Strategic Management at Mcdonald's Strategic Management Strategic

Strategic Management at McDonald's McDonald's Strategic Management Strategic Management at McDonald's Strategic Management at McDonald's McDonald's: Introduction Organizational Structure and Corporate Governance Industry Sector Analysis Michael Porter's Five Forces Model Key conditions in the External Operating Environment of McDonald's and its Industry The Value Proposition on McDonald's Products Financial Performance SWOT Analysis for McDonald's TOWS Matrix for Alternative Strategies BCG Growth Share Matrix for McDonald's Marketing, Financial, and Research & Development Strategies McDonald's Leadership Joint Ventures, Strategic Alliances, and Partnerships Performance Measurement Methods and Benchmarks Recommendations References Table of Contents Sr.

No. Particulars Page No. Figure 1: Organizational Structure of McDonald's Table 1: TWOS Matrix Figure 2: BCG Growth Share Matrix Table 2: Gantt chart for Strategy implementation List of Figures and Tables Executive Summary This report presents a complete analysis of strategic management practices at the world's largest fast food restaurant chain, McDonald's. The report starts by introducing and describing the organization's operations, location, product offerings, history, major achievements and significant strategic moves which it has undertaken during its life cycle.

The next section presents a comprehensive overview of the company's organizational structure and Corporate Governance and analyzes how this organizational and senior management structure is aligned with its mission and strategy. The third section of the report discusses the industry structure of McDonald's in the light of Michael Porter's Five Forces Model and discusses the key external factors which affect McDonald's operations and the other participants in its industry.

The market share analysis of McDonald's also gives a fair depiction of its market standing as compared to its top industry rivals. The next section discusses the value proposition which customers get when they consume McDonald's products. The analysis of financial performance shows the company's growth over the last five years. One of the most important sections of the report is the analysis of company's internal and external environment in the form of SWOT Analysis.

This analysis is followed by the TWOS Matrix and BCG Growth Share Matrix analysis which give alternative strategies and company's current market standing respectively. The later sections of the paper consists of analysis of company's Marketing, Financial, and Research & Development Strategies, leadership capabilities, and strategic alliances which McDonald's has made in its life cycle. The company's performance measurement methods and benchmarks are also presented in the report which gives a brief understanding of how company analyzes itself on periodical basis.

The final section of the paper gives a set of recommendations on how McDonald's can bring improvements in its organizational structure, strategies, and plans to succeed in the long run. These timeline for these recommendations has been graphically presented in the Gantt chart. McDonald's Introduction, Location, and Products: McDonald's is the largest and the fastest growing fast food chain in the world. Headquartered in Oak Brook, United States, McDonald's operates with more than 34,000 outlets and fast food restaurants in 119 countries around the Globe.

Due to this huge scale of operations, McDonald's is able to serve more than 69 million customers every day. The main product offerings of the company include Big Mac (hamburger), Chicken McNuggets, French fries, chicken sandwiches, desserts, Quarter Pounder, soft drinks, soups, milkshakes, salads, breakfast items, and coffee. The workforce strength of the company is almost 1.7 million people in its production houses, regional offices, and Headquarters (McDonald's, 2012). History: The history of McDonald's dates back to 1940 when Richard and Maurice McDonald opened a Bar-B-Q restaurant in San Bernardino, California.

In 1948, the owners introduced Speedee Service System in their restaurant in order to cope up with the competition from the market leaders of those times. The original mascot of McDonald's, Ronald McDonald was first introduced in 1967 and became the trademark of the company. McDonald's continued to provide drive-in restaurant services and grew rapidly within the country.

When McDonald's started franchising its operations to the investors from the general public; a business man, Ray Kroc first took a franchise of the restaurant and then purchased the whole McDonald's corporation from the owners. Since then, McDonald's has seen a rapid growth in its operations in the local and international markets. At present, McDonald's is present in every corner of the world with more than 80% of its restaurants are run by private business people through franchising agreements (McDonald's, 2012).

