McDonald’s Company’s Organizational Direction

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Introduction

This paper is going to focus on the strategic direction of McDonald’s, the leading fast foods company in the world that was established in 1945 by two Macdonald brothers. The company has more than 30,000outlets and more than 2 million employees. The first part of the paper will look at the strategic direction of the company and will first look at the mission and vision of the company and make a brief critique of the aforementioned before looking at its value statements. The paper will then looks at the strategic and corporate values and argue whether they need change or improvement. The second part of the paper will look at the stakeholders and how they affect the strategic direction of the company before producing a structural evaluation of the organizational strategic organization. The third part of the paper will look at the organizational environment and this will be aided by three strategic tools. These tools are SWOT analysis, PESTLE analysis and porters five forces analysis. Using the information in the three learning outcomes, the paper will then make some recommendations to the company before wrapping up with a conclusion.

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Strategic Direction

McDonald’s is a company that has enjoyed an illustrious history in its more that 60 years of existence. The company has developed the culture that is associated with fast foods in the modern environment and it was established by Richard and Maurice McDonald in America (Haines, 2007). Their restaurants were quite different from the restaurants that other players set at that time because they had see through kitchens, customer friendly counters and a wide variety of foods for sale. High degrees of customer satisfaction in the formative years provided a room for business expansion and the chain has more than 30, 000 restaurants in more than one hundred nations around the globe. Currently, the company is by far the market leader in the fast food industry world wide and the second largest employer after in America, after Wal-Mart.

What are the missions and visions of McDonald’s? The mission and vision of this company is to be the best fast food provider worldwide providing excellent quality of service, value and cleanliness to ensure that the customers of the company get the highest levels of satisfaction. To achieve this vision, this company has embarked on a worldwide strategy where it aims to be the best employer, deliver operational; excellence to customers and achieve enduring profitable growth through brand expansion and strength leverage through technological innovation. The question that arises is whether this vision expresses the values and the future aspirations of the company. The vision captures the past, the present and the future of this company meaning that it can be used to shape the strategic direction of the company. The missions’ statement of McDonald’s does not go against the Lynch’s four criteria and five elements of formulating a mission statement. The mission statement fares well against this criterion and principles. To analyze the mission statement in the light of these elements it is important to look at the organizational direction of the company in the recent past.

For the last one decade, the company has changed its organizational direction after adopting contemporary strategic planning model and the company has been pursuing a growth strategy for the last ten years. Its foreign operations account for more that half of its annual revenues and this has been supported by the strategic vision that has guided the company over the last one decade. The basic vision of the company has been selling the maximum and this vision has really impacted on the production, sales and marketing strategies of the company enabling it to maximize its sales especially in the foreign markets. However, this vision has encountered several difficulties along the way especially during the formative years of the last decade due to changes in the external environment. For example in the formative years of last decade, this vision suffered a blow due to negative media sentiments, numerous law suits and the slump of its stocks in the US stock market. However, the company managed to soar again due to leadership commitment that changed the strategic direction of the company to address some of the blows that the company had encountered. One of these blows that the company encountered was the negative media coverage of the company where the media accused the company of providing unhealthy foods to the people leading to the rise in the rates of obesity in the countries it operated.

However, the company, with a vision to accomplish fought to retain its status. This led to a process of reengineering where the existing restaurants rather than new ones were improved to facilitate organizational growth. The company embarked on driving up the same stores sales where the company’s strategic direction and organizational development focused on generating more revenue from the existing restaurants. To realize the vision of maximum sales, the company took a brand new direction where menus were expanded through a product development strategy backed up by a new market segmentation strategy (Rajagopal, 2003). The new menu expansion strategy responded to the changing social trends and customer behavior and this saw the company provide healthier foods to its customers. The strategic direction that the company took also enabled it to make several acquisitions to maximize its sales.

The company acquired several sandwich and coffee shops in the United Kingdom and Australia and these changes helped the company to respond more effectively to consumer demands. The changes also made it more competitive in the market already dominated by a restaurant called Subway, popular for its sandwiches and fresh salads. To increase its market share in Australia, the restaurant made a few innovations that left the competitors trailing in its wake. The company introduced gourmet coffee in Australia before setting up coffee lounges and this captured the high end teen’s market, because the Australian teenagers would spend a lot of time and money. The organizational direction taken by this company highlights the importance of a strong organizational management in the realization of the strategic vision of an organization. It enables an organization to build a perfect culture that enables a successful strategy implementation, building up a common goal between a company and its workforce..

