Strategic Management Approaches: A Case Study Of McDonald’s

Strategic Approaches of McDonald’s

Question:

Describe about the strategic management approaches.
 

The current research focuses on the strategic management approaches. It is identified that strategy can be considered as the direction and scope of a company over the long-term that further helps to achieve competitive advantages for the company with the help of resources. In order to understand the types of strategic approaches’ that are usually implemented in most of the large businesses, McDonald’s has been selected. As mentioned by Pauwels et al. (2012), the major objective of McDonald’s is to focus on the global standardization.

The organization is determined to expand its global mindset by sharing effective practices and leveraging the skilled people around the globe. The majority of the success of the organization depends on the implementation of the strategic approaches. With the development of technology and innovations, the organization is in the rush of developing strategic management approaches to gain the profits and lead the business to a competitive level.  Thus, the starts with a discussion on three different strategic approaches that are implemented by McDonald’s. Likewise, the report is extended with the comparison among the approaches. Based on the comparison and contrast, limitations and benefits of the approaches have also been discussed in the report.

While delving into the strategic management approaches of the McDonald’s, it is identified that organization mainly focuses on the external environment to identify the needs and demands of the market. The external and internal environmental analysis may include PESTLE analysis, SWOT Matrix, and Porter’s five forces analysis. Each of the approaches provides a set of benefits to the organizations. As mentioned by Priem, Li and Car (2012), any business should learn about its external environment to develop the products and services. Thus, it is necessary for the organization to conduct PESTEL analysis.

Political Factor- This particular factor helps to determine the degree to which a government could influence the economy or a particular industry. For example, a government could impose a new law or tax based on which the whole revenue-generating the structure could change. Thus, the marketers need to be aware of the political environment of the market where they are running their business.  McDonald’s runs its business in more than 100 countries. Thus, it can be mentioned that their political exposure is all over the board. Also, McDonald’s tend to comply with the government regulations regarding health and hygiene.

Figure 1: Porter’s Five forces analysis

Economical factor- This factor helps to determine the economical performance of the country that directly influences the performance of the organization. As stated by Hitt, Ireland and Hoskisson (2012), the economical factor could have a long-term impact on the organization. In addition, it could influence the purchasing power of the customers and change demand and supply. For example, McDonald’s is one of the solid supporters of their economy. It is identified that 80% of company’s supplies come from the local and regional suppliers across the globe.

Social- This particular factor helps to examine the social environment of the market and identify the aspects of culture, trends, and life style and other demographic factors. McDonald’s believe that changing life style of people could influence the sales. For example, once McDonald’s launched the product Hamburger, which is not special as it once was. 

Comparison among Strategic Approaches

Technological factor – This factor mainly deal with the innovation and technology that could large influence the operation of the organization. As motioned by Allan et al. (2012), the technological factor may favorably and unfavorably influence the market largely. McDonald’s pays attention to the advanced technology; thus, it has the technology of revolutionizing the fast-food delivery and training with the help of Nintendo DS.

Legal- These factors deal with both external and internal sides. There are some regulations that could certain influence the business industry or the country where the originations is running their business. For example, while running the business in the Middle East, it has to follow the regulation of collecting “Halal Meat” for the products related to chicken.

Environmental Factor- As mentioned by Somaya (2012), the environmental factor is crucial to any business. The majority of the success of a business may depend on the environmental factors since it involves demographic, geographic, climate changes and other related factors. For example, with over 50 million of people are purchasing the products of McDonald’s; thus, the company had to deal with the issue of polystyrene waste packaging (Scherer, Palazzo and Seidl 2013). However, the organization has resolved the issue by delivering the products with the technique of paper-based packaging.

Supplier power- Hence, the organization evaluates how easy it is for a supplier to drive up sales. This is usually driven by the availability of suppliers of each major input including the uniqueness of products and services, strengths and the cost of switching from one supplier to another. In the case of McDonald’s the threats of suppliers is comparatively low. McDonald’s has high bargaining power over its suppliers.