Growth over the years: By analyzing the organizational life cycle of McDonald's at different periods, the very first thing that comes to mind is the continuous growth strategy which the owner pursued to make his business grow in the Global market with its full competencies and strengths. McDonald's successfully left the competition behind and became the largest counter service and drive-through fast food restaurant in the world. It not only expanded its scale of operations geographically, but also kept on introducing innovative products and services with the passage of time.

For example, it introduced the world famous French Fries in 1949, Quarter Pounder in 1973, Happy Meals in 1978, Fruit and Yogurt Parfait in 2000, Big n Tasty Sandwiches in 2001, McCafe real fruit smoothies in 2007, and Shamrock shake in 2012 (McDonald's, 2012). In addition to these main products, McDonald's also introduced numerous other products from time to time in order to cater the changing preferences of its target customers in different corners of the world (Hitt, Ireland, & Hoskisson, 2011).

Changes undertaken with the passage of time: McDonald's also kept itself updated by instituting the cutting-edge technology in its production operations, inventory management, and customer services. It started its online incarnation in the form of McDonald's.com in 1996. It is a comprehensive website that provides very useful information to the visitors from all ages and cycles of life. McDonald's has also won numerous awards and recognitions in its history for its quality, brand image, innovation, performance, leadership, sustainability, and industrial relations.

These awards and recognitions are given by famous International rating agencies, newspapers, magazines, and other publications and indexes including Forbes, Fortune, Bloomberg BusinessWeek, BrandZ, Interbrand, Barron's, Dow Jones Sustainability Index, Corporate Responsibility Magazine, etc. (McDonald's, 2012). Successful Strategic Moves: Each and every strategy which McDonald's adopted to keep itself strong and competitive was aligned with its core values and targeted to beat the competition in an effective and tactful way.

McDonald's did not only focus on expanding its business operations on its own strengths; rather, it used franchising arrangements to sell its brand image to the potential investors and chose the fastest path of business expansion. This strategy made it the number one brand in the Global fast food industry with respect to brand recognition, customer base, scale of operations, and financial strength (McDonald's, 2012). Organizational Structure and Governance Worldwide Organizational Structure and Corporate Governance: The Organizational Structure of McDonald's is both divisional and functional.

The corporate level decisions and strategies are formulated at the Headquarters in the supreme supervision of Don Thompson, the President and Chief Executive Officer of McDonald's. He heads the Directors of all the departments at the corporate level. The Senior Management that directly functions under the President and CEO includes Chief Restaurant Operations Officer, President Supply Chain, Development & Franchising, Chief Financial Officer, General Counsel and Secretary, Chief Branding Officer, Chief Operating Officer, Chief HR Officer, and the Presidents of European, American, and Asian regions.

These presidents are directly responsible to head all the directors in their respective regions. For example, the President of McDonald's USA, LLC heads the President of Central Division, West Division, and East Division, Executive Vice President and Chief Operations Officer, and the President of McDonald's, Latin America (McDonald's, 2012). Structure at Individual Divisions: The presidents of each individual division have to report their performance to the President of McDonald's USA, LLC.

These presidents lead the team of directors from different functional areas and business affairs, including but not limited to: Finance, Human Resource, Sales and Marketing, Supply Chain, Social Media, Diversity Management, Brand Management, Franchising, Production, and Legal Affairs. At the level of single business unit or franchise, the organizational hierarchy and structure of McDonald's is fully functional. The director of one particular area focuses on the performance of his entire team but keeps direct coordination with other departments of the Unit.

For example, the Director of Sales and Marketing coordinates with the Finance department to set the marketing budget for new strategic marketing plans. Similarly, the Director of Production and Operations keeps direct coordination with the Supply Chain Department in order to ensure a good balance between the demand and capacity options at the production units (McDonald's, 2012). Franchise level: The Top Management in every McDonald's franchise or self-owned restaurant is responsible to show exceptional sales and financial performance on periodical basis.

