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[BUS444-Strategic Management] McDonald's Case Study Analysis
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[BUS444-Strategic Management] McDonald's Case Study Analysis [BUS444-Strategic Management] McDonald's Case Study Analysis Document Transcript

  • VIETNAM NATIONAL UNIVERSITY INTERNATIONAL SCHOOL CASE STUDY McDonald’s MEMBERS: DOAN QUYNH TRANG – ID: 436007 HOANG THI HAI YEN – ID: 435370 LE MAI ANH – ID: 435373 TRAN NGOC HUONG GIANG – ID: 435450 CLASS: VISK2010D
  • May 20, 2013 Contents Contents......................................................................................................................................................2 1.External environment analysis..................................................................................................................3 A, A Porter 5-forces model of the fast food industry...............................................................................3 The threat of new entrants..................................................................................................................3 The bargaining power of buyers..........................................................................................................4 The bargaining power of suppliers.......................................................................................................4 The threat of substitute products and services...................................................................................5 The intensity of rivalry among competitors in an industry..................................................................5 B, Key factors in the general environment that have a significant impact on the fast food industry......6 Demographic.......................................................................................................................................6 Socio-cultural.......................................................................................................................................6 Economic.............................................................................................................................................7 Global issues........................................................................................................................................7 2.Internal environment analysis .................................................................................................................8 Tangible Resources..................................................................................................................................8 Financial...............................................................................................................................................8 Physical................................................................................................................................................8 Technological.......................................................................................................................................9 Organizational......................................................................................................................................9 Intangible Resources..............................................................................................................................10 Human...............................................................................................................................................10 Innovation..........................................................................................................................................11 Reputation.........................................................................................................................................11 2
  • Organizational Capabilities....................................................................................................................12 Organizational capability of McDonald’s is to combine tangible and intangible resources to run business efficiently. First, making use of time and capital and human resources combining with sustain leadership skills, McDonalds can keep its value and satisfy customers’ needs. They put emphasize on leadership in all level of management such as teamwork and have a clear requirement for their employees’ works. They also give more concerns on the quality of leaders, and then educate and train them to improve their missing skills. As a result, company can maintain a consistent corporate culture between managers and employees, and provide the best quality products and services to their customers. McDonald’s can gain and maintain their core competencies to compete with the intense of rivalry among competitions in fast-food industry......................................................................................................................................12 3. Differentiation Strategy.........................................................................................................................13 References.................................................................................................................................................14 (2013, March 14). Retrieved May 15, 2013, from United States Census Bureau: http://quickfacts.census.gov/qfd/index.html............................................................................................14 Joan, V.G. (2011, November 1). Human Resource Management in McDonald's. Retrieved May 16, 2013, from: http://jpkc.szpt.edu.cn/english/article/Human%20Resource%20Management.htm......................14 Leadership Best Practices from Ronald McDonald. Retrieved May 15, 2013, from: http://theleadershipprofessor.com/2011/11/leadership-best-practices-from-ronald-mcdonald........14 Pirzada, K. (n.d.). McDonald. Retrieved May 13, 2013, from Scribd: http://www.scribd.com/doc/28290117/Mcdonalds-Mini-Report.............................................................14 1. External environment analysis A, A Porter 5-forces model of the fast food industry The threat of new entrants The infant businesses which first enter into the fast food industry may have to face some challenges regarding to economies of scale, brand loyalty, capital required and government regulation. Nevertheless, these challenges do not pose a large threat to the existing companies. Thus, the threat of new entrants within this industry to the existing companies is not high. In terms of economies of scales, because of the high volume of production and the number of 3
