Strategic analysis is a method which is adapted by an organization to understand and assess its external as well as internal environment in which a company competes. Strategic analysis provides the organization with the overall direction and objectives that in turn helps the organization to develop policies, plan and strategies required for achieving the objectives. In this report, the strategic management analysis of the McDonalds Company has been performed. The mentioned company is an American fast food organization founded as well as operated by Maurice and Richard McDonalds. In the year 1995, a businessman named Ray Kroc joined the company as a franchise agent and eventually bought the McDonalds Company from the McDonalds brothers. In today’s world, McDonalds is considered to be the largest restaurant chain in the world. The company daily serves more than 69 million consumers across the world and has outlets in over 100 countries (Courtney, Lovallo and Clarke 2013). In UK, the mentioned food chain has more than 1249 McDonald’s stores in UK. Although McDonalds gained popularity for its hamburgers, the mentioned food chain is also popular for chicken products, cheeseburgers, various breakfast items, French fries, milkshakes, soft drinks, wraps and desserts (New 2015). In this report, detailed analysis of the McDonald Company has been performed. In order to access and evaluate the external as well as internal environment of the company in UK, PESTLE, SWOT and Porter’s Five Forces Analysis will be performed. In order to access the strategic implementation of the mentioned organization, Ansoff Matrix analysis has been performed. Finally, in order to evaluate the future business strategies of the McDonald Company, logistics, organization structure, and Human Resource Management and Organizational structure of the McDonald Company will be assessed. Finally, recommendations in order to enhance the yearly revenue as well as brand equity of the company will be provided.
PESTLE Analysis of MacDonald
PESTLE Analysis is a strategic tool which enables the marketers to understand the external environment of the organization based on the 6 major areas namely, political factor, economic factor, sociological factors, technological factors, legal factors and environmental factor. In this paragraph, the PESTLE analysis of MacDonald in United Kingdom has been performed.
Political factors
It is highly crucial for the management of the McDonald Company to to understand the political environment of UK as this factor can provide it with opportunities as well as threat. The government of UK has targeted the fast food industry in order to impose a healthy amongst the citizens of UK. According to the Scientific Advisory, Committee of Nutrition (SACN), the general intake of salt among the UK population has imposed a highly negative impact on their health (McDonal and Wilson 2016). Not only that high consumption of fast food has enhanced the rate of obesity, high cholesterol and cardiovascular diseases among the citizens of UK. As a result of this, the UK government has imposed several rules and regulations on the fast food chains including McDonald, in order to decrease the salt consumption of UK people. In the year 2017, the mentioned organization has been found to have reduced approximately 14 percent of their overall salt content in order to abide by the rules and instructions provided by the government (Dobbs 2014). The policies of the UK government associated with public health, is found to be imposing negative impact on the overall revenue of the McDonald Company. Being a fast food company, the fat and sugar content of the fast foods offered by the McDonald Company is high. In order to lower the fat and sugar content, the company is imposing new strategies which have enhanced the overall cost of the McDonald organization. Moreover, the high taxation imposed by the government of UK on McDonald has also affected the company negatively. However, being a globally well-known company, the management of McDonalds has imposed strategies to convert the above mentioned threats into opportunities. In order to deal with the high inclination of the citizens of UK towards healthy lifestyle McDonalds have introduced several healthy food products in its menu.
Economic Factor
Considering the fact the UK has recently gone through a major economic recession, the phenomenon has imposed highly negative impact on the overall revenue of almost all the industries situated in UK. However, the fast food industry falls among the exceptional industries which are able to enhance their revenue as well as profit opportunities due to higher demand. Due to recession, the consumer demand of the traditional restaurants has got highly decreased. In 2015, the demand of the fast food industry in UK has recorded an overall enhancement of 4.5 percent and that of McDonald was 4 percent (Yunna and Yisheng 2014). As a result of this, the citizens of UK are considering the fast food chain as the cheaper and more accessible alternative for restaurants. Due to recession consumers are preferring fast food restaurants as a cheaper alternative of expensive traditional restaurants. Being a highly popular fast food chain, McDonald is gaining competitive advantage, since consumers prefer popular brands over local fast food centers.
