovate from suppliers end.
Threat of substitutes- McDonald needs to innovate due to high threat from the large number of
substitutes available in the market. The fast food chain has to create product differentiation as
its innovation strategy to sustain its business revenue (Grant, 2016).
Threat of New Entrants-It is easy to enter the fast food industry due to low cost in setting up
the businesses, moreover the industry is plagued with plethora of competition from the local
players. This implies the urgency to bring innovation in the existing product offering of
McDonald (Rothaermel, 2015).
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Threat identified from the PESTLE model
The threat identified from the PESTLE analysis of McDonald which would emphasise the
urgency for innovation at McDonald is as follows:
Political Threat-It is extremely necessary to comply with the different FSI and food regulation
imposed by the countries in which McDonald is important. It becomes imperative for McDonald
to highly company with the rules and regulation to safeguard its position in the market
(Bereznoi, 2015).
Economic Threat-McDonald has to keep in mind the increase in the purchasing power parity of
its consumers and the rate of inflation and numerous economic indicators before adding the
viability of its innovation in its business.
Social Threat- Consumers taste and preferences is evolving on a daily basis, they are moving
towards a healthier option to satiate their hunger. McDonald which is known for its unhealthy
burger and fries has to think of adding healthier benefits through innovation in its product
offerings.
Technological Threat-McDonald has achieved operational excellence due to its technological
advancement in its business operation. However, as the technology is progressing, McDonald
has to add machine automation as innovation in its existing business model to further expedite
its manufacturing process (Souto, 2015).
Environmental Threat- Countries across the globe are raising concern towards environmental
sustainability. McDonald has to add innovation in creating recyclable material in its packaging
and disposing off the waste.
Legal Threat-Minimum wage, labour employment, health regulation and animal welfare
regulation are some of the examples where the company has to add innovation in its business
model to ensure the compliance with the existing legal threats (Leavy, 2014).
Thus, industry analysis and PESTLE analysis strongly suggests the need of innovation at
McDonald to ensure the sustainability of its business momentum
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Identify and evaluate the current growth (Innovation) strategy of
McDonald
McDonald’s innovation is primarily based on the four pillars, viz; menu innovation, store
renovation, digital ordering and delivery. These are the prime element of innovation the
company is actively pursuing. BCG matrix and McKinsey GE framework will be used in this
section to understand its innovation strategy
BCG Matrix
(Source: Harding, 2017)
McDonald in itself was initially a star, as it had high growth rate and a high market share, but at
the present moment the company has moved into the quadrant of Cash Cows. Cash cow implies
that the growth rate is low, but it has a higher business share for the product. At present none of
the offerings of McDonald can be placed into the Dog category as all its products are doing well.
Stars- In accordance to the BCG framework, stars is the category which has high market share
and high growth in the industry. If geographical locations have to be considered, Europe is most
definitely in the Star category. Thus the company has to focus on doing innovation in the

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European market to taste higher success. Digital ordering can certainly help the company to
leverage the market and sustain its competitive position in the star category (Loredana, 2016).
Cash Cows-This segment provides high financial stability to the business, this segment is
characterized by low sales growth and high market share. America for example falls into the
category. McDonald has to here add innovation in its food offering and focus on enhancing the
consumer experience at the store to make it move in the quadrant of star.
Question Mark-McDonald is unable to leverage the opportunity offered by the emerging
economies of the Asia pacific countries, which makes it fall into the category of question mark.
Yum Brands one of its biggest competitors is opening up more franchise in this location. The
company has to focus on product development and menu innovation here to get a competitive
advantage in those locations (Ayling. et al, 2015).
Dogs-The biggest product failure of McDonald was it’s highly talked about straw with which
people could not relate with, the company quickly killed the product to offer better innovation
to its customers. Fortunately McDonald does not have any offering or any location in the Dog
category, which is actually good for the company.
McKinsey GE Framework for McDonald
(Source: Tsakalerou, 2015).
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The nine box matrix which was created in the year 1970 is a useful framework offering a
systematic approach for a decentralized corporation to identify where it is best to invest the
company’s resources including cash. The two factors used to judge a business unit is
attractiveness of the industry and the competitive strength in the industry. The nine box matrix
provides an analytic map for managing the innovation in the business units (Johnson, 2016).
The units occurring above the diagonal, the company can pursue the strategies of growth and
investment. In the case of McDonald the company has to focus on the emerging economies for
product development and market penetration. In the case of Europe and star markets, the
company has to add innovation in its product offering by the virtue of menu innovation. In
saturated markets like USA the company has to focus on the in-store experience just the way
Starbucks does for its customers.
The units following along the diagonal are the categories where the company has to be cautious
in investing and predicting the growth. McDonald here can focus on it’s much talked about
Fresh patties which is soon to be launched in selected markets. Here, McDonald has to evaluate
in which countries it has to launch the product for Beta testing and getting the first-hand
experience of the customers (Halkos, 2015).
The category falling below the diagonals include the ones which have to be immediately killed
or liquidated with the time in hand. McDonald here did the best thing by killing of its Straw,
which the company initially thought of as one of its unique and creative innovation.
It can be said that all the current innovation that McDonald is pursuing which is Self-Service
Kiosks, Digital delivery and ordering, menu innovation and store innovation. All of them falls
above the diagonal and it is very much essential for the company to speed up its pace of
innovation and sustain its competitive advantage against Hungry Jack, Burger King, Yum Foods
and the local competition.
