McDonald's Business Strategies: A Comprehensive Analysis

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STRATEGIC MANAGEMENT
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Executive Summary
This report aims to provide detailed insight into the business strategy of McDonalds. McDonalds
is known as a multinational fast food company, which is based in America and has it’s
headquarter at Chicago, U.S. In this report, the ability to analyze the complexity of organizations
and their environments has been analyzed through highlighting PESTLE Analysis. Besides, the
ability to synthesize earlier, diverse and possible piecemeal studies of the organization,
assimilating new theoretical models, and offer solutions relative to strategic issues have been
discussed by analyzing SWOT Analysis, Porter’s Five Forces, Porters generic Strategy as well as
BGC Matrix of McDonalds. It has been found out that the primary generic strategy of
McDonalds is cost leadership. This specific generic strategy in Porter’s model includes
minimized costs for offering products at affordable prices.
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Table of Contents
Introduction......................................................................................................................................4
Company Background.....................................................................................................................4
S1. The ability to analyze the complexity of organizations and their environments.......................5
SWOT Analysis...........................................................................................................................5
Porter’s Five Forces.....................................................................................................................6
S2. The ability to synthesize earlier, diverse and possible piecemeal studies of the organization,
assimilating new theoretical models, and offer solutions relative to strategic issues......................9
Environmental Analysis...............................................................................................................9
Value Chain Analysis................................................................................................................10
S3. The ability to evaluate existing models and methodologies against observations of the
practices of real organizations.......................................................................................................13
Porters generic Strategy.............................................................................................................13
Recommendations..........................................................................................................................16
Conclusion.....................................................................................................................................16
Reference List................................................................................................................................18
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Introduction
Strategic management includes the formulation along with the application of the prime and
desire goals of an organization (Wheelen et al., 2017). This also encompasses the initiatives,
which are taken by the top management of the organization. The following report is carried out
based on the strategic management. In this regard, it can be revealed that the prime objective of
this specific report is to analyse the topic of strategic management considering an organization.
The selected organization for this report is McDonalds. The report will include the knowledge of
origins along with different approaches to the strategy. This will emphasize the knowledge
regarding complexity of the relationship between the chosen organization and its environment.
Understanding of the international strategic thinking along with the application of the chosen
strategy in practice will be highlighted in the report. Apart from that the capability of analyzing
the complexity of McDonald’s and its environments will be encompassed in this. In last part of
the report, recommendation will be added for McDonalds.
McDonalds is one of the popular fast food companies in America. This is a public type company
and belongs to the restaurants industry. Headquarter of the company is located in Chicago,
United State. There are more than 37,800 restaurants in all over the world for McDonald’s and
company operates their business worldwide. Net revenue of the company was approximately
US$ 21 billion along with operating income US$8.800 billion in the year 2018. Apart from that
the report will covers Pestel analysis of USA along with Swot analysis of McDonald’s, BCG
matrix, value chain analysis Poter’s five forces analysis and Poter’s generic strategy.
Company Background
McDonalds is known as a multinational fast food company, which is based in America and has
it’s headquarter at Chicago, U.S. The fast food company, which has 37,855 restaurants, was
founded by Richard and Maurice McDonald. The company delivers food products including
chicken, hamburgers, soft drinks, French fries, milkshakes, salads, desserts, coffee, wraps as well
as breakfasts. McDonalds is known as the largest restaurant chain in the world as per its revenue,
which is US$21.025 Billion and serves more than 69 million customers on daily basis in more
than 100 countries. The multinational food chain is mainly famous for its hamburgers,
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cheeseburgers as well as French fries. Moreover, the operating income as well as net income of
the company is US$21.025 Billion and US$6.258 Billion respectively (mcdonalds.com. 2018).
S1. The ability to analyze the complexity of organizations and their environments
SWOT Analysis
SWOT analysis of McDonalds will be beneficial for providing insight into the analysis of its
internal environment.
Strengths Weaknesses
 The brand equity of McDonalds is high
in the competitive market.
 The multinational fast food chain is
seen to occupy 42% of the fast food
hamburger business of the US.