Value statement

This part will asses the value statements of the company on rewarding staff based on their work, the contribution of the workforce in the production of good value products and the company’s responsibility towards customer service. It will also look at the respect and the value of suppliers. A strong company is a force that takes advantage of the input from every stakeholder in order to generate success. To facilitate this, the company must synchronize its human resource strategies and practices so that they can be in line with the business strategy and it should also stimulate the contributions of its employees to its success by responding to their specific needs and making sure that those needs are met. Lastly, a company must ensure that the administrative processes concerning rewarding, training and promotion of personnel are emphasized and delivered effectively and in the right manner. Has McDonald’s succeeded in this value statement of rewarding staff and maximizing their contribution to the organizational success?

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Research into human resource operations in most of the company’s chains shows that the company has improved its corporate training and employee development. The company has started a program called LAMP or leadership at McDonald’s program especially for the higher potential management personnel and this program helps them to build their management, team leadership and organizational skills. The program emphasizes on innovativeness. The plan to win program in the restaurant chain is another employee motivation program that provides each country manager with a range of organizational principles to focus on and these principles include restaurant re-imaging, customer service and marketing. The company also has a globalised performance rating system because the McDonald’s management believes in that differentiation of performance that allows flexibility can only be achieved through the use of performance guidelines rather than forced rankings.

The company also allows the managers to customize the compensation programs based on the productivity of each employee, but most importantly, to meet the different market demands because these demands vary from one country to the other. Employees at McDonald’s do not stagnate at one stage for long because the company carries out performance reviews especially at the formative stages of recruitment to enable the staff to move up the employment ladder quickly as long as they can convince the managers that they are capable of performing at higher levels. This is one of the measures that have boosted employee satisfaction in the company because employees who are rewarded with promotions based on their productivity are usually loyal to the company and their quality of service to the company also goes up. McDonald’s example is a special case because very few companies invest in programs that are aimed at rewarding their productive workers with perks.

One of the strengths of this company is its product value and their customers know what to expect whenever they get into any of the McDonald’s outlets. This product value gives focuses on human resources therefore satisfying both its consumers and employees. The company has been able to provide value for its customers by ensuring that it studies the changing consumer preferences which enable the company to respond top their dynamic needs. Modern consumers have become choosy and people are increasingly becoming tired of the same brands meaning that the company has to provide value for its consumers by being highly innovative. The company has also managed to maintain standards in its huge chains and quality of service has helped the brand to attract and retain its consumers.

Strategic values

This part will identify the difference between the strategic and the organizational values at the cultural or corporate level and whether these values need to change. One of the current strategic values of this company is sustainable competitive advantage. A sustainable competitive advantage is advantage that any organizations have that makes it almost impossible for any of the companies operating in the same field to compete at the same level with that company (Kaye, 2005). This competitive advantage arises from elements such as customer care, brand positioning, market segmentation or even the cost structure. For sustainable competitive advantage to be achieved, the process of management and organization should be coordinated and properly integrated because these two factors help in creating value as al the stakeholders work together towards a common goal.

McDonald’s is currently concentrating on achieving sustainable competitive advantage by upgrading its organizational behavior and its management expertise. This is one of strategic variables that the company has largely ignored during its entire history as the company focused on expansion and acquisition strategies. Expansion and acquisition is another strategic value that has been the face of MacDonald’s (Suzanne, 2000). The company has expanded internationally and is now present in more than 100 countries around the world. However, focusing on expansion at the expense of its core advantages which include customer satisfaction and competitive advantage has not brought positive changes in company’s revenue. At one time, rapid expansion resulted in losses and this led to leadership changes within the company in order to stem the losses. This means that expansion as a strategic value should not be emphasized anymore because the company needs to focus on the existing market ensuring it gets the best from its present markets before it can venture into newer markets.

Looking at the corporate values of the company, it is important to note that sustaining the vision with which the company was founded was has been one of the greatest values and advantages of the company. This brand has been revolving around this vision and this has become one of its competitive advantages. This company was started to help people who could not cook because of their busy schedules and those who were too busy to dine in better restaurants. The vision was to provide fast services and products to their customers at affordable rates while ensuring that the customers are satisfied. This has continued to be the main corporate value of the company though this vision has been affected by incompetent franchise holders in some countries. This value needs to be restored meaning that the company should weed out incompetent franchise holders and replacing them with effective torchbearers who can sustain this vision.

