McDonald’s Strategic Management and Analysis

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Introduction

McDonald’s leads the global market in terms of sales margins in the fast-food business. It has more than 32,400 subsidiary branches globally with a market presence in over 100 countries (Mieth, 2007, p. 2). The company is popular for its Big Marcs, Quarter Pounders and Chicken McNuggets and its eateries are characterized by drive-through designs or dine-in restaurants. McDonald’s restaurants are commonly found in airport eateries and other busy locations (Davidson, 2007, p. 67). A great proportion is majorly run through franchises and such like agreements (Pae, 2009).

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The company has of late undergone a lot of problems in its managerial structure, some of which are poor management, inadequate marketing, and changing customer preference. These are some of the issues currently holding the company back from embracing growth. Over the past few years, the company has embarked on a globalization strategy where it has expanded into global markets around the globe, including China, Australia, Japan, and such like destinations (Gilbert, 2008).

Just like any other company, McDonald’s has many strengths and weaknesses that either threaten its financial position or complement its current high rankings in the fast-food market. A great contributor to its current success entails the numerous franchising contracts it’s given to partners (Pae, 2009). The company has also been at the forefront in adopting new strategies like the “plan to win strategy’ which incorporates the four P’s of marketing: product, place price, promotion. This strategy has partially contributed to the success of the company although other factors are also in play.

This study seeks to carry out an analysis of the company’s strategies through three comprehensive tasks. The first task will explore how the company provides value to its customers and how it builds a competitive advantage. The second task will explore how McDonald’s has expansively grown around a winning business strategy to elevate it as a leading global fast-food business entity. The third task will explore existing and new strategies the company can use to improve its growth.

Corporate Governance

McDonald’s principles of corporate governance have been based on individual and professional integrity (Royle, 2002, p. 69). The success of the company has been built on the trust of its customers around the world, based on the fact that the company can provide safe and cheap food. The company also boasts of treating its clients with respect and employees with utmost diligence. In other words, the company has been able to provide quality food through proper treatment of its customers and employees (Ferrell, 2006, p. 175). The company also has high ethical conduct, is dependable, truthful and serves its customers and stakeholders well. This has been part of the corporate governance pillars on which the company has been thriving for the past 45 years or so (McDonald, 2009).

The board of directors is the custodian of the company’s integrity and ethical conduct. McDonald’s has in the past operated under the principle of corporate governance as the key to providing good returns to stakeholders and ensuring the company achieves high standards of success. The company has therefore achieved high levels of success through this strategy and still remains to be a leading entity in the fast-food market. However, the company believes that the journey towards the achievement of good corporate governance is a long one and incorporates all stakeholders of the organization (Pride, 2008, p. 313). The company also periodically reviews its corporate governance structure in tandem with the company’s policies (Jackson, 2008, p. 388).

Its financial officers are normally bound by a code of ethics which ensures they operate under certain specifications in the prevention of errors and frauds. These codes of ethics are available on the company’s website and are transparent enough to conform to any corporate policy guideline (McDonald, 2009).

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McDonald’s currently has an internal audit committee occasioned by the duties of the board of governance as an oversight body. This committee is entrusted with a number of duties such as appointment, compensation, and oversight of duties relating to the company auditor. In addition, all pre-audit and non-audit recommendations are supposed to be approved by the audit committee. These include all payments and policies of the company (including stock options and pension funds).

These functions ensure the auditor doesn’t make any wrong recommendations (McDonald, 2009). McDonald’s corporate strategy has therefore been the winning strategy for the company (Royle, 2000, p. 68). However, as the company moves forward into future growth, various factors analyzed by the following SWOT and Pestel analysis need to be considered.