Figure 2: Porter’s Five Forces analysis 

Buyer power- Hence the organizations find out how easy it is for customers to influence the sales. Again, this could be driven by the number of customers, the importance of each customer to the business. The buyer’s buyer is also low in the case of McDonald’s. The fast food industry has certain limitations. There is a less chance of switching the brand through differentiation as well as uniqueness.

Competitive rivalry- Here, the organizations tend to scrutinize the competitors and their abilities. For example, if the organization has many competitors and they offer same attractive products and services, then the concerned company may have the little power in the market (Asif et al. 2013). The threats of competition are high as the fast food industry is competitive in nature.  Some major competitors are such as Burger King and Yum Brand.

Threats of substitution- this could be influenced by the ability of the customers to find out some ways of doing the same what they are previously doing. In the case of McDonald’s is the threat of substitutes Low and moderate.

Threats of new entrants: Power is also influenced by the capability of people to get into a new market. If the market is cost-effective and the economies of scale are in place, the competitors may quickly get into the market (Hitt, Ireland and Hoskisson 2012). The threats of new entrants are comparatively high. Due to high demands in the market, the comers get the easy access to the market.

S-O Strategies Launching new nutritious menus Expansion of business to New Market such as Asian market Low-cost Leadership	S-T Strategies Gaining advantages of the brand identity Giving support to community
W-O strategies Lowering the negative  impact Maximizing differentiation	W-T Strategies Increasing employee satisfaction Gaining the advantages of Trans fat

Environmental Analysis of McDonald’s

Each of the strategic management approaches has certain similarity and dissimilarity.

PESTLE	SWOT Matrix	Porter’s Five Forces
It is identified that by implementing external environmental analysis such as PESTEL, the organization could learn about the fundamental benefits and drawbacks of a market. The marketers gain knowledge about needs and demands of customers in a particular market or industry. In addition, the PESTLE analysis helps the organizations to know about the political stability of a country based on which, the marketers could implement further strategies for developing their business (Cetindamar and Kilitcioglu 2013). On the contrary, mentioned that before getting into a new market, it is necessary for the organizations to know about culture, economy, regulations and environment. Thus, poor knowledge on these factors may cause serious damage to the business.	The SWOT matrix plays an important role in influencing the operation of an organization.   (Dobbs2014.) Arguably stated that SWOT matrix is partially related to PESTEL approaches. With the knowledge of the external environment, the organization could implement the strategy of launching new products. For example, through external analysis, if the cultural and economical factors are examined, the marketers could take the initiative of launching new products in the market. Furthermore, if the economy is in the state of instability, the organization may have thought of a strategy that could be implemented to sell the products and gain profits. For example, McDonald’s sells all of its chicken items at a low price to increase the market share in Nepal. On the contrary, it is also evident that by only conducting SWOT matrix analysis, the organizations may not be able to gain kno0wldge about environmental requirements and regulations imposed by the governments of the respective country.	Porter’s five forces analysis also plays a crucial role in identifying the marketing needs. In this context, Chen et al. (2013) added elements involved in Five Forces analysis includes are altogether the backbone of business. While getting into a new market, it is necessary for the organizations to know about the influence of the competitors in the concerned organization. In addition, this analysis also helps to learn about the power of customers. For example, if the competitors have the large market share, then the future organizations may have to deal with some difficulties in getting into the market. In addition, Yuan (2013) argued that PESTEL analysis might not help organizations to know about the bargaining power of suppliers in the respective market, however, by implementing five forces analysis, it is not possible to know about the economic stability of a country. Thus, it can be mentioned that each of the approaches has a different role to play while strategically developing the organization.
In addition, the political factor in PESTLE analysis helps the marketers to know the factors that could control the political situation and bring in the stability in it.  If the marketers observe a state of stability in the political environment, trade agreements can be developed for maintaining a smooth operation.	Secondly, SWOT Matrix helps the organization helps to identify the external threats and opportunity. Based on the analysis, the company implements further strategies to control the business for gaining profits. However, Thompson et al. (2013) added that external threats and opportunities can also be be identified that by the external analysis such as PESTEL or PEST analysis.	Unlike PESTEL and SWOT analysis, Porter’s five forces help the organization to know about the future trends of a market such as bargaining power of suppliers, opportunities for new entrants.