Stakeholders and their strategic contribution

Who is a stakeholder in a business? A stakeholder is any one who has vested interests in a business and this interest can affect the outcomes of the business operation. One of the most powerful stakeholders of a business is the shareholder or the owner of the business. The owner of a business is an internal stakeholder and their investment provides the foundation upon which the business is founded on. If the shareholder decides to invest their money elsewhere, the value of the stock of that business will be driven down. The other internal stakeholder in a business is the workforce. The human capital of any organization is a very important business asset because the knowledge, skills and the core competencies of the human capital make other resources within the business to work towards achievement of the business goals. A company may invest in material and technological resources but it cannot succeed without a proper investment in human resources. Human capital is therefore a very powerful internal stakeholder in any business. Customers are stakeholders in any business. For example, McDonald’s customers buy food thus helping the company to create revenue. These customers can decide to buy their food elsewhere but they go to McDonald’s.

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This means that without the customers, the company would go under. Internal stakeholders are therefore a very vital component of a business because without them, the internal operations of the business would be affected. There is another class of stakeholders known as the external stakeholders (Tracy, 2000). External stakeholders do not have a direct impact on the internal operations if the business but they still affect the business outcomes. One of the most powerful external stakeholders is the supplier. The supplier means a lot to any business and McDonald’s owe their success partly to their suppliers who ensure that the food chain is always stocked. It the relationship between the company and the suppliers is altered, this can really affect the business outcomes because the company would have nothing to sell to the consumers, the workers will have nothing to produce while the shareholder value would go down. This means that external stakeholders affect the interests if the internal stakeholders. The legal or political environment is also another powerful external stakeholder. For example, recently, most cities have banned the use of trans fat foods and this has affected the business outcomes of MacDonald’s because the company has decide whether to leave those markets or to continue operating in the market and follow the new regulations.

Environmental Analysis

Managers of a company are judged on their ability to identify and exploit core competencies that enhance the growth and sustainability of a company by rethinking the concept of an organization (Fahey, 1986). Organizations do not exist in a vacuum; they operate within a very competitive industrial environment. This part of the paper will address the current strategy of McDonald’s with respect to the competitive environment, external climate and aspects of globalization. These variables will be discussed in relation to the core competencies of the company. This exercise will be supported by a SWOT analysis of the company, a PESTLE analysis and a porters five forces analysis of McDonald’s.

SWOT Analysis

Strengths

McDonald’s is the worlds leading fast food chain and has more than forty million customers who visit its more than 30,000 chains in more than 120 countries daily. The biggest strength that this company has is its image. The company has managed to create an image in the people it introduced to fast foods and this strength has been reinforced by more managerial strengths which include excellent customer care services, speed of delivery and high class standards of cleanliness. A unique corporate symbol is strength of this company which has helped in its marketing strategies. This marketing strategy has been successful because it focuses on the internal resources external environment, core competencies and shareholder value. The company also has a strong brand image and a good reputation allover the world. Its strong global presence is strength for this company because its nearest competitor is not even present in half the number of countries that McDonald’s operates in. This has helped the company to become a leader in the international market.

Weaknesses

One of the weaknesses of this company is the saturation of the food industry meaning that there is a small room for growth and expansion. The other weakness of this company is weak product development strategies because the company has not been enjoying product breakthroughs. The other weakness is poor marketing and poor connection with its customers.

Opportunities

The company has opportunities to venture into greener markets like Africa and East Asia because these are markets which have been ignored by its competitors. The company also has opportunities to differentiate its products to serve different market segments and this will enhance its competitive advantage. Lastly, the company has the opportunity to improve its strong real estate portfolio

Threats

The only significant threat facing this company is competition. A number of fast food companies have emerged and threatening to eat into McDonald’s market share.

Pestle Analysis

Pestle analysis is an analysis of the macro environment that any company, organisation or business operates in and the acronym PESTLE, according to Michael Porter, stands for Political, Economic, Social, Economic, technological factors within the macro environment (Estelle, 2000). This part will analyse the all these macro environmental factors starting with the political factors. The operations of McDonald’s are highly influenced by the internal policies of every country the company operates in. To start with, there are some political groups in America and Europe that have been pushing their respective governments to take actions on companies that sell foodstuff that affect the health of the people.

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McDonald’s has been on the receiving end of this civic action because it is one of the main culprits and this has affected their market share in those countries. Secondly, there are economic factors that affect the operations of McDonald’s in the countries that this company operates in. One of the most biting economic factors is economic recession. An economic recession affects the consumer purchasing power meaning that most customers would prefer to cook at home and save some money rather than buy fast foods. The just ended recession therefore affected the fortunes of fast food companies like McDonald’s. Another economic factor that affects McDonald’s in the international markets is the fluctuating exchange rates. These exchange rates affect supply of raw materials especially if the company has to import the raw materials. The other economic factors include taxation and the rate of economic growth of the countries it operates in.