Sociological factors
Being a highly developed country, the citizens of US are getting inclined towards a healthy lifestyle. As a result, the image of fast food is deteriorating in the society. As discussed earlier, this phenomenon is imposing a highly negative impact on the overall revenue of the McDonald Company. The demand for health-based food items that includes unprocessed organic food has increased. The image of McDonalds has further detoriated after the documentary named ‘Supersize me’ made by Morgan Sperlock got viral (Pomeranz 2013). In the mentioned documentary, the negative impact of Mcdonald’s food items on an individual’s health had been demonstrated.
Technological factor
Being a developed country, UK provides highly advanced technologies to the fast food industry. Considering the fact that the usage of internet is pretty high in the country, McDonald is able to avail the opportunity of promoting and marketing its product online. Online marketing is highly beneficial for the company since through online marketing high impact on the consumers can be imposed by investing a low amount of money. Apart from the internet facilities, UK provides advanced technologies to the fast food companies which ensure easy and rapid production of the fast food items.
Environmental factor
In the recent years, the government of UK has became highly conscious about the environmental issues n hence campaigns and green initiative movements are held by the government frequently. In order to prevent air, water and soil pollution, the government has imposed several rules on regulation on the fast food industry of UK. In order to save trees the UK government has imposed laws that prevent the usage of paper by the fast food companies. Moreover, laws are also implemented in order to reduce carbon emission (Meyer 2015). Being a popular food chain organization, Macdonald has introduced low carbon emitting chimneys in their kitchen and has also reduced the usage of paper to reduce negative impact on the environment.
Legal factors
The fast food industry of UK is highly dependent on the health and safety legal framework, especially when it comes to food preparation. Being a part of the fast food industry, McDonald is not an exception. The Food standard Agency in UK is a public health inspection system which investigates the operations of the food industry. It has been made compulsory by the government that all of the employees working in the food industry must undertake food hygiene training at the expense of the company. In order to maintain its reputation, the McDonald Company implements more than 70 safety checks on the chicken and beef every day (Lederhausen 2013). Besides the health and safety laws, UK has several laws protecting the rights of the employees working in Organization. McDonald tents to adhere all the legal standards in order to ensure their commitment towards the nation.
SWOT analysis can be defined as the study performed by a company to identify its strengths, weaknesses, opportunities as well as threats associated with its target market. In order to analyze the above mentioned factors of McDonalds, SWOT analysis of the company has been performed bellow.
Strength
Weaknesses
Opportunities
Threats
Like the PESTLE Analysis, Porters five forces analysis is use to understand and evaluate the external environment of an organization. However, this strategic tool is used to analyze the competition faced by an organization in a certain market. In order to understand the competitive intensity of the McDonald Company in the fast food market of UK, Porter’s five forces analysis has been conducted below.
Strength of the existing competitors
The mentioned organization is found to be facing high competition in the food industry of UK. The three reasons behind the high competition faced by the McDonald Company are as follows:
Since the percentage of fast food consumption in UK is high, several well-established fast food chains like KFC, Subway and Burger king have a good numbers of outlets in UK. Apart from that the mentioned company also faces competition from casual dining full-service restaurants, quick service eating establishments, kiosks also known as street stalls, cafes and home delivery providers in UK. Moreover, in order to gain competitive advantage the companies use to lower the price of their product. As a result of this, the switching cost of the products has become low (Lederhausen 2013).
Bargaining power of the suppliers
The bargaining power of the suppliers on the McDonald Company is low in UK. Some of the reasons behind the weak force of the suppliers are as follows:
Since the fast food industry of UK has a huge number of suppliers, McDonald has the option to shift from one supplier. One of the chief reasons behind the lack of the power of suppliers Is the absence of regional alliance among the suppliers. Besides that majority of the suppliers do not control the distribution network linked to the facilities of McDonald (Grant 2016). The abundance of meat and flour which are the chief ingredients of McDonald further reduces the power of the suppliers over the mentioned company.