SWOT Analysis

Strengths
  • Owns one of the world’s best-known brand names
  • Large market share
  • The strongest international presence among fast-food chains
Weaknesses
  • Customer service ranking is the lowest among fast-food chains
  • Quality becoming inconsistent
Opportunities
  • Diversification and acquisition of other quick-service restaurants
  • Low-cost menu to attract different customers
Threats
  • Increased competition among rival sellers, including price wars, product innovation, and growth
  • Health-conscious consumers demanding better quality, healthier menu items

Pestel Analysis

Factor include:
Political International trade legislation, taxation policy
Economic Interest rates, exchange rates, national income, inflation, unemployment, Stock Market
Social An ageing population, attitudes to work, income distribution
Technological Innovation, new product development, rate of technological obsolescence
Environmental Global warming, environmental issues
Legal Competition law, health, and safety, employment law
Adapted from

Adapted from: (Oxford University Press, 2007).

Staying on the Offensive

Staying on the offensive is a strategy McDonald can seek to be a proactive market leader. In this manner, the company will always be one step ahead of its competitors and force them to play catch up. As compared to Burger King, which is the strongest competition for McDonald’s, the company still commands a huge market with a 33% stake in the fast-food industry as compared to Burger King’s 15% (Pae, 2009).

The company can adopt new technological methods in food preparation to maintain its position as a fast-food leader in the global market. More new product offerings should be added to the restaurant menu to keep up with the changing customer needs, while at the same time satisfying individual needs. In essence, the company will be improving its customer service in order to stay ahead of the competition. It is especially important that the company improves its customer service because it was ranked among the lowest customer service providers (even lower than the internal revenues service). To improve the company’s ranking, management should embark on revamping its training to improve its workforce by orienting employees with the latest customer-oriented services (Peterson, 2010, pp. 34-40). However, as the company moves forward to establish its position in the market, it needs to evaluate its environment through the analysis of porter’s five forces discussed below

Porter’s Five Forces

Rivalry

McDonald currently faces the biggest rivalry from Burger King, KFC and Subway.

Threat of New Entrants

Currently, McDonald faces an increasing threat of new entrants from a liberal and mature market economy (Best, 2007, p. 405).

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Bargaining Power of Buyers

Consumers are currently willing to try out new products from the competition and this has greatly increased the buyer power in the market.

Bargaining Power of Suppliers

Currently, the supplier power is not strong because external market forces affect the operational environment more than the suppliers can control.

Business Rivalry

The threat of business rivalry is very real for McDonald especially coming from its competitors (Burger King, KFC and Subway) (Michman, 1995, p. 180).

Since the death of Jim Cantalupo, McDonald’s has never relented on its growth strategy. In the same regard, the company has always maintained its traditional hierarchical structure of power. This strategy excessively empowers the board of governors and vests little authority on lower-level employees. In the governance structure, the audit committee is entrusted with a lot of tasks. Moreover, it also has many core functions such as pre-approving requirements/disclosures, the delegation of pre-approval, prohibiting illegal services, monitoring procedures, disclosing pre-approval policies, among others (McDonald, 2009).

Its traditional hierarchical structure of power is, therefore, a weak area for management because the committee has a lot of control without any regulatory body in place. Moreover, the board of directors has a lot of influence on the committee, thereby making it excessively vulnerable to management’s wishes (Cooke, 2003, p. 364). The influence of the shareholders should therefore be more visible in composing the audit committee and shareholders should be given a more proactive role in formulating the policies of the company. Alternatively, the company should always seek the services of an external auditor at all times for corporate administrative functions.

McDonald’s has also undertaken a global strategy since 2004 even though the company already commands the highest fast-food global market presence. The company should however direct its expansion efforts to less saturated markets as it seeks to improve its market presence (Koontz, 2006, p. 31). Its foreign expansion efforts should therefore be undertaken strategically and with tact. Specifically, the company needs to increase its foreign expansion efforts in Asia and the Pacific region. Moreover, considering companies expand to capitalize on the core competencies of a region and increase their market presence, McDonald’s should expand into viable African Markets (Veseth, 2006, p. 32). This market is less saturated and also has relatively cheaper factors of production as compared to other world markets.