 McDonalds is highly preferable for its
Fries, Happy Meal, Egg, Big Mac,
McMuffin.
 The multinational fast food chain has
been seen to successfully introduce new
items including coffees, Angus burgers,
and smoothies. It has further taken
resort to expansion of the menu choice
range.
 The successful promotional strategy
has made the company hugely
popular among customers from
different sections of the world
(McDONALD, M.A.L.C.O.L.M.,
2016)
 It has been able to flourish itself
 McDonald’s current market share is
seen to be declining due to increasing
number of competitors.
 The product development strategy
incorporated by the multinational fast
food chain is seen to be weak.
 The quality as well as taste of its
products is seen to be deteriorating,
which is resulting in its unpopularity.
 The income growth along with its
revenue has been seen to decline
(McDONALD, M.A.L.C.O.L.M.,
2016) .
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successfully in the overseas market.
Opportunities Threats
 McDonalds has higher opportunities of
opening new restaurants outside of the
United States. It has higher opportunity
of expanding its business to Chins as
well as in Asia.
 It can take resort to opening joint
ventures with retailers.
 It has higher opportunity of earning
preference of health conscious people
by innovating healthier food
(McDONALD, M.A.L.C.O.L.M.,
2016) .
 McDonalds is confronted with
increasing number of competitors.
 McDonalds is losing its business with
increasing health conscious customers
who are seen to prefer healthier food.
 Government is seen to be considering
regulations on fast food.
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Porter’s Five Forces
Porters Five Forces
(Source- Medium, 2019)
The Porters five forces framework has been devised by Michael Porter as an effective tool that
can provide a paramount standard of assistance in terms of interpreting the competitiveness of
the business environment where an organization operates. In brief, this strategic tool can help in
acknowledging several complexities such as buyer power, supplier power, industrial rivalry and
various associated external threats (Aithal, 2016). The following section helps in understanding
the complexities associated with McDonald’s business operations through the practical
implementation of this theoretical framework.
PORTERS FIVE FORCES ANALYSIS OF MCDONALDS
Industrial
rivalry
As opined by Astuti (2018), McDonalds is one of the largest
businesses operating in the food and beverage industry. This
implies that the organization is exposed to high competitive rivalry
from various organizations. In this regard, the major competition
that is faced by McDonalds is from large-scale organizations such
as Wendy’s, KFC, Prêt-A-Manger, and Burger King. Furthermore,
High
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Panmore Institute (2019) had added that the organization is also
exposed to high competitive rivalry against locally established
small and medium enterprises. Due to the strong rivalry faced in the
industry, the organization is consistently coming with new
organizational strategies in order to optimize their management and
operational activities to acquire a higher competitive advantage.
This is to deal with the complexities faced by McDonalds during
operating trade in the business environment.
Threat of
new
entrants
McDonalds is not exposed to high threat of new entrants, which is
because of the several entry barriers established by the organization
through their operational efficiencies. The organization has
expanded their business through 101 distinctive nations, and has
instituted around 36,000 official outlets (Astuti, 2018). Therefore,
organizations would require being supported with humongous
capital investment and broadened business horizons, which is not
possible in most cases. Therefore, McDonalds is exposed to
moderate threat, which is because although businesses cannot
compete against the organization in an international level, but local
market spheres are dominated by them in most cases.
Moderate
Buyer
bargain
power
As per the views of McMurtrey and Rowley (2016), McDonalds
suffers from crucial complexities regarding the increasingly
superior bargain powers of the buyers. This is because globalization
has given birth to a singular dynamic market, where the buyers are
enabled to choose amidst varieties of options prior to making a
purchase. Therefore, inadequate customer satisfaction can lead the
potential customers of McDonalds to switch towards alternative
options. Astuti (2018) had added that the food and beverage
companies generally suffer complexities regarding customer
loyalty, which makes this situation more difficult for McDonalds.
High
Threat of
substitution
According to various empirical studies, the food and beverage
industry is highly competitive in nature, for which organizations are
Moderate
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consistently under the risk of substitution. In this regard, despite of
being one of the biggest companies in the industry, the organization
is exposed to moderate risks of substitution with competitive
organizations such as KFC, Burger king etc in terms of beverage.