The Top Management directs the middle level managers in every business function and affairs. These middle level managers get the work done through lower level managers and subordinates to achieve the assigned targets (McDonald's, 2012). Alignment with Mission and Strategy: Keeping in view the organizational hierarchy and the senior management and governance structure at McDonald's, it can be said that the company is moving in the direct direction towards its strategic goals and objectives.

The mission of McDonald's is to provide the best eating experience to its customers through high quality food and beverage products and highly efficient and superior customer services. The corporate wide strategies of the organization are to keep up pace with the changing consumer trends and ensuring a continuous growth strategy in the Global markets. The organizational structure and Corporate Governance of McDonald's are fully aligned with this mission and strategy. That is, the company aims to see a continuous growth in its operations in international markets (McDonald's, 2012).

Therefore, the Senior Management for each region and operational area is separate from those of other regions and operational areas. It enables these Governance officials to watch over the performance and growth of their company in their own regions. Similarly, the president of every region is responsible to ensure the business expansion of McDonald's in all the potential markets of that region.

In order to meet the highest standards of quality and customer services set in the mission statement of the company, the top management ensures that the business functions and affairs at every McDonald's franchise are regulated under strict regulations and standards. This is the reason why McDonald's is the most appreciated fast food brand in every corner of the world. Director Social Media Director Diversity Mgt. Director Supply Chain Director Marketing Director Finance Director HR Director Operations Director Brand Mgt.

Director Legal Affairs Director Production Don Thompson President and CEO Jose Armario Corporate EVP, Supply Chain, Development & Franchising Rick Colon East Division President, McDonald's USA Richard Floersch EVP, Chief HR Officer Dave Hoffmann President McDonald's Asia, Pacific, Middle East and Africa Edgardo Navarro President, McDonald's Latin America Steve Plotkin West Division President, McDonald's USA Gloria Santona EVP, General Counsel and Secretary Fred L.

Turner Chairman Tim Fenton Chief Operating Officer Peter Bensen EVP and Chief Financial Officer Jan Fields President, McDonald's USA, LLC Doug Goare President, McDonald's Europe Jim Johannesen Executive Vice President, Chief Operations Officer, McDonald's USA Kevin Newell Chief Brand Officer Lee Renz Central Division President, McDonald's USA Jeff Stratton EVP and Worldwide Chief Restaurant Operations Officer Figure 1: Organizational Structure of McDonald's Source: McDonald's, (2012). Leadership. Industry Sector Analysis McDonald's operates in a highly uncertain and competitive business environment.

The changing consumer trends in different markets of the world, the competition from local and international fast food brands, strict legal and regulatory requirements, and uncertain economic conditions are the major forces which are affecting its business operations at large. The competitor analysis for McDonald's can be made more deeply in the light of Michael Porter's Five Forces Model. Michael Porter's Five Forces Model 1. Rivalry among existing competitors: McDonald's has business operations in 119 countries of the world.

Therefore, it has to face hard competition from top quality brands of the world as well as from local established competitors in every market. The top quality fast food and restaurant brands which are the biggest rivals of McDonald's include Burger King, Wendy's, Starbucks, Yum Brands, Pizza Hut, KFC, etc. Due to a high potential growth in this industry, the rivals are pursuing a continuous growth strategy and establishing their strong presence in new markets of the world.

Therefore, McDonald's has to keep itself highly alert and updated about the strategies implemented by its competitor firms. 2. Competition from New Entrants: In addition to the existing top rivals, McDonald's also has to face competition from new entrants in the local and international markets. These competitors are direct threat for the sales and profitability of the company. These competitors enter the fast food business by looking at the high profit margins and growth potential in the industry.

They get successful in establishing their business due to the changing consumer trends towards fast food habits and the convenience factor found in these habits. As McDonald's operates in the Global market, the competition from the new entrants in the international markets is stronger than that in the local markets. However, McDonald's takes the advantage of more extensive distribution network and stronger financial position as compared to new entrants. 3.

