My research topic deals with one of the most profitable societies of the world, The McDonald’s. It underlines the strategic management approaches adapted by McDonald’s that helped it to grow from a small business to one of the most successful corporations.
McDonald’s is the leading fast food service organization in the world. The story of McDonald’s started way back in 1954 when, Raymond Kroc its founder envisioned a nationwide fast food chain upon seeing a hamburger stall in San Bernardino, California. By revolutionizing the American Restaurant Industry, Kroc proved himself as the pioneer. Today McDonald is one of the most valuable brands globally, worth more than $25billion. It is number one fast food chain stores with about 40 million customers visiting it per day. The Golden Arches and its mascot Ronald McDonald have gained universal recognition. Though the company has its roots in the U.S., McDonald’s today has become an accepted citizen of the world.
The main focus is on the strategic evolution of this corporation. The strengths and weaknesses are highlighted which throws light on how McDonald’s has survived in the competition.
Keywords: strategic management approaches, Raymond Kroc, strategic management approaches
How McDonald’s has maintained its position?
McDonald’s has been able to maintain its competitive advantage by constantly adding new items in its menu. This means that an analyzer type of strategy is followed by McDonald’s, i.e. introducing new items and defending the existing ones.
In Strategic Management, developing a mission and vision statement is the primary step. It reflects the management’s aspirations for the organization and its business providing a panoramic view to customers and giving specifics about future business plans.
How McDonald’s has defined its MISSION AND VISION:
McDonald’S MISSION AND VISION: To serve quality food, fast and also at low cost. The vision of McDonald’s is to dominate the food-service industry at global level. Global dominance means to set up standards of performance for customer satisfaction and increase market share and profitability by implementing values and execution strategies (Flack, 2008).
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What is the company’s strengths?
Strength can be described as a distinctive competence that gives the firm a competitive advantage in market. For example image, market leadership, buyer supplier relations, financial resources, etc. McDonald’s strength lies in creating an image in the people’s minds and introducing them to a new culture of fast food. Customer care, delivery, speed and cleanliness are its core strengths that lead to its expansion. They were successful in creating a corporate symbol and its advertisement campaigns established its brand image in the minds of millions of people. McDonalds identified two main competitors i.e. the Burger King and KFC.
The marketing strategy of McDonalds is concerned with internal resources, external environment, and its competencies.
McDonald’s product value is its strength. Customers know what to expect when they enter into McDonalds. It gives emphasis to human resources by satisfying its employees and customers both.
Next comes the innovation aspect. In order to serve the new tastes and trends of people, new products are launched. Its diversity into new businesses can also be considered as its strengths.
The question arises is how much effective are the above strengths in the long run of the company? McDonald’s today is not as amendable as it was during its inception. So what are the driving factors which have resulted in its decline in sales and services? In order to analyze this factor we have to identify the weaknesses in the company’s business and marketing strategy. The factors that are considered as strengths become a weakness if it blocks the performance of the company.
Customer choices and trends change. Generally, people get tired of their old brands which they had been using over the years. When they do not get a product with the expected innovation they switch to new brands. With so many outlets, people find McDonalds everywhere. This over exposure can also be a reason for abstinence. Then maintaining standards of a huge chain is difficult and if there is lack of quality or service in any one outlet, then the brand as a whole gets affected.
Reaching the target audience is the secret of any marketing strategy. So the target audience should be chosen carefully. It is very crucial for an organization’s success, that its customers attain satisfaction level. Earlier McDonald’s targeted mostly the young person, which has changed now. Now McDonald’s has turned into a more general kind of market i.e. it now concentrates on families also. They started targeting diverse market which comprises of elderly people to children, by launching products such as the ‘Happy Meal’ for children and Egg McMuffin for the elder ones. With the changing lifestyle, the demand for healthier food has increased and also ever changing demographic group demands fast, low in calories quality food. McDonald’s responds to this kind of opportunity by introducing new and innovative products. Earlier, they had introduced a new product which was a regular hamburger and tasted like the real one but was made of Soya beans, a plant material. This product was also used to target another demographic group, i.e. vegetarians. McDonald’s generally uses psychographic segmentation by which it targets the middle and working classes. These type people are more susceptible to enter fast food restaurants because they lead a fast and busy life and therefore require some fast meal. In short McDonald’s customers belong to all age groups and classes, but comprises mainly of working and middle class people. (Kroc, 2001).
The above factors point out key strengths and weaknesses at the external level. There are some internal factors also which affects the performance of the company. One major factor is the relationship between the franchise dealers and the management. Organizational strength is the back bone of any business and once it begins to shake the whole system can collapse. But slowly McDonald is recovering from all these weaknesses. Through latest technological developments it has become easy for its brand managers to communicate, compare and improve the services. They can also use internet in order to improve, motivate and compare performances of other centers.