  • outlets, big business may easily achieve economies of scales; whereas, those small business get difficulty in gaining economies of scales due to the low volume of production. Furthermore, big organizations have gained a large base of loyal customers while new entrants have to spend more time on building brand recognition and customer base. Additionally, a start-up company may face a lack of capital, management and networking resources, so they cannot compete with those existing companies. Last but not least, government may pose some threats to infant companies by regulating strictly in some categories such as health, safety, hygiene and facilities. The bargaining power of buyers As there are lots of substitute products within this industry, McDonald’s will have to pay much attention to customers’ demands to gain new customers while maintaining a base of loyal customers. Customers pay much concern about their health and the rise of obesity in the U.S., fast-food companies like McDonald’s will have to provide healthier food such as salads and fruits and remove trans-fatty acids from the oils used to make foods. Additionally, fast-food companies may face lawsuits from loyal consumers when their health is affected by these foods. For instance, with a rising concern about the unhealthy food of McDonald and these concerns has been emphasized by the release of Super Size Me, this made McDonald face some lawsuits from loyal buyers. Thus, McDonald’s would have to provide nutrition information on food packages to show the calories, fat, and sodium in each portion. The bargaining power of suppliers In the fast food industry, companies needs to have a stable and continuous raw material supply to run the business to satisfy the high demand of the large number of customers. Thus, building a strong relationship with suppliers is important to maintain good quality of raw 4
  • materials. The source of fast food companies’ main products comes from bread, chicken, potatoes, vegetables, and fruits. Thus, they need to build a strong connection with farmers who supply these materials. Moreover, the relationship with key beverage companies such as Coca Cola and Minutes Maids, and sauce supply companies like Heinz should be taken into their considerations. Nevertheless, regarding to McDonald’s, they are their own suppliers for their products, for example, potato, so McDonald’s does not rely mostly on suppliers. The threat of substitute products and services The threat of substitute products in the fast food industry is very high. Due to globalization, many foreign food companies have made an entrance into local market and change the taste of local buyers. In fast food industry, customers have a wide range of options to choose for their meals. For instance, the chain is facing a rapidly fragmenting market, where changes in the tastes of consumers have made foreign foods like sushi and burritos everyday options. Additionally, they may face a threat from quick meals of all sorts that can be found in supermarkets, convenience stores, vending machines and hotdog stands. Moreover, due to the changing trend in lifestyle, the menus with more vegetable are much more favorable than the ones with fat as McDonald’s. Therefore, these substitute products may threaten McDonald’s food. The intensity of rivalry among competitors in an industry The intensity of rivalry among competitors within the fast food industry is the most powerful factor among those five forces. The competition in this industry is very strong because there are lots of brands competing in price and quality services such as KFC, Wendy’s, Burger King and Pizza Hut. Therefore, the firms should provide an affordable price, improve quality of 5
  • customer and delivery services, and build a strong brand awareness to survive in this strong competitive industry. B, Key factors in the general environment that have a significant impact on the fast food industry. Demographic More than half of American population (78.1 percent in 2011) was white people whereas black persons accounted for 13.1 percent and Asian people made up only 5 percent in 2011 (http://quickfacts.census.gov/qfd/states/00000.html). Therefore, fast-food companies should not target on the majority but also the minority ethnics and offering foods and drinks that suit with their tastes. In addition, according to the United States’ Census Bureau, the percentage of people are less than 18 and over 65 years were 23.7 percent and 13.3 percent respectively in 2011 and more than half of population was people in the age range from 18 to 65. Thus, fast-food companies will have to focus their marketing on young adults, teenagers and working adults and diversify their products to satisfy the need of different groups. For example, McDonald’s has also been trying to include more fruits and vegetables in its well-known and popular Happy Meals. In many locations, the firm is offering apple slices called Apple Dippers in place of french fries in the children’s Happy Meal. Socio-cultural American people nowadays take greater concern for physical fitness and healthy diet. Thus, most fast-food customers start to change their taste to food that is much healthier and better tasting. Hence, the fast-food companies like McDonald’s should introduce more products that are nutritious but less fat. For instance, they need to introduce more kinds of salads with premium quality. They should also remove the artery-clogging trans-fatty acids from the oil that 6