In terms of food products, McDonalds also suffers from
substitution complexities against companies that produce bakery
products. As per the opinion of Hamilton and Réquillart (2017), the
controversial health problems associated with McDonald’s product
offerings also expose the organizations towards crucial
complexities regarding substitution risks in the market sphere.
Supplier
bargain
power
McDonalds is not exposed to significant bargain powers by the
suppliers. In specific, the raw materials and resources that are
mainly required to produce the product of the organizations
consists of meat, potatoes etc. that are easily available in the
supplier industry. Furthermore, the brand reputation of McDonalds
is highly influential in the international industry, for which the
suppliers find it honorable to have the opportunity to be associated
with the organization (Panmore Institute, 2019). With respect to
this, McDonalds is exposed to minimum complexities regarding
supplier bargaining power.
Low
S2. The ability to synthesize earlier, diverse and possible piecemeal studies of the
organization, assimilating new theoretical models, and offer solutions relative to strategic
issues
Environmental Analysis
Pestel analysis is carried out with the purpose of knowing the impact of six external forces on
the organization. As stated by Masih et al. (2019), in this regard, the six factors are political,
economic, social, technological, environmental and legal.
Political Factors
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USA is the second biggest democracy in the globe and the president is considered as the head of
the nation. Election occur in the nation can be considered as transparent and fair. This can be
found that USA promotes the democracy in all over the world. As opined by Tsangas et al.
(2019), this nation is one of the great destinations around the globe for foreign direct investment
(FDI) and the reason behind this is stable political environment along with updating technologies
and advanced infrastructure.
Economic Factors
USA is the biggest economy in all over the world and this can be possible based on its GDP.
However, in the year 2009, the economy of the country was badly affected by the recession and
because of that many companies closed and several employees were become unemployed. As
opined by Anton (2015), since the last few years, this scenario is changed in USA while the rate
of employment is increased along with the level of income. Changing global landscape is
creating difficulties for the nation but still USA is leading the entire world.
Social Factors
Based on the population, USAS is ranked in the third position in all over the world. There are
more than 320 million people living in this nation. USA is one of the diverse nations as every
individual person among three people will have Asia, Latino or African ancestry in this nation.
Based on the opinion of Patil (2018), education system in USA is best in the entire globe.
Technological Factors
USA leads the entire world in technology along with science. This can be found in this regard
that USA is the base of most of the useful and updated technologies. As per the opinion of
LEYVA et al. (2018), technological improvement is becoming very useful for USA. Several
organization of this nation is expanding their business outside USA and becoming successful to
earn more profit. Moreover, this can be found that technological innovation are changing in USA
rapidly and this helps the organization like McDonald’s to reduce their production costs.
Environmental Factors
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USA has an excessively diverse climate, geography along with wildlife. Moreover, this diversity
is the reason behind the attraction of a huge amount of tourist in all over. Based on the opinion of
Patil (2018), this can be found that in the year 2014 more than 74 million tourists from different
countries in the world were visited to USA.
Legal Factors
USA has their own legal scheme along with government structure and all the business of the
company is come under the regulatory environment of the company. Based on the opinion of
Patil (2018), in USA, rules and regulation of the nations are same for all the foreigners along
with country people.
Value Chain Analysis
Value chain analysis is the analytical structure, which aids to make the identification of the
business activities. Moreover, this can build the value along with competitive advantage to the
business (Dudovskiy, 2019).
McDonalds Value chain analysis
(Source: Dudovskiy, 2019)
 Primary Activities
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Inbound logistics
Operations
McDonald’s operates franchised along with company owned restaurants. 80% of restaurants of
this company are owned by independent franchise (Dudovskiy, 2019).
Operational formats of McDonald’s restaurants
(Source: Dudovskiy, 2019)
Outbound Logistics
There are few formats and based on those the restaurants of McDonalds are operated
(Dudovskiy, 2019). Those formats are sit-down restaurants, counter-service outlets in food
courts, drive-thru and ski-thru.
Marketing and sales
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