Threat of Substitute Products: The substitute products for McDonald's products are all those fast food products and beverages that are not offered by McDonald's. There are numerous competitors in the markets which offer substitute products to the competitors. These substitute producers are indirect competitors of McDonald's, but put direct negative pressures on its sales and profitability. The prices of these substitute products are comparatively lower than those of McDonald's. Therefore, consumers who are price conscious do not go for McDonald's high priced products and try substitute or lower quality products. 4.

Bargaining Power of Suppliers: The suppliers in this industry do not have a strong bargaining power unless there is a shortage of raw material in the industry. McDonald's has a strong presence and large business network in the Global market. Therefore, it has built strong relationships with its suppliers who regularly provide required quantity of raw material at its production units.

The bargaining power of suppliers is stronger for McDonald's in those markets where it has not established a strong supply chain and distribution network while its competitors have an established brand image and customer base in those markets. 5. Bargaining power of Customers: McDonald's operates with more than 34,000 restaurants and outlets in the world (McDonald's, 2012). Due to strong customer base and brand recognition in most of these locations, McDonald's can charge premium price for its products. The consumers cannot achieve a strong bargaining position against this top quality brand.

The competitors of McDonald's charge a little lower price which makes the bargaining power of customers stronger against them. Key conditions in the External Operating Environment of McDonald's and its Industry The biggest external factor which affects this industry is the economic conditions of different countries. McDonald's operates in 119 international locations (McDonald's, 2012). Every country has its own economic conditions which either turn in favor or against the business operations of the company. The second major factor which impacts McDonald's and its industry is the changing consumer trends and tastes.

The industry participants have to keep themselves aware of these trends and mold their business operations to meet the requirements of the consumers. Another major external environmental factor is innovation and technology. The participants of the fast food industry have to institute advanced machineries and plants in their production units in order to produce highest quality and tasteful products for the potential customers. Moreover, inflation, unemployment, high raw material and business operational costs, political instability, strict laws and regulations on business affairs, ethical marketing, health and safety standards, etc.

are the key conditions in the external operating environment of McDonald's and its industry. These trends and key conditions are changing due to numerous factors including consumer trends, competitive forces, regular supply and timely availability of raw material, and governmental regulations. Market Share: As far as the market share of this fast food giant is concerned, the Global financial crisis and economic downturn put negative pressures on its financial performance. The share of McDonald's fell by 1.6% at $87.56 in midday trading.

The company also reported 14% decrease in its stock in July, 2012 (Baertlein & Dorfman, 2012). This decline in stock and market share is the company's worst performance over the decade. However, it has successfully managed to revive its market standing and showed a gain of 2.2% in the following months. The overall market share for McDonald's in the United States fast food industry was 12.7%. The biggest competitor of McDonald's, Yum! Brand was at the second rank with a 9.7% market share. The third rank brand is Burger King followed by Wendy's and Starbucks (Statista, 2012).

The Value Proposition on McDonald's Products The value proposition for McDonald's products was defined by its founder Ray Kroc as the excitement, fun, convenience, and superior eating experience for the consumers. When McDonald's consumers buy its products, they actually built a strong relationship with a top quality food brand of the world. This brand not only gives them a wonderful eating experience of their favorite fast food, but also gives them convenience and excitement which they can expect from a top quality and reliable food producer.

The value proposition for different McDonald's products is different. For example, the most successful product offered by McDonald's so far is Big Mac -- a hamburger produced with a lot of high quality ingredients and baking material. This product gives a totally unique eating experience to its consumers than traditional hamburgers or substitute fast food products. Consumers love eating a hamburger sitting in a McDonald's restaurant where there is no inconvenience or noisy environment.

Similarly, the chicken sandwiches, desserts, Quarter Pounder, Chicken McNuggets, French fries, and other top quality products offered by McDonald's are quite different in taste and quality from other brands. McDonald's has successfully captured the greatest market share with the help of these high quality products because consumers strongly believe that the value which they get after eating a McDonald's product can never come from any other brand. This value proposition has made McDonald's the world's most liked fast food restaurant chain (McDonald's, 2012).

