Business / Management Strategies On Mcdonald'S Corporation

Management Strategies On Mcdonald'S Corporation

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Autor:  anton  13 March 2011
Tags:  Management,  Strategies,  Mcdonalds,  Corporation
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Assignment

Report of case study on Management Strategies

of

McDonald's Corporation

Jun 2006

Table of Content

INTRODUCTION 1

ORGANIZATIONAL BACKGROUND 1

LOW THREAT OF ENTRY 2

Economies of scale, Learning Curve and Experience Curve 2

Brand differentiation 3

Cost and technology advantage 3

Access to distribution channels 4

HIGH THREATS FROM SUBSTITUTES 4

Price and quality 4

Better performance/service 5

Different industry(Similar product) 5

HIGH THREATS FROM THE BARGAINING POWER OF BUYERS/CUSTOMERS 6

Forcing down prices 6

Customers’ wants and needs 7

Healthy life style 7

Fast-and-Convenient Service 7

LOW THREATS FROM THE BARGAINING POWER OF SUPPLIERS 8

Forward integration 8

LOW RIVALRY AND COMPETITION AMONG COMPETITORS 8

Competitors 8

Industry growth 9

Product/Service 9

HIGH THREATS FROM STAKEHOLDERS 9

Local Communities 10

Social Welfare 10

Interest Groups and Suppliers: Environmental protection 10

RECOMMENDATION 11

CONCLUSION 12

REFERENCES 13

APPENDIX 14

Introduction

This report is to study McDonald's Corporation using Michael Porter's Analysis on strategies used to deal with the competitive environment.

Organizational Background

McDonald’s restaurant established in Illinois in 1955, more than 30,000 restaurants in 119 countries worldwide, serving 47 million customers per day. In December 2005 reached a record high of more than US$20 billion revenue and 398,000 employees. McDonald's is the largest quick service restaurant organization in the world1.

This report uses the Five Forces Model from Michael Porter to analyze McDonald’s Corporation Ltd.

Source: Michael Porter Five Forces Model, www.brs-inc.com/porter.asp

This model studies the relationship between competitors within the same industry, such as potential competitors, suppliers, and buyers. Give alternative solutions to enable the management to develop an appropriate strategy.

Five forces analysis looks at five key areas namely “The threat of entry”, “The threat of substitutes”, “The power of buyers”, “The power of suppliers”, and “Competitive rivalry”.

McDonald’s is a multi-national corporation; they are big in size with broad target markets. McDonald’s belongs to “stuck in the middle” case, with no competitive. McDonald’s mainly uses analyzer type of strategy, combination of competitive strategies used, such as: cost leadership, differentiation, diversification, and backward integration. They also use growth strategies in corporate level like, concentration, backward integration and diversification strategies used. Those strategies used to against competitive environment will be illustrated in following sections.

Low Threat of Entry

Economies of scale, Learning Curve and Experience Curve

As new entrants may bring new capacity to the industry, a desire to gain market share and substantial resources, these may bring threat to an existed company. New entrants need to spend huge costs in purchasing and setting up machinery for running production, huge costs in advertising and R&D. With McDonald’s 52 years of well-found learning curve, new entrants have less advantage in handling costs spent. For the hamburger fast-food industry, a new comers’ experience curve is low which would refers to high systematic unit cost.

McDonald’s is using Cost Leadership strategy to against new entrants, high volume of sales, and fixed costs over a large volume of output, which reduces unit costs of products, that makes the new entrants a hard barrier from entry. McDonald’s has the advantages in handling costs spent; to new entrant is a cost disadvantage. McDonald’s has minimized the unit costs by dividing the production process into small parts, which can decrease assembly time, increase product volume and increase productivities of employee.

Brand differentiation

New entrant can enter the industry by differentiating a wider product line as McDonald’s focused on the major product line on hamburger. McDonald’s Corporation has developed strong, confidence and high customer loyalty branding for their product of hamburgers.