The above strategies are backed by McDonald’s strong competency in producing and selling quick and relatively cheap food to a wide variety of its customers effectively enabling it to thrive in new markets. This strategy is in tandem with the Boston Consulting Group matrix theory whereby the company will be using its strong brand name as a cash cow to increase the market share and also experience high growth (Value Based Management, 2010). However, the company should venture into a new market after proper market research. Nonetheless, the company can adopt more viable strategies discussed below to further spur growth.

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Fortifying and Defending Strategy

This strategy should be adopted to slow down competitors from gaining ground as well as preventing other market entrants from distorting the market equilibrium (Light, 2009, p. 69). This strategy works best with companies that have already established a market presence and McDonald is a viable company. Management can therefore adopt a number of tactics to improve its industry dominance and reflect a positive financial statement.

The Fortify and defend strategy will be in tandem to the company’s global expansion efforts. In other words, the company should enhance its market presence globally to prevent or discourage new companies from entering the fast food industry (Watson, 2006, p. 197). In alignment to this strategy, the company can also invest in research and Development (R&D) to develop new technology that would cut it above its competition.

Diversification

Diversification has not only been proved to work in fast food industries but in other economic sectors as well. If McDonald intends to improve its market position, the company should adopt this strategy. With the current revolution from high calorie to low calorie foods, the company should be ready to embrace new items on its menu. If the company will be successful in developing attractive, low calorie foods, it will be well ahead of its competition because it will create a competitive advantage over close rivals such as Wendy’s and Burger King (Pae, 2009). This will be in tandem to the shell matrix structure which revolves around project differentiation. The development of better products should therefore be properly managed with an experienced project manager. This should be done in the context of a strong project matrix.

Conclusion

Since the inception of McDonald restaurants, the company has adopted many strategies. As the company progresses into the future, its core competencies should be critically used to propel the company to new performance heights. Every challenge the company faces is potentially a viable opportunity it can use to rejuvenate itself and prove to all its stakeholders, shareholders and the general public that it can beat the odds and become a leading force in future corporate success. The strategies advanced in this study will be beneficial to the company in achieving a stronger competitive advantage and increasing its global market presence. However, management should never forget the company’s core competencies (such as franchises) which have made the company what it is today.

References

Best, A., 2007. Basic Tort Law: Cases, Statutes, and Problems. Aspen: Aspen Publishers Online.

Cooke, W., 2003. Multinational Companies and Global Human Resource Strategies. Chicago: Greenwood Publishing Group.

Davidson, J., 2007. Emotional Geographies. New York: Ashgate Publishing, Ltd.

Ferrell, O., 2006. Business Ethics: Ethical Decision Making and Cases. London: Cengage Learning.

Gilbert, S., 2008. The Story of McDonald’s. Chicago: The Creative Company.

Jackson, S., 2008. Managing Human Resources. London: Cengage Learning.

Koontz, H., 2006. Essentials of Management. London: Tata McGraw-Hill.

Light, L., 2009. Six Rules for Brand Revitalization: Learn How Companies Like Mcdonald’s Can Re-Energize Their Brands. Wharton: Wharton School Publishing.

McDonald, 2009. McDonald’s Corporate Governance. Web.

Michman, R., 1995. Retailing Triumphs and Blunders: Victims of Competition In The New Age of Marketing Management. Chicago: Greenwood Publishing Group.

Mieth, M., 2007. The History of McDonald’s. New York: GRIN Verlag.

Oxford University Press, 2007. PESTEL Analysis of the Macro-Environment. 

Pae, C., 2009. McDonald Case Analysis. Web.

Peterson, S., 2010. Business Plans Kit for Dummies. New York: For Dummies.

Pride, W., 2008. Business. London: Cengage Learning.

Royle, T., 2000. Working for Mcdonald’s In Europe: The Unequal Struggle. New York: Routledge.

Royle, T., 2002. Labour Relations in the Global Fast-Food Industry. London: Routledge.

Value Based Management, 2010. BCG Matrix. Web.

Veseth, M., 2006. Globaloney: Unraveling the Myths of Globalization. Boston: Rowman & Littlefield.

Watson, J., 2006. Golden Arches East: Mcdonald’s In East Asia. Stanford: Stanford University Press.

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