Bargaining power of the Consumers
The bargaining power of the suppliers in UK is high for McDonald. Some of the reasons behind the high bargaining power of the consumers in the UK fast food market are as follows.
Since the fast food industry of UK is highly saturated and provides products at similar prices, consumers have the option to switch from one company to another in case of the slightest disappointment.
When it comes to the food industry in UK, the threat from the substitute is high for the company. The following factors are responsible for the high power of the substitute on the Mcdonald company.
Since the consumers of UK are getting highly inclined towards healthy lifestyle, the preferences are getting shifted from the fast food products to its healthy alternatives like fruit juices, homemade food products and organic food items (McGonigle et al. 2012). Moreover, the switching cost of the products is also low. In addition to that the substitutes are highly competitive in terms of consumer satisfaction and quality.
Threat of the new entrance
The threat from new entrance is moderate when it comes to the fast food industry of UK. Some of the major reasons behind the moderate threat of new entrants for the McDonald Company are as follows.
It is highly expensive to establish a restaurant or a fast food outlet in a developed country like UK. Moreover, due to high competitions new entrants often faces difficulties to gain consumer loyalty and brand equity in the UK food industry. These reasons are responsible for the moderate strength of the new entrance in UK.
After analysing the operational market segments and the consumer behaviours McDonald’s has been implemented various strategic practice to develop their market growth, reputation, consumer satisfaction and their gross revenue. Additionally, they incorporate various strategic approaches to the business operation and employee motivations in order to improve their productivity level and employee relation (Leekha and Sharma 2014). Capturing larger area of the labour market is another essential concern of McDonald’s business operations. Currently, they are focusing on implementing Employee motivation strategy, Frederick Winslow Taylor’s scientific management and Henri Fayol’s management theory within their business operation. In the following content, the operational implementation of these theories within the business environment of McDonald’s has been discussed critically.
Employee motivation is one of the most important aspects of any business. Employees or workforce are the pillars of any production, services and other business related operation. Therefore, maintaining healthy and satisfactory employee-employer and the employee-employee relationship is equally important as other business operation like marketing, production, logistics management and others (Uggla, 2014). Similarly, employee motivation is another important field where any business company should focus on. A multinational processed food supply chain like McDonald’s has various opportunities to implement different employee motivational theories in their workplace.
Employee appreciation is one of the most utilised approaches in the work environment of McDonald’s. In order to identify the productive employee the company usually executes both direct and indirect monitoring process. In this process, the management board collect information about their employees from the supervisors and also keeps monitoring the employees directly. In various departments like sales and consumer relationships, McDonald’s has special incentive structure excluding the remuneration. Recognising and awarding approach are also used in the marketing department of the company, more specifically for ground-level staffs. Despite this operational structure, for employee motivation, the company also uses internal recruitment process that allows them to promote the designation of a loyal and productive employee.
As per the concept of Frederick Winslow Taylor employee motivation and financial distribution in human resource with more strategic and simplistic way can increase the overall productivity and also collectively increase return on investment. This theory is also known as scientific management theory where the concept is mainly focused on pay per work strategy. In this strategy, employees are remunerated as per their daily work range, while more work can cause more remuneration. It also introduced the training based motivation where the employees are allotted to their work as per their interest after having a proper training for that specific job.
As per the concept of scientific management theory, McDonald’s invests a greater amount of money in their HRM department. In their various market-communication job profiles the company incorporated pay per job concept apart from the pre-discussed incentive systems. At the time of the interview, the Human Resource of McDonald’s clearly mentions about the job role to the candidates that reduces the possibility of misinterpretation of the job role. For every section of recruitment, the company follows post recruitment induction and training procedures. It helps the newcomer to grasp their work process and the regulations of the company.