McDonald’s uses Differentiation strategy to create the image of hamburger. McDonald’s has shown great effort in advertising and marketing on their existing products. In which, the new entrants may form fallback decision even if they could sell similar product but might suffer from high cost in penetrating in the industry.

Cost and technology advantage

Low price of the product serve as a barrier to new entrant as new entrants may not be able to match the cost advantages of McDonald’s. New entrants may suffer from capital insufficiency and disadvantages in experience, technology and unknown factors in the market.

McDonald’s has advantages whatever in the size in terms of the cost level, such as in proprietary product technology, experience and know-how, favorable locations, accesses of sources of raw materials and government subsidies. McDonald’s simply uses Cost Leadership strategy in this case.

Access to distribution channels

McDonald’s restaurants usually locate in populated areas, convenient locations, in which these locations could be in high cost. They also enhancing restaurant in modern, fresh and clean, warm and welcoming environment for customers to stay in for eating. This may avert new entrants from entering the industry.

High Threats from Substitutes

Price and quality

The better the price alternative offered by substitutes, the easier the customer will switch. The competitors, “Yum!” Brand Inc 2. “Yum!” sells variety of food with wide range of prices for selection. “Yum!” sells sandwiches, chicken nuggets, spaghettis, pizzas, burgers which to McDonald is the potential threat of the substitutes.

McDonald’s in response to this, they apply Cost Leadership and Differentiation strategy, they set low price with high quality and varieties of food strategy with differentiated product, such as the “Dollar Menu” in United States, “100-Yen Menu” in Japan and “Pound Saver Menu” in United Kingdom. According to this, they also provide reasonable price in value meals, this creates satisfied and loyal customers, which create pressure to the substitutes. The differentiated product of hamburger is successful to be the well-known exclusive product in the industry.

Better performance/service

The norm of providing friendly customer service is essential and is popular in the industry. Management is encouraged to train the staff with friendly courtesy.

Every staff of McDonald’s is always wearing a bright and genuine smile. McDonald’s uses Diversification strategy to enhance the diversity of the employees and create good atmosphere in their work places. Over the years, McDonald’s has gained experiences from training the employees. Their crews deliver exceptional customer service is the foundation of success. McDonald’s giving equal opportunities to every staff, and give them superior training in their self-own training institute, Hamburger University. McDonald’s has been awarded by American Council of Education for their robust corporate and restaurant training in 20043.

They also differentiate themselves to always produce better and homely service in strengthening and expanding the customer relationships as to enhance the ability from differentiating its service and food quality with the substitutes.

Different industry(Similar product)

There are similar products from “Yum!”, they sell burgers to sandwiches, chicken nuggets to spaghettis; this will give customers the alternative choice from McDonald’s.

McDonald’s uses Cost Leadership and Differentiation strategy according to this case. They keep up creating innovative and creative ideas applying to their food and service, differentiating McDonald’s hamburger to the others. McDonald’s differentiates the brand with other substitutes by enhancing strong branding, loyalty customers, and good quality food with variety and choice. McDonald’s offers different and exciting meals from breakfast, lunch; dinner to snack time, beverages, dessert and late night. They are planning to open the McDonald’s Food Studios in US, Paris and in Hong Kong for exploring customers’ appetite and preferences. They committed to high product standards and superior supplier standards; it keeps most of the customers devoted to their brand by not switching to others.

High Threats from the Bargaining Power of Buyers/Customers

Forcing down prices

People demand of low price with high quality food. McDonald’s uses Cost Leadership and Differentiation strategy to provide great tasting, high quality food at a reasonable price. They have their Plan To Win3 vision on price, they maintain the values and high standards as they provide food that is affordable to a wide range of customers. As McDonald’s treat “low price with high quality” as their mission, they also differentiate the food quality with high standards, they uses food low in calories, such as the salads; corns and fruits served with the new Rice Burger meal.

