What factors or trends might be most important to McDonald’s?
What factors or trends might be most important to McDonald’s? To assess how the external environment might affect McDonald’s strategy, it’s necessary to take a look at the factors in the general external environment. McDonald’s must consider the political/legal, economic and global, sociocultural and demographic, and technological forces that might affect the ability of the firm to deliver its services and sustain its business. See which factors in the general environment we might pick that have a significant impact on the fast food industry.
McDonald’s
Q1. External Environment, cont.
Forces in McDonald’s General Environment:
- Demographic – customers now working around the clock, expecting 24 hour access to fast food, how to please range of customers from kids to contractors?
- Sociocultural – customers preferences have changed to more exotic foods, healthier food with better taste
- Economic – current economic downturn means customers might be trading down to McDonald’s if they want to eat out
- Global – boundaries are disappearing, travelers more open to global consistency in food offerings – Golden Arches are accepted, and expected, everywhere
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McDonald’s
Q1. External Environment, cont.
- Segments of the competitive environment include:
- Competitors
- Customers/Buyers
- Suppliers
- Sometimes called the task or industry environment
- Porter’s five forces model
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To answer the question about the current forces in the general and fast food industry environments that affect McDonald’s ongoing strategy, it’s necessary to assess the segments of the external competitive environment that include competitors, customers, and suppliers, substitutes and new entrants. Porter’s five forces model allows strategists to anticipate where the industry might be most vulnerable.
McDonald’s
Q1. External Environment, cont.
Based on the external environmental factor analysis, the fast food business is not an attractive industry, with many competitors trying to carve out a piece of the “profit” pie.
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Let’s apply Porter’s Five Forces of competition. Based on the external environmental industry analysis, the fast food business is not an attractive industry, with many competitors trying to carve out a piece of the “profit” pie.
McDonald’s
Q2. Internal Analysis
Value-Chain Analysis:
- Sequential process of value-creating activities
- The amount that buyers are willing to pay for what a firm provides them
- Value is measured by total revenue
- Firm is profitable to the extent the value it receives exceeds the total costs involved in creating its product or service
Q2 cont: How is McDonald’s strategy supported by its value chain and other internal resources?
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To answer the question of whether McDonald’s differentiation strategy is adequately supported by its value chain and other internal resources, McDonald’s must assess the relationships between the elements in its value chain. Every activity should add value.
McDonald’s
Q2. Internal Analysis, cont.
Exhibit 3.1
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Take a look at Chapter 3, Exhibit 3.1 to see the value chain activities.
McDonald’s
Q2. Internal Analysis, cont.
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| Value Chain Activity – Primary: | How does McDonald’s create value? |
| Inbound logistics | Hard to assess |
| Operations | Strived for consistency across the chain, with differing results. Refurbishing of restaurants, change in hours may help draw customers. |
| Outbound logistics | Hard to assess |
| Marketing and sales | Many product innovations failed, $1 menu didn’t go well with franchisees. I’m Loving It campaign was attempt to reach all customers, and has been successful. |
| Service | Hard to assess |
McDonald’s
Q2. Internal Analysis, cont.
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| Value Chain Activity – Secondary: | How does McDonald’s create value? |
| Procurement | Info not available in the case |
| Technology development | Adoption of expensive cooking processes failed to generate desired results. Premium salads take advantage of technology. |
| Human resource management | Lower standards for hiring, less time for training led to deterioration of service |
| General administration | Top-down decision-making, lack of involvement in changes caused franchisee complaints, especially when profits went down. Franchise training program will help. |
McDonald’s
Q2. Internal Analysis, cont.
- Skinner realized that basic changes in McDonalds’ value chain needed to made to get the company back on track.
- Menu changes and franchisee relationships were key factors that he addressed.
- His moves seem to have paid off in that McDonalds’ financial performance improved, but fundamental issues still remained – would the McCafe innovation and “healthier” menu dilute the traditional brand image and harm McDonald’s reputation?
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CEO Skinner realized that basic changes in McDonalds’ value chain needed to made to get the company back on track. Menu changes and franchisee relationships were key factors that he addressed. His moves seem to have paid off in that McDonalds’ financial performance improved, but fundamental issues still remained – would the McCafe innovation and “healthier” menu dilute the traditional brand image and harm McDonald’s reputation?
McDonald’s
Q2. Internal Analysis, cont.
Resource-Based View of the Firm:
- Two perspectives
- The internal analysis of phenomena within a company
- An external analysis of the industry and its competitive environment
- Three key types of resources
- Tangible resources
- Intangible resources
- Organizational capabilities
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To further answer the question of how to support a competitive strategy, it’s important to consider the concept of the resource-based view of the firm, and the three key types of resources: tangible resources, intangible resources, and organizational capabilities.
McDonald’s
Q2. Internal Analysis, cont.
McDonald’s has tangible & intangible internal resources:
- Financial – McDonald’s appears to have managed its finances well, currently has adequate cash on hand
- Physical – has significant physical assets in the restaurants
- Technological – has kept up with current technology
- Organizational – franchise model is a weakness unless strong quality controls are in place
- Human – training of staff is critical, could be a problem
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