Social factors also affect the operations of McDonald’s. One of the strongest social factors affecting the operations of McDonald’s is the changing consumer preferences. Customer preferences in the modern environment are very dynamic and this has forced the company to keep on changing its production strategies in order to satisfy the changing needs of the consumers. Health awareness is another factor that has been affecting sales of McDonald’s products. This awareness has made most people especially in Europe and Australia to shy away form McDonald’s products and this has driven its sales volumes down. The fourth macro environmental factor is the technological factor. To start with, the company has taken advantage of the communication technology to promote its products. McDonald’s has the catchiest television advertisements that target different sets of its clients.

The company has also managed to take advantage of technology to upgrade its production processes and this has enabled it to increase the volumes of the food products it sells to the consumers. The company is also increasing technology in its supply chain and inventory systems and this has improved the speed of service and delivery in the company. Legal factors are also influence business processes and the company has responded to the legal considerations required by the laws of individual countries. For example, the company always advises its consumers on healthy eating in its websites and also indicates the levels of calories for each foodstuff it sells on the packaging as required by the law. The company also observes the tax obligations and employment standards set by the laws of the individual countries it operates in. Finally there are environmental factors and there has been accusations levelled against this company regarding its contribution to environmental damage through its production processes. The company has been sued by environmental activists in Hong Kong because of its continued abuse of the environment using chemicals and this has affected its presence and marketability in the country.

Porter five forces analysis

This analysis looks at the factors that impact on an organization in a competitive market and it includes threats of substitutes, impact of suppliers, customer’s purchasing power, threat of new entrants and rivalry between the existing players in the market (Duncan, 2000). The biggest force is degree of rivalry and in the fast food market the degree of rivalry is low because McDonald’s has already secured a competitive advantage that has locked out competitors. There may be many players in the market competing with McDonald’s and though the competitive threat they pose is significant, the company has a sustainable competitive advantage which has been one of its key strengths.

The second force is the threat of entry and in the case of MacDonald’s; the company has already created market barriers that threaten new entrants (Baker, 2001). Secondly, the fast-food market is already saturated meaning there is no big threat posed by new entrants in the market because few organizations would be willing to venture in a saturated market. The third force is the threat of substitutes. When there are different types of products that can serve the same purpose as a company’s products, this force becomes significant. There are very few substitutes to fast foods meaning that this force does not affect the competitiveness of McDonald’s. The fourth force is the buyer power and this is one of the forces that have affected the competitiveness of the company especially during times of economic recessions. When there is economic recession, the purchasing power of the consumers is affected and this in turn affects the sales volumes of the company. Currently, most countries that the company operates in are enjoying good economic times pushing the purchasing power of the consumers up which translates into higher sales volumes and higher revenue for the country.

Recommendations

After a strategic and environmental analysis of McDonald’s position, the paper will hereby give some recommendations. To start with, the company should continue investing in human capital because human capital is one of the core competencies of any organization. Though the company has one of the best human resource practices, it should aim at ensuring it attracts and retains the best workforce in the market because this is a good source of a competitive advantage. Secondly, the company should improve its connection with its consumers because this is one it is major weakness. The company should also ensure that it segments its market after differentiating its products because this will allow it to capture a wider market and also improve its competitive advantage. Most importantly, the company should ensure that it considers the interests of both the internal and the external stakeholders because the stakeholders are influence business outcomes. Finally, the company should improve its product development processes to ensure that it enjoys higher levels of product breakthrough.

Conclusion

In conclusion, it is important to note that McDonald’s has a strong organizational direction backed up by a viable mission and vision statement. The value statement of the company also helps it ton achieve its strategic goals. Though the company operates in a very unpredictable market full of fluctuating macro and micro environmental factors, it has managed to withstand environmental dynamics and this has enabled it to achieve most of its strategic goals.

List of references

Baker, M. (2001). The Strategic Marketing Plan. New York: Harper Collins.

Duncan, B. (2000). Simplified Strategic Planning. London: Chandler House.

Estelle, M. (2000). Demystifying Competitive Intelligence. Oxford: OUP.
Fahey, L. (1986). Macro environmental Analysis for Strategic Marketing. MA: West Publishing.

Haines, S. (2004). ABCs of strategic management: NY: Willey.

Kaye, J. (2005). Strategic Planning for Nonprofit Organizations.NY: John Wiley and Sons l.

Miles, R. (2003). Organizational Strategy, Structure, and Process. Stanford: Stanford University Press.

Rajagopal, D. (2007). Marketing Dynamics: Theory and Practice. Oxford: OUP.

Suzanne, R. (1993). Successful Strategic Planning: A Guide for Nonprofit Agencies and Organizations. Newbury Park: Sage Publications.

Tracy, B. (2000). The 100 Absolutely Unbreakable Laws of Business Success. Berrett: Koehler Publishers.

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