Customers’ wants and needs

Healthy life style

Healthy life and fresh food is the common needs of people nowadays as they are now getting concern on the balance diet and exercise. McDonald’s differentiate their corporation and product in healthy and forever young style. They started the campaign of Balanced Lifestyles over the world last year. Also they have developed the McDonald’s Global Advisory Council on Balanced Lifestyles. McDonald’s provide food choice that fit into the nutritional matrix while also offering convenience and good taste. They also printed leaflet to introduce balance diet on taking McDonald’s food, website to promote exercise. Recently have launched a new nutrition website section, which named as “Please Ask Me” to provide information on balanced diet to compare the basic information of the ingredients of the nutrition food with McDonald’s menu for creating a meal plan. McDonald applies strict standards for high-quality ingredients and continue to enhance existing menu items and develop new choices like meal-size salads, fruit options, sandwiches that served in McCafe, and Happy Meal options.

Fast-and-Convenient Service

McDonald’s uses Concentration strategy to target their customers in the working and middle classes which receptive to new ideas and fast-and-convenient service. McDonald’s uses Differentiation strategy. They distinguish themselves as to provide fast, accurate and prompt service, such as they have held a campaign two years ago, distributes meals from receiving order to packing in 60 seconds, otherwise a coupon will be given for the customer as compliment. Drive-thrus are a key convenient service at McDonald’s. In USA, McDonald’s engaged with two petrol companies, Chevon and Amaco to have full-menu McDonald’s restaurant and dining room service. In China, there was the first drive-thru launched in 2005 and more to come in 2006. Also, McDonald’s sells fast food in Disney’s theme parks around the world and other theme parks like Ocean Park in Hong Kong.

Low Threats from the Bargaining Power of Suppliers

Forward integration

McDonald’s suppliers provide beef and milk, vegetables, raw materials like flour, sugar, and yeast. McDonald’s has practiced Backward Vertical Integration to the suppliers so as to reduce cost and ensure products’ quality. McDonald’s has joint venture with Coca-Cola to exclusively supply them soft drinks.

Using Backward Vertical Integration, McDonald’s also developed a systematic supplier chain system to connect the small direct and indirect suppliers. They have also listed the owners of the supplier as senior vice president and member of the board of directors in the system. Moreover, McDonald’s has developed the social accountability program and trained 1137 suppliers and completed 372 extend assessments. This can give respect to suppliers and to have good control on them.

Low Rivalry and competition among competitors

Competitors

Direct competitors like Wendy’s, Hardees, Burger King selling the same products. Burger King has 9644 restaurants in 110 countries, the closet rival of McDonald’s. As mentioned in the previous section, McDonald’s has strategy in diversifying the variety of their products, differentiating their main product line on hamburger and holding the cost leadership advantages in the industry to reduce the threat from the competitors.

Indirect competitors like KFC selling chicken nuggets and fries while McDonald’s offers hamburger and fries in the restaurant. McDonald’s has diversified(concentric diversification) their product line to also provide chicken nuggets, wings, to enhance attractiveness in opportunity and possibilities in growth.

Industry growth

The industry growth is fast, it shows many opportunities in the industry. McDonald’s diversifies their products into two product lines, hamburger (low price) and McCafe (middle price). Also creates innovative ideas on food, such as the Rick Burger was recently announced in Hong Kong. McDonald’s keeps inventing new menus on healthy food, pineapples pieces and corns are provided in the value meal. Meanwhile, there are still many rooms for growing new opportunities to improve the business.

Product/Service

As mentioned in previous section, McDonald’s distinguishes their service to be better, faster, and friendly, also healthier food from the competitors.

High threats from Stakeholders

Stakeholders like government, unions, local communities, creditors, suppliers, stockholders may make great impact on organizations strategy. McDonald’s takes responsibility for management oversight and good corporate governance to strengthen their branding.

Local Communities

Using ROIP4 to evaluate the effectiveness of the restaurants in franchised and company-operated, are meeting the standards of quality, service, cleanliness, food safety and people. In order to deliver more information to public, recently McDonald’s has launched a new podcast series, it is to share the inside story of McDonald’s and give people and shareholders a first-hand look of the organization.

Social Welfare

McDonald’s protect the health and welfare of employees and contribute to the development of the communities in which they operate. McDonald’s has organized charities houses all over the world. Restaurants events and promotions generate nearly 25% of the annual donations to Ronald McDonald Houses Charities(RMHC) programs. RMHC hosted 900 families for more than 9,000 days last year.