As per the theory of Henri Fayol’s the management of every business organisation should interact directly with the operating field as well as the workers. This theory implies the interaction process of various management personnel to the operating employees and leaders. This theory induces 14 fundamental principles for any management system aiming to be successful. From these principles, the outline of the interaction procedure can be made that consists of five basic managerial operations namely Planning, Organising, Commanding, Coordinating and Controlling. The synchronised workflow of these operations is the key point of this management theory.
In order to execute the business operation efficiently McDonald’s has their own organisational structure where they have to implement several stapes of managerial operation for assessing, directing and monitoring. McDonald’s involves their management it both planning and arrangement process which also ensures the authenticity of equipment for implementing the plan (Qureshi and Hassan 2013). However, the company involves its leadership as a part of management system where the management team has also indirect access to the operating workforce. In most of the manufacturing fields, especially in food processing section the company involves the management for direct monitoring and directing. However, in controlling system the company mostly relies on the leadership process.
Along with these discussed theoretical approaches and practices, McDonald’s also includes several other strategic approaches, especially in their workforce management model to gain access to quicker organisational change (Lederhausen 2013). Additionally, the company keep a close observation on their franchisees and their execution methods to identify the best fit strategy for them. In this current situation, McDonald’s is trying to monitor various strategic operation implemented by other companies to make some recommended changes.
The Ansoff matrix helps the organization to get an overview of their products and determine appropriate strategies for the business. The four factors of Ansoff Matrix Analysis include market penetration, product development, market development and diversification. The mentioned company uses the Ansoff Matrix to focus on the present as well as potential products, markets and consumers.
Market penetration
In spite of being one of the most well known food chain organization of UK, Mcdonald has kept its products same even n this era of changing consumer choice. Some its well-known products are hamburgers, chicken products, cheese burgers, French fries, breakfast items, deserts, soft drink, milkshakes and deserts. However, recently in order to attract the health conscious consumers of UK, the company has begun to offer, wraps, salads and fruit juices to its consumers (Arthaud-Day and Rothaermel 2016).
Product development Strategies
The McDonald Corporation is focusing on providing new innovations to its consumers. The product development strategy of the mentioned organization involves seeking innovation from one market and implementing it in another market. However, this strategy of the organization has minimum amount of risks since one of its product which is highly accepted in one maker may fail to gain the attention of the consumers in another market. However, it has been found that this strategy, till now, has proved to be an effective strategy and hence the number company’s daily existing consumers is approximately 47 million (Poulter 2015).
Market development
The McDonald organization operates its business internationally and the system followed by the organization includes Franchisee FDI System to reach the international market. The company already has 31000 business outlets all over the world and is planning to expand its business in the Middle East and East (Arthaud-Day and Rothaermel 2016). The market development strategies have more risk than Market penetration. However, the strategy followed by the company in expanding its market has proved to be highly successful due to the experience and brand equity.
Diversification
The idea of diversification does not go well with the strategies o the McDonald Company. Since 75 percent of the organization depends on the franchisee system, diversification is not possible. Keeping aside from Franchisee system McDonald has also proved success in this strategy by owning a majority stake in Chipotle Mexican Grill & Pert A Manger and acquiring Donatos Pizza (Williamson et al. 2013). McDonald’s adopted both product and market development strategies which was outside the core competencies of the firm.
Logistics: McDonald’s has a strong reputation for being the best fast-food provider who takes less time to serve their customer compared to other companies. To hold this position the company follows a distinct logistic model for their supply and distribution chain. Approximately 75% of it logistics chains are owned and operated by other companies and franchisees throughout the world. However, only 25% of their supply chain is owned by the company itself (Jacobs, Chase and Lummus2014). This strategic approach towards the global market is being used from 1970, at the beginning of their global market expansion. From the beginning of its global distribution chain, McDonald’s has focused on their quick and quality service proving without losing the overall consumer satisfaction level. Additionally, the company also maintains web-line distribution rather than chain distribution. In web-line distribution system, the company has to make more interconnected supply and distribution nodes such as franchisees and warehouses in a web-like structure.