Benefits of PESTEL analysis

With the help of PESTEL analysis, the organization could gain a simple and easy way to implement the framework for the external analysis. It helps the organization to use cross-functional skills and expertise. As mentioned by Hill, Jones and Schilling (2014), by conducting PESTEL analysis, the organization could lessen the impact of potential threats to the operations run by the company. In addition, the outcome of PESTLE analysis encourages the enhancement of strategic approaches within the organization. It provides the mechanism that allows the companies to identify as well as exploit new opportunities. Moreover, with the help of PESTLE analysis helps to the organizations to evaluate the implications of getting into an unknown market.

One of the major benefits of implementing SWOT analysis is that it may require little or no cost Harrison and John (2013). The marketers who understand the business could conduct a SWOT analysis. The marketers could conduct a SWOT analysis when they do not have plenty of time to identify the complex situation of the market.  This indicates that the marketers could implement the steps towards the developing their business without the expense of an external advisor (Martín Alcázar et al. 2013). Another significant benefit of SWOT analysis is that it revolves around the most significant factors that largely influence the business. The marketers better understand the business and implement the necessary strategies. The marketers could address the weaknesses of the organizations.

It is evident that Porter’s five forces are one of the significant tools to examine the external market of the organization. There have been five different forces that should be considered by the organization to deal with the marketing challenges and opportunities.  Each of the forces is certainly beneficial for the organization. For example, by gaining knowledge about the customer power in a particular market, the organization could take the initiative of implementing diversification strategies. Likewise, compliance with the regulations largely helps the organization to maintain a smooth operation. There are certain suggestions that need to be followed by the organizations while conducting the Porter’s five forces analysis tools. The marketers tend to use the model where there are at least three competitors in the market. The organizations need to consider the influence that government has on the market. By conducting the PESTLE analysis, the companies need to consider the dynamic nature of the market. 

Limitation of PESTLE analysis:

The marketers could oversimplify the information that are utilized for decision-making while conducting PESTLE analysis. The PESTEL analysis has to be conducted on a regular basis to be efficient and often the companies may not intend to make this investment. The marketers must not succumb to the outcome of the analysis where the organizations collect information as well as forget that the purpose of this approach is the identification of the issues; thus, the actions can be implemented. While conducting the PESTLE analysis the marketers often constrain who is involved due to the time as well as consideration. This could limit the effectiveness of the technique as the major perspective is probably missing from the discussion.

PESTLE Analysis

Limitations of Porter’s Five Forces analysis

Like strategic approaches, the Porter five forces analysis has certain limitations where the marketers deal with the obstacles. The market structure is discovered as relatively static in the analysis. The Porter’s five forces analysis provides the marketers with only a snapshot of the market. With the help of porter’s five forces analysis, it is difficult for the marketers to properly understand the market. In addition, the model does not consider the non-forces. As mentioned by Cetindamar and Kilitcioglu (2013), Porter’s five forces analysis is usually applicable for the analysis of simple market structure.

Limitations of SWOT analysis

While conducting the analysis, the marketers need to consider certain factors, or they should keep in mind that a SWOT analysis covers the issues that could certainly be considered strength, weaknesses, opportunity and the potential threats. Particularly for the complexes issues, the marketers need to perform an intensive research as well as the analysis to make effective decisions. As mentioned by Hill, Jones and Schilling (2014), a SWOT analysis is limited as it does not priorities the issues and it does not provide solutions and provide alternative to the marketers. 

Conclusion

On the completion of the report, it can be mentioned that strategic management approaches play a crucial role in developing the performance of the organization. Three different strategic approaches play a different role influencing the organizational performance. However, if the implementation of the approaches is altogether done the organization could a large amount of profits from the market. Some large organization like McDonald’s has implemented these approaches to knowing their market effectively. However, the outcomes of the analysis may depend on the techniques that are used to conduct those approaches. Lastly, it can be added that by implementing such as approaches, the organization could control their business operation more effectively than the competitors who did not implement them approaches yet altogether. 

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