Interest Groups and Suppliers: Environmental protection

Interest groups can control and influence company’s policies and practices. According to this, McDonald’s works close with suppliers to provide quality food with environmental care. McDonald’s applies systems approach to understand how supply chain interfere the environment. They maintain long-term view in supply planning and setting expectations. Protecting the social welfare and health with increase of economic profitability. Minimize polluted or toxic by-products release into the air, save up energy, and aware of waste production. Establishing independent Animal Welfare Council to ensure animals’ needs for food, water and space. Protecting rain forests since 1989. Gives fish sourcing guideline for fisheries recovery. Reducing packaging impacts by using 40% on recycled material.

Recommendation

With McDonald’s plan to win is vibrant, alive and “forever young”. The management should develop steady improvement in service and high barriers to prevent the new entrants to penetrate into the market. They must continue to strengthen their brand image by developing more high quality, localized taste, innovative and healthy food, better and bigger environment, better and value-added service.

McDonald’s as a largest fast-food organization needs to maintain their position in the market, they are suggested to develop new innovative, healthy foods and menus with low cost, such as more healthy food with vegetables included in the burgers, less oil should be added.

Improve brand image by involving more on social accountability, such as employing more disabilities to work in the restaurant. Increase add-valued service can defend from the rivals, such as extended hours for free delivery on special public holidays with discounts. Improve quality-training course so as to improve staff on customer service.

Should always implement TQM concept into the company policy, which can decrease costs, reduce rework, and improve productivity. This can higher the company’s profitability and market share and remain in the business and further to creates more jobs.

McDonald’s should always maintain the Cost Leadership as the industry is already matured and only low cost with high quality food/service can keep the customers. The comprehensive nutrition information which listed on the packaging debuted during 2006 winter Olympics should also be promoted worldwide when in normal time as health sense has been much araised.

Conclusion

In conclusion, analyzing McDonald’s with 5 forces model. Innovating new and healthy products, improving brand image, implementing TQM can help McDonald’s remain as leader in its field. McDonald’s as using an analyzer type of strategy should always introduce new products when defending the competitors. McDonald’s should always underling with 5 forces model and keeps contingency plans and multiple strategies to defeat competitive environment, as cost leadership or differentiation strategy are not always sustained.

References

McDonald’s Worldwide Corporate Responsibility Report 2004, McDonald’s Corporation, 2004

McDonald’s Corporation 2005 Summary Annual Report, McDonald’s Corporation, 2005

McDonald’s Investor Fact Sheet / January 2006/ NYSE: MCD, McDonald’s Corporation, 2005

A World of Yum! 2005 Annual Customer Mania Report

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Appendix

Highlights of McDonald's Corporation 2005 Summary Annual Report

Marking a third year of progress under our Plan to Win, McDonald’s achieved 32 consecutive months of positive global comparable sales as of December 2005—our longest streak in more than 25 years. Revenues reached a record high of more than $20 billion. .McDonald’s is now included in the prestigious Dow Jones Sustainability Index. We were selected for inclusion along with other industry leaders in recognition of our corporate responsibility efforts.

Our annual cash dividend increased 22 percent per share and has nearly tripled since 2002. McDonald’s three-year compound annual total return to shareholders—which includes dividend sand stock appreciation—was 30 percent versus the S&P 500 Index performance of 14 percent. .McDonald’s corporate and restaurant training curriculum has been awarded 46 college credit recommendations by the American Council on Education (ACE). We are the only restaurant company to receive ACE college credit recommendations.

McDonald’s was recognized as a Dividend Achiever by Mergent,Inc. for our uninterrupted30-year history of paying cash dividends and increasing our cash dividend every year. We launched the multi-faceted “it’s what i eat and what i do..I’m lovin’ it” public education campaign to help customers around the world better understand the keys to living balanced, active lives. Cash provided by operations has averaged about $3.4 billion per year for the last five years.



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