Market segmentation: Recently, the major strategic focus of this company is to attract new customers by implementing strong and effective marketing and promotional practices. McDonald’s is a one of the rare company that is still focusing on traditional promotional approach along with the modern digital marketing and promotions (Scherer, Palazzo and Seidl 2013). It helps to expand their consumer base irrespective of the demographic, national or cultural background of the consumer’s base. In more simple term, the company uses multithreaded promotion through TV, Radio, Magazine, Newspaper and even through Online media and Social networks. The traditional promotional positioning helps the company to reach the older consumer segment whereas, the digital and network-based proportioning allows the company to reach the younger customer base successfully. Therefore from the early stage of its development process, the company has focused on larger customer segmentation and targeting, rather than specializing in a particular consumer segment and position.
Production: Product variety is another effective business strategy and market positioning of the company McDonald’s. For any product-oriented business larger range of products opens the greater possibility to proper. McDonald’s keep their product list updated to ensure the acceptance of the diverse delivery request from the customers. Product availability and diversity are two of the major key strategy that the company is following throughout the decades (Kotler 2015). On the other hand, this strategy sometimes has made the company weak in terms of product specialization and in their targeting strategy by allowing the other specialised competitors to penetrate their consumer base. However, the past and current strategies of McDonald’s help them to hold a stable market reputation. On the contrary lack of overall growth can lead to gradual declination within next few years that is making the strategic planning of the company questionable.
Promotion: Marketing and promotion are the outer phase of the business cycle that helps any company to gather information of the market and making suitable approaches to present their product and services to the consumer segment of that selected market. One of the most effective strategic positioning plan and implementation that McDonald’s is currently pursuing is interacting with their consumers through online and social networks (Collings 2014). Unlike other companies, McDonald’s is not highly associated with online activities like customer forums, discussion page and others. In order to beat the competitors and the company is planning for making more strategic implementation promotional activities through the online network and social media base advertisement. In order to recover from different market failures, those came from past generation of consumers, McDonald’s is trying to induce this advance promotional and marketing strategies to capture new generation in a short time. They have already made some considerable amount of success in terms of making popular Facebook pages and consumer forums.
Failure recovery: McDonald’s has faced a considerable amount of consumer strength declination due to there over obese food production trends. To make the products comparatively cheap and tasty the company often used more fat generating food products as their ingredient of cooking food. Therefore, in this current situation, the company is planning for a change its food processing techniques in order to reduce the obese tendency of their consumers (Ellram and Cooper 2014). They have already implemented some of the new fat-free dishes to regain its reputation and consumer satisfaction as well. For their future position strategy, the company is more focusing on their quality of products, rather than focusing on making market grabbing price tags for their conventional items. The company is also improvising updated diet based products that can attract health-conscious customers too. The future trends of positioning strategies of McDonald’s clearly show that the company is seeking to attract larger consumer base without affecting their existing loyal consumer base in their national as well as an international market segment. McDonald’s is planning to operates both Company-owned and franchised restaurants with more diverse and distributive network management. For outbound logistics Macdonald’s is planning to operate multiple other distribution methods apart from sit-down restaurants, ski-thru, drive-thru and counter-service outlets.
Conclusion
From the above discussion it can be said that, for business strategies and implementation, initiatives are taken on the basis of the resources available and after analyzing the internal as well as the external environmental factors in which the company competes. McDonalds is an international company famous for its hamburgers and their food chain is also popular for chicken products, cheeseburgers, various breakfast items, French fries, milkshakes, soft drinks, wraps and desserts. With the help of the strategic management tools, McDonalds can understand its strength, opportunities as well as weaknesses and threats with respect to their external environment and regulators. Competitive analysis can help the company to identify the most suitable marketing policy. Apart from that each department of McDonald’s such as marketing, sales, finance, production, logistics and others have their individual role in strategic management and the implementation. The company also implements some strategic theories in their internal and external business operations.
In order to deal with the threats and weaknesses of the company, the following recommendations should be followed by the McDonald Company.
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