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The analysis of all the external as well as internal strengths and weaknesses of the company should be done so that a sustainable plan for the further improvements in the company can be drafted. For any kind of improvement or expansion the availability of internal resources is a must. By analyzing this aspect, a modified strategy can be formed to suit the company’s vision. Hence with the use of all the core competencies, the corporation can successfully grow and sustain in the competitive market (Richard Whittington, 1993)
In 2003 the change in the top managerial level created a new wave in the performance of the corporation and also some major changes were incorporated to retain and sustain the quality and innovation aspect of the brand. Now let us understand the sustainable competitive advantage of McDonald’s.
What is meant by sustainable competitive advantage? How is it significant to McDonalds?
SCA is the advantage a firm has which is very difficult or mostly impossible for competitors to possess or break through. It can be either brand, cost structure, dynamic customer care, or any kind of patents. The advantage should be either proprietary or distinctive in order to be considered as sustainable. Other than this, three different aspects have been identified that helps in SCA.
First, there should be a good integration and coordination between the organizational and managerial processes. Therefore the much needed ‘value’ is created when every employee in the organization strives to work for one common goal. The organization should learn to be flexible and change as per the needs in the environment such as customer trends, government restriction or innovations in technology. Nowadays McDonalds is focusing on organizational behavior as well as managerial expertise. Earlier it was ignored because the organization was more involved in establishing its outlets everywhere than strengthening its core competency. As a result the revenue did not increase much inspite of newer outlets being opened. The firm suffered a huge loss for the first time since their inceptions which ultimately lead to changes in the managerial strategies.
Second, structural, financial assets and technology aspects of any firm are excellent market position which helps in building SCA. No doubt McDonald’s is abundant in aspects such as structure, technology and finance. All that is needed is to identify and incorporate these assets in the right direction towards the improvement of the company. From 2003 onwards the company has really started to concentrate on its competencies.
Third, the greatest advantage is the vision of the company with which it started. Sustaining this dream over the passing years is any companies’ greatest advantage. A company usually revolves around its vision statement, so sustaining this vision and working in accordance with it, is a great SCA. McDonalds was started to help people who were too busy and had little time to cook. The vision was to provide value, customer care, quality and cleanliness. Keeping its vision in mind, the corporation which slackened a bit earlier because of its incompetent franchise holders is being weeded and new and better people are put in this place.
Thus, SCA means implementing the best value based strategies using all the unique advantages of the company which cannot be replicated by the competitors. In today’s scenario, everything is outsourced from employee appointment to customer care. No organization is efficient enough to handle all kinds of work. It is not possible for big corporations like McDonalds to concentrate on every small detail. But core competences of the company should not be outsourced. Mostly companies concentrate on their core competencies whereas outsource its remaining operation. McDonald has recently tested its drive by order facility. Outsourcing is therefore helpful in the increasing external suppliers and overcomes the difficulties faced due to lack of latest technologies and other innovations.
So what makes McDonald’s still strong and maintain its rank as one of the leading business. The answer is its core competences and the internal as well as external sustainable competitive advantages. Of course, to keep up with the changing business environment, the company has also begun to outsource, but then it should not be carried away by the outsourcing mania. This company has recently started to go back to its golden era because of large scale revamping of its structural and organizational changes being incorporated (C K Prahalad and G Hamel 1990).
A strategic ally’s means an organization is working together in a joint venture or a similar arrangement with one or more organizations. McDonald’s is in strategic alliance with: Wal-Mart, Chevron, Amoco, Disney and Coca-Cola. Wal-Mart, the largest retail chain in U.S. and several neighboring countries, is symbiotically allied with McDonald’s. In each Wal-Mart stores, there are McDonald’s restaurants. Thereby it offers its customers excellent low cost fast food in a convenient way. Chevron and Amoco are two petrol pumps with which McDonald’s is in alliance with. This alliance represents ultimate convenience. Nothing can be more convenient than filling the car with as well as getting a meal, that too all in one stop. Another important alliance of the company is with Disney. Sole right has been granted to McDonald’s to sell fast food in Disney’s theme parks around US and at other Disney spots in the world. As per the terms of the agreement, McDonald’s will operate as restaurants and Disney will promote its films through McDonald’s.
As such there is no particular competitive strategy that guarantees to achieve success each time. Risk attitudes change due to industrial volatility, environmental uncertainty and several internal conditions might also be involved. Since the marketing function is consumer oriented, customer needs should be identified and then strategies should be designed to meet those needs. The distribution system brings the product or service to the place where in can best fill customer needs. Since every product requires support from distribution channels, so the right choice of distributors and wholesalers is very important. Promotion of products is more important than advertising. The location, size and nature of markets defined by business strategy will indicate the content of promotional material as well as it will guide the promotion mix decisions. Pricing is another complex issue which is used as a competitive weapon because it is related to cost, volume, tradeoffs etc. Changes in pricing policy are likely to provoke competitor’s response.
Marketing has received increasingly greater attention in the competitive business since the early modern era. The old marketing concept focused on selling of the existing products of the firm and promoting it to maximize sales to attain profits, but now the new concept focuses on the potential customers of the firm and seeks to earn profit by customer satisfaction with an integrated marketing program.
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