Financial Performance The global sales revenues of the company have been constantly showing tremendous results which are a positive sign for its investors and stakeholders. The sales revenues for the year 2011 are U.S. $27,010 Trillion as compared to U.S. $24,070 Trillion in 2010. The performance for the previous three years was as: U.S. $22,740 Trillion (2009), U.S. $23,520 Trillion (2008), and U.S. $22,790 Trillion (2007) (Market Watch, 2012). The stock price of the company has also shown a positive trend over the period of last five years.

The stock chart for McDonald's for the last five years shows that the stock price has continued to show rapid progress after the year 2009. The current stock price of McDonald's is $87.05 (ADVFN, 2012). In addition to focusing on its financial performance and growth strategies, McDonald's also shows true concern for the society in which it operates. With the help of its extensive sustainability and corporate social responsibility efforts, McDonald's has recognized itself as a socially and environmentally responsible corporate entity.

In 2011, McDonald's arranged numerous Charity Funds and Events in order to collect money for the under-privileged and needy people. It also made efforts to increase awareness among the general public about different environmental protection issues. It has raised almost $170 million during the last ten years (About McDonald's, 2011). If the trend of different financial indicators is observed for this fast food giant, the most notable thing which every financial indicator shows is the impact of inflation on the company's business.

For example, the company's costs of goods sold have been continuously increasing day by day. These costs have taken direct impact from the inflationary pressures as well as from the directional (growth) strategies of the company over the years. These external environmental factors are also impacting the other industry participants and McDonald's direct competitors with the same pace and strength. SWOT Analysis for McDonald's Strengths: The biggest strength of McDonald's is its brand image in the eyes of its customers, supply chain members, and key stakeholders.

McDonald's has built this strong brand image through quality and taste of its products, excellent customer services, and strong promotional campaigns in the local and international markets. Today, McDonald's is the most liked fast food brand in the world with the highest market share, stock capitalization, and customer base. The second major strength of McDonald's is its strong business relationships with numerous public and private companies and investors from all over the world.

These companies and investors include suppliers of raw material, ingredients, and packaging material, distributors, business development firms, etc. The services provided by McDonald's to its customers are superb. The target market of McDonald's consists of all age groups - from children to aged people. McDonald's provides superior customer services, clean environment, play area for children and numerous other facilities to its customers. These services greatly contribute towards building strong customer relationships and public image. Thus, they are also a big strength for the company.

Moreover, diversified geographical presence in the local and international markets is also a major strength of the company which also keeps it in the row of world's largest fast food brands. Weaknesses: Some products offered by McDonald's do not have a good level of consumer acceptability. Reason being, McDonald's does not give an equal emphasis on the quality and taste of all its products. For example, McDonald's has not yet achieved high consumer appreciation in its pizza and organic food product categories.

The employee turnover of McDonald's is also very high which puts direct negative pressure on its training and administrative costs. The sales and market share of the company in some regions of the world has been continuously showing a decreasing trend. This trend is mainly due to the high level of competition and economic downturn in these regions. McDonald's has failed to effectively beat and manage this competition and severe economic factors respectively.

Moreover, the McDonald's products are premium-priced which limits its target market to only upper middle to high income groups of the society. McDonald's has also been facing quality and taste issues due to the franchising of operations and different quality of raw material in different locations. Opportunities: McDonald's can avail various potential opportunities from its industry in order to boost up its sales and improve its financial performance.

First of all, it can make strategic alliances and joint ventures with successful and large investors in the international markets to establish its presence in a short period of time. It can continue to offer franchising to potential investors in the new markets as a part of its international business expansion strategies. Another opportunity to strengthen its business presence in the international markets is to build stronger relationships with the suppliers of raw material and ingredients.