  • is used to make french fries. Additionally, all of the nutrition information should be provided on the package of their products to make people aware of the calories that they take every day. Economic The economy has a great effect on every industry from firms that supply raw materials to those that manufactures finished goods and services and that is, fast-food industry is certainly no exception. Since the economy is slowing down and facing a high unemployment rate, the Americans have to cut down their spending. Hence, the slow-down economy put a strong threat on profit creation of fast-food companies. Thus, companies should base on the growth of economy to change their strategy effectively and flexibly. Global issues Thanks to globalization, it helps companies have an approach to larger potential markets and valuable production factors such as cheap labor, better source of raw materials and skilled managers from other countries. Furthermore, fast-food companies can take advantage of globalization to enter into many different countries all over the world. Nevertheless, it poses some threats to fast-food industry. For instance, foreign foods such as sushi and burrito will have opportunities to enter into the U.S. local market and threaten fast-food companies. Customers will tend to change their tastes to these foods and neglect fast food because of its unhealthy ingredient. Thus, fast-food companies need to change the ingredients of their food to make it appeal to customers. Additionally, since companies tend to seek for a cheap labor force in countries such as China and Vietnam, the United States will have to cope with a high unemployment rate and that is a risk for the growth of economy. Due to high unemployment rate, it will also have an effect on profit creation of fast-food industry since people will try to cut down their spending and they will choose to have meals at home rather than eating out. 7
  • 2. Internal environment analysis Tangible Resources Financial Firm’s cash and cash equivalents during the period of 2006 and 2008 decreased slightly from 2,136,400 to 2,063,400 thousand dollars. Thanks to Skinner’s effort, McDonald’s sales have increased sharply from 21,586,400 to 23,522,400 thousand dollars between 2006 and 2008. Although during this period the economy was slowing down and people were trying to cut down their spending, McDonald’s sales still grew because of its “Plan to Win” strategy which emphasized on increasing sales at exiting locations by improving the menu, refurbishing the outlets and extending hours. Moreover, Skinner tried to control the price and keep it at an affordable price without hurting the profit margins. Despite of an increase in cost, McDonald’s has maintained the pricing on its Dollar Menu, which generates almost 15 percent of total sales. Therefore, with the healthy finance situation of McDonald’s, they can have capacity to raise equity and make profits. Physical The total number of McDonalds’ outlets increased slightly from 30,946 in 2004 to 31,967 in 2008. However, the number of outlets owned by McDonalds decrease steadily from 8,179 to 6,502 while the number of franchised outlets rose sharply from 22,317 to 25,465 between 2004 and 2008. More than 75 percent of its outlets are owned by franchisees and other affiliates. This will help McDonald’s build their brand recognition in all over the world while saving money for establishing new business but still earn lots of money from franchising. Moreover, in order not to be left behind by its competitors, McDonald’s tried to refurbish its outlets all around the world to make it more attractive to customers. The interiors feature 8
  • armchairs and sofas, modern lighting, large television screens, and even wireless Internet access. The firm also provides features for its drive-through customers and that include music aimed at queuing vehicles and a wall of windows on the drive-through side of the restaurant, allowing customers to see meals bring prepared from their cars. Technological The biggest innovation of McDonald’s came from their drive through section with a touch- activated screen that made it easier for customers when ordering. When ordering foods, customers only need to punch in their orders without queuing. They also provide features include music aimed at queuing vehicles and a wall of windows on the drive-through side of the restaurant to allow customers to have a look at their meals being prepared right from their cars’ windows. Moreover, inside of their outlet, they also provide free wireless internet access so that their customers can easily browse internet while eating. Additionally, thanks to the presence of an online website mcdonalds.com, customers are provided information about menu, nutrition facts, promotion, and store locations, and they can order foods right on this website. Besides, it is a channel for potential employees to get information about company and recruitment campaigns. Organizational In terms of functional structure, McDonald’s has a multi-level organizational structure, which is headed by CEO and the boards of directions in each region such as Greece, Asia and Pacific. CEO’ is in charge of managing the overall business of the company as well as employees, finance and customers. They are also responsible for managing business asset and company resources to make profits and have a tight control of the firm. Moreover, the CEO leads a group of junior managers who are responsible for different fields of McDonald’s namely, marketing and human resources. 9
  • The total number of outlets of McDonald’s around the world is more than 30,000 stores and serving around 52 million customers in over 100 countries per day, and most of these outlets are operated by franchising. Each outlet has one business manager, first assistant and shift manager such as breakfast shift managers, daytime shift managers, closing shift managers and over-night shift managers. McDonald’s has over 1.5 million people and divided by many groups of crew members. The organization structure of McDonald’s is consistent in all stages to ensure business to run 24 hours. Employees are delegated to suitable tasks in different shifts by shift managers to complete jobs smoothly in a fast manner. In our opinion, managers should enhance atmosphere of corporation and teamwork to foster employees’ performance. Intangible Resources Human McDonald’s has provided thousands of jobs for American population. Employees of McDonald's divided into three groups including restaurant workers, corporate staff, and franchise owners. McDonald's usually hires between 50 and 65 people in each local restaurant and most of these positions are part-time workers. Nevertheless, the chain ran into more problems because of the tighter labor market. McDonalds began to cut back on training as it struggled hard to find new recruits, a policy that led to a dramatic falloff in the skills of its employees. Therefore, McDonald’s should invest more money on training employees to provide necessary skills for employees. For example, they need to have a training room in each outlet and instruction video to help staff understand how to satisfy customers’ needs. Furthermore, workers in McDonald’s often are paid low, so the morale of employees is not high. The manager’s salary is slightly higher than the crew member’s one. Employees are not paid extra money even when they work longer hours. As a result, they feel unsatisfied with their 10