Evaluation of one of the Innovative opportunity using the MACS
Framework
MACS (Market Activated Corporate Strategy Framework) highly represent the most recent
thinking of McKinsey in the department of strategy and Finance. The model which was an
extension to the McKinsey GE Framework in the similar manner offers a systematic approach
for the MNC to prioritize its investment in the business units. The MACS framework in the
similar manner as that of McKinsey GE framework evaluates the option to consider on the basis
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Business Strategy P a g e | 9
of market attractiveness and the competitiveness. However, an addition of analysis to deciding
which option will extract the best value for the business can be identified with the help of the
model (Marquis & Raynard, 2015).
The key insight of MACS is estimating the ability of the business organization to extract value
from a business unit in reference to other potential owner of the business. The MACS matrix has
replaced the axes from the 40 year old McKinsey model measuring the market attractiveness
and the ability of the business unit to compete in the market with a single horizontal axis, which
represents the business unit’s potential for creating a standalone enterprise. In the similar
manner the vertical axis is the representation to measure the organization’s relative ability in
extracting value from each business unit.
(Source: Yaprak, Tasoluk & Kocas, 2015)
As explained earlier McDonald understands the importance of business innovation in its
business practices, food menu, packaging, delivery, online ordering, in store experience, new
product offering and fresh patty and is actively changing the gear towards sustained innovation.
However, it is not possible to work simultaneously on all the business innovation at the same
time. Thus, the company is focused on its Digital innovation strategy and wants to build the
restaurant of the future as a start-up.
In accordance with the MACS framework, digital revolution is something that the company
cannot ignore, and it is one of its strongest innovation suites to achieve a competitive advantage

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which is fuelled by market attractiveness and profitability. The digital team at McDonald grew
from 4 people to 130 people and the management wanted the team to re-imagine the restaurant
experience of tomorrow. The digital innovation strategy was focussed on two parameters both
being highly contextual to the present industry scenario:
Customer Experience- The Company wants to build digital products for its specific future in
terms of ordering, payment and mobile. McDonald in order to do so, have shifted from agency
and created its own digital team which is focussed on creating a unique digital restaurant of the
future.
Customer Engagement-Here the company is aspiring to add features of engagement on social
media and the application with its customers. The company wants to ensure that people engage
on high levels with the digital innovation of McDonald and have a never to be found experience.
This strategies in tandem to the MACS framework for the digital innovation team at McDonald
are:
Improving the in-store experience of the customer by offering them the control of the
restaurant, this can be done by customizing the menu at the table, which the customers
would like to meet and many more.
Giving the customers to integrate ordering while driving, this will be a killer integration
and most definitely one of the most useful innovations.
McDonald is creating an Uberification of its food
Thus, it can be easily said that the Digital innovation is the most viable and need of the hour
opportunity for the McDonald in reference with the MACS framework, using the digital
landscape as its growth vehicle.
Conclusion
Innovation is the pre-requisite of every business organization and more so in industries which
are characterized by high industry rivalry. McDonald the American Fast Food Chain restaurant
has to innovate rapidly to maintain a competitive edge and work towards the model of business
sustainability. The company’s innovation is based on the pillars of Store restoration, digital
ordering and delivery and menu innovation. The company which faces tough competition from
Burger King and Hungry Jack is prioritising Digital innovation at McDonald to create a
restaurant of the future for its customers.
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References
Ayling, C., Chan, C., Driver, E., Fletcher, S., Haugen, J. and Livingston, K., 2015. McDonald’s
Canada’s 50th Anniversary Campaign.
Bereznoi, A., 2015. Business model innovation in corporate competitive strategy. Problems of
economic transition, 57(8), pp.14-33.
Christensen, C.M., Raynor, M.E. and McDonald, R., 2016. What is disruptive Innovation. The
Encyclopedia of Human-Computer Interaction, 2.
Cox Pahnke, E., McDonald, R., Wang, D. and Hallen, B., 2015. Exposed: Venture capital,
competitor ties, and entrepreneurial innovation. Academy of Management Journal, 58(5),
pp.1334-1360.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Halkos, G.E., 2015. Climate change actions for sustainable development. International Journal of
Innovation and Sustainable Development, 9(2), pp.118-136.
Harding, S., 2017. MBA management models. Routledge.
Johnson, G., 2016. Exploring strategy: text and cases. Pearson Education.
Leavy, B., 2014. India: MNC strategies for growth and innovation. Strategy & Leadership, 42(2),
pp.30-39.
Loredana, E.M., 2016. The Use Of Ansoff Matrix In The Field Of Business. In MATEC Web of
Conferences (Vol. 44, p. 01006).
Marquis, C. and Raynard, M., 2015. Institutional strategies in emerging markets. The Academy of
Management Annals, 9(1), pp.291-335.
McDonald, M. and Wilson, H., 2016. Marketing Plans: How to prepare them, how to profit from
them. John Wiley & Sons.
McDONALD, M.A.L.C.O.L.M., 2016. Strategic marketing planning: theory and practice. In The
marketing book (pp. 108-142). Routledge.
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Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.
Souto, J.E., 2015. Business model innovation and business concept innovation as the context of
incremental innovation and radical innovation. Tourism Management, 51, pp.142-155.
Tsakalerou, M., 2015. GE/McKinsey matrices revisited: a mixed mode tool for multi-criteria
decision analysis. European Journal of Contemporary Economics and Management, 2(1), pp.92-
98.
Yaprak, A., Tasoluk, B. and Kocas, C., 2015. Market orientation, managerial perceptions, and
corporate culture in an emerging market: Evidence from Turkey. International business
review, 24(3), pp.443-456.
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