McDonald's has an opportunity to introduce innovative products and services for its consumers according to their cultures, life styles, and tastes. The beverage product category of McDonald's needs more focus. It can expand this category to beat the industry rivals like Starbucks and Yum! Brands. Threats: Competitors have always been the biggest threat for McDonald's in the local and international markets. They not only snatch its customers, but also put negative impacts on its market share and financial performance.

McDonald's also faces competition from new entrants in the industry that either produce the same product categories or offer substitute products to the same target consumers. McDonald's has to keep an eye on the strategies and marketing activities of these competitors in order to maintain its market leadership. The business operations of the company also take direct negative impact from the economic downturn in the Global market. This downturn has made it harder for the company to maintain its profit margins and target the same target consumers.

Due to inflation and high product prices, the consumers have started changing their life styles; they are more inclined towards home-made products instead of premium-priced branded products. This factor has also affected McDonald's consumer base, sales, and profitability. Table 1: TOWS Matrix for Alternative Strategies External Opportunities (O) External Threats (T) Internal Strengths (S) S.O (Strengths-Opportunities) Using Strengths to maximize opportunities. McDonald's can use its brand image to expand its business operations in the new markets and offer more franchising opportunities to the potential investors.

Improve quality of its products, expand product categories, and attract a larger target segment Introduce more high quality products in related categories and beat the top industry rivals. S.T (Strengths-Threats) Using Strengths to Minimize Threats Increase profit margins and beat the inflationary pressures through achieving cost leadership Build strong supplier relationships to avoid the threats of their stronger bargaining power Enter into strategic alliances with potential suppliers and make them regular suppliers for its business.

Expend more amounts on Research and Development and keep an eye on the strategies of industry rivals to beat the huge competition. Internal Weaknesses (W) W.O (Weaknesses-Opportunities) Minimize Weaknesses through Opportunities Improve the product lines with low level of acceptability and target larger number of consumers. Expend more amounts on employee motivation, training, and skills development in order to minimize the turnover and control the heavy HR and administrative costs.

Implement latest plants and machineries in the production units in order to minimize the costs of production and lowering the consumer price of its products. W.T (Weaknesses-Threats) Minimize Weaknesses by avoiding Threats Reduce prices of the products to beat the competition from low priced brands. Set high standards of quality and taste for franchisee businesses so that the brand image of the company as a top quality brand always remains strong in the minds of the worldwide consumers. McDonald's has always pursued growth strategies for its business.

Since its incorporation, the owners have always focused on expanding their business operations into new geographical boundaries in the local and international regions. Although this directional strategy is limited to business expansion of the same fast food restaurant chain through self-ownership or franchising, the company has not yet become self-sufficient in any region. This growth strategy has greatly helped it in recognizing itself as a strong brand in the world markets with respect to market capitalization and customer base.

Figure 2: BCG Growth Share Matrix for McDonald's On the BCG Growth Share Matrix, McDonald's falls in the Star category. It is because the fast food industry has a huge growth potential. McDonald's is also enjoying market leadership with the highest 12.7% market share. Although the market growth rate of fast food industry was badly affected by the recent Global financial crisis and economic downturn, but it was a common external factor which affected all the segments and industries on equal pace.

Therefore, keeping the impact of financial crises aside, the market growth rate for fast food industry shows a favorable trend for its participants. McDonald's, being the largest market leader in the industry can generate huge cash from this opportunity. In the light of this growth share matrix, it can be recommended that McDonald's should keep on investing on its business expansion strategies, target new markets, and establish strong business network in order to maintain this market leadership.

This analysis reveals that McDonald's has strong financial position and great potential for growth in its industry. The BCG matrix can confidently place a market leader in the Star category by looking at its market share as well as the growth potential of its industry. However, this analysis does not compare the performance and market standing of the company with other market leaders.

Another limitation of this analysis is the absence of facts and figures which can be helpful for the analysts to reach a definite conclusion after this independent analysis technique. Marketing, Financial, and Research & Development Strategies Marketing Strategies: The marketing efforts of the company are targeted to promote the company's products to its most potential target consumers. McDonald's expends a huge amount on.