  • low wage and lack of commitment to the company because their pays do not deserve their scarification and contribution. That is, this leads to high staff turnover rate. It is recommended that McDonald’s should concern thoroughly about employees with frequently motivational support to retain skillful and expert staffs who are willing to move to other competitor companies. Moreover, it also helps reduce recruitment and training expenses. Innovation The innovation of products is the priority concern of McDonald’s to increase the revenues and maintain a base of loyal customers. For instance, they remove the trans-fatty acids in the oil that is used to make french fries and salt content of its products that without changing the taste of their food. Moreover, they also introduce the McGriddles breakfast sandwich, offering a couple of syrup-drenched pancakes and a sandwich filled with eggs, cheese, sausage, and bacon in three different combinations. It is suggested this change may help McDonald’s attract more customers and satisfy the demands of different consumers. Additionally, in order not to be left behind by its rival, McDonald’s applies innovative technology in doing business. For instance, a touch- activated screen is provided in drive-through area, permitting customers to punch in orders without queuing. This renovation will bring interests to customers, especially children as well as save time in ordering food. Reputation McDonald’s is famous for selling hamburgers and cheeseburgers under the traditional symbol of a golden arch. Since it was established, the number of McDonald’s outlets has risen significantly, from a single outlet in a nondescript Chicago suburb to one of the largest chain of outlets spread around the globe. 11
  • To improve the reputation with customers, McDonald’s should improve the quality of food and introduce healthier foods to satisfy the demands of customers. The website of the company is a channel for consumers to give feedbacks or comments on their services and delivery systems and this is the fastest way to receive feedbacks from consumers. Moreover, they need to put emphasize on the hygiene and safety of food to bring the best quality to customers and enhance their images. Besides, they also do some charity works for community such as Ronald McDonald Charity program because McDonald’s want to bring positive impacts on children, so they donated “$400 million” dollars for children all over the world. The company also makes an annual global fundraising on World Children’s Day and they participate in some children fundraisings such as the Ronald McDonald House Charities. By doing community projects, they can build nice image in customers’ eyes. Organizational Capabilities Organizational capability of McDonald’s is to combine tangible and intangible resources to run business efficiently. First, making use of time and capital and human resources combining with sustain leadership skills, McDonalds can keep its value and satisfy customers’ needs. They put emphasize on leadership in all level of management such as teamwork and have a clear requirement for their employees’ works. They also give more concerns on the quality of leaders, and then educate and train them to improve their missing skills. As a result, company can maintain a consistent corporate culture between managers and employees, and provide the best quality products and services to their customers. McDonald’s can gain and maintain their core competencies to compete with the intense of rivalry among competitions in fast-food industry. Additionally, because of fast changing in technology, demographic and globalization, to achieve their goals, McDonald’s must adapt to those changes. Thanks to large network of outlets 12
  • all over the world, McDonald’s can make different teams in different locations to investigate in the tastes and preferences of local people. Thus, they can change their menu and create special ingredients to suit with the interest of various consumers. 3. Differentiation Strategy It is recommended that McDonalds should apply differentiation strategy by providing stand-out services. It will protect McDonald’s against rivalry from its competitors in a very strong competitive industry such as KFC, Wendy’s, and Pizza Hut. First, McDonald’s will have to make their products differentiate from their competitors by offering new healthier foods and beverages for consumers. For example, they can offer new kind of foods that their competitors have not done yet such as milkshake, fresh breads and cookies in their McCafes. They can offer new menu to new targeted customers such as customers who are vegetarians or those who likes eating low-carb. They also need to improve the delivery and customer service to become the best in delivery and customer service. The faster delivery speed is, the higher customer loyalty is. Moreover, McDonald’s can promote sales by giving discounts and coupons for customers in special occasions. As a result, the brand name of McDonald’s will be enhanced in customers’ minds. To summarize, when McDonalds’ apply differentiation strategy, it will help them build a strong base of customer and win back customers from its competitors. Plus, it will create a higher barrier for the new entrants and make them get more difficulty to compete with McDonald’s. 13
  • References (2013, March 14). Retrieved May 15, 2013, from United States Census Bureau: http://quickfacts.census.gov/qfd/index.html Five forces analysis of the fast food industry. Retrieved May 15, 2013, from Scribd: http://www.scribd.com/doc/30964168/8/Five-forces-analysis-of-the-fast-food-industry Joan, V.G. (2011, November 1). Human Resource Management in McDonald's. Retrieved May 16, 2013, from: http://jpkc.szpt.edu.cn/english/article/Human%20Resource %20Management.htm Leadership Best Practices from Ronald McDonald. Retrieved May 15, 2013, from: http://theleadershipprofessor.com/2011/11/leadership-best-practices-from-ronald- mcdonald Pirzada, K. (n.d.). McDonald. Retrieved May 13, 2013, from Scribd: http://www.scribd.com/doc/28290117/Mcdonalds-Mini-Report Resources and Capabilities of McDonald. (2010, February 2). Retrieved May 14, 2013, from: http://ivythesis.typepad.com/term_paper_topics/2010/02/resources-and-capabilities-of- mcdonald.html 14