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What other strategies did McDonald’s formulate to achieve a competitive advantage?
- Corporate strategy focuses discussion on the questions of what businesses a corporation should compete in, and how the businesses should be managed to create value.
Q3: What other strategies did McDonald’s formulate to achieve a competitive advantage?
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Corporate strategy focuses discussion on the questions of what businesses a corporation should compete in, and how the businesses should be managed so they can create “synergy” – creating value through entering new markets or developing new technologies, either through related or unrelated diversification.
McDonald’s
Q3. Corporate-Level Strategy, cont.
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- Diversification initiatives must create value for stakeholders. Options include:
- Mergers and acquisitions
- Strategic alliances
- Joint ventures
- Internal development
- Diversification should create synergy
Diversification is the process of firms expanding their operations by entering new businesses. In related diversification, a firm enters a different business in which it can benefit from leveraging core competencies, sharing activities, or building market power. Whatever the choice, it should create value for all stakeholders – employees, suppliers, distributors, and the organization’s owners themselves. The choice of diversification strategy should create synergy so that all parties gain something they would not have had on their own.
McDonald’s
Q3. Corporate-Level Strategy, cont.
- Achieving Synergy through Diversification:
- Related businesses (horizontal relationships)
- Sharing tangible resources
- Sharing intangible resources
- Leveraging core competencies
- Unrelated businesses (hierarchical relationships)
- Value creation derives from corporate office
- Leveraging support activities
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When achieving synergy through diversification, a firm has two choices: related diversification through horizontal relationships with related businesses, sharing tangible and intangible resources, and leveraging core competencies; and unrelated diversification though hierarchical relationships with unrelated business. In this case, value creation derives from the corporate office by leveraging support activities.
McDonald’s
Q3. Corporate-Level Strategy, cont.
- McDonald’s has pursued related diversification through its relationships with franchisees.
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McDonald’s
Q3. International Strategy
- International expansion is a viable diversification strategy, however before pursuing this, a firm needs to determine why an industry in a given country is more (or less) successful than the same industry in another country.
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International expansion is a viable diversification strategy, however before pursuing this, a firm needs to determine why an industry in a given country is more (or less) successful than the same industry in another country.
McDonald’s
Q3. International Strategy, cont.
Motivation for International Expansion:
- Increase the size of potential markets
- Attain economies of scale
- Taking advantage of arbitrage opportunities
- Extend the life cycle of a product
- Optimize the physical location for every activity in its value chain
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McDonald’s
Q3. International Strategy, cont.
- When choosing a country to expand into, firms must assess
- The degree of consumer demand,
- The degree to which resources such as skilled labor and other supplier or supporting infrastructure are developed and available,
- The speed with which such resources can be deployed,
- The extent of political and economic risk and corruption,
- The access to qualified management.
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When choosing a country to expand into, firms must assess the degree of consumer demand, the degree to which resources such as skilled labor and other supplier or supporting infrastructure are developed and available, the speed with which such resources can be deployed, the extent of political and economic risk and corruption, the access to qualified management.
McDonald’s
Q3. Strategic Implementation
What does strategy consist of:
- Analysis
- Strategic goals (vision, mission, strategic objectives)
- Internal and external environment of the firm
- Decisions – Formulation
- What industries should we compete in (business-level)?
- How should we compete in those industries (corporate-level & international strategies)?
- Action – Implementation
- Allocate necessary resources
- Design the organization to bring intended strategies to reality
Q3 cont: What steps did Skinner take to fix the problems McDonald’s faced?
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Remember our previous discussion…
McDonald’s
Q3. Strategic Implementation, cont.
- Skinner continued the tough “up or out” grading system for franchisees that identified underperforming units
- Introduced new products such as McGriddles breakfast sandwich, added healthier items
- Created a new promotion, “I’m loving it”
- Refurbished restaurants, making them more comfortable, providing TVs and wireless access
- Allowed franchisees to experiment and make changes to fit their local community
- Moved toward 24/7 all hour customer access
- Innovated by incorporating McCafe concept to appeal to another type of customer
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McDonald’s
Q3. Strategic Implementation, cont.
- McDonalds’s had experienced a comeback the likes of which were pretty unprecedented. The prevailing belief was that when restaurants started to slide, it really took a lot to turn them around. Would McDonald’s be the exception?
- Will new CEO Thompson guide McDonald’s to be able to successfully compete against all of its rivals?
- Who’s willing to bet yes??
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Strategy is all about the ideas, decisions, and actions that enable a firm to succeed.
Leaders face a large number of complex challenges. Leaders must be proactive, anticipate change and continually refine changes to their strategies. This requires a certain level of “ambidextrous behavior”, where leaders are alert to opportunities beyond the confines of their own jobs, and are also cooperative and seek out opportunities to combine their efforts with others. Leaders must make strategic management both a process and a way of thinking throughout the organization.
The primary role of the organizational leader is to articulate vision, mission and strategic objectives.
Leaders must communicate their initial vision of the organization’s purpose: what was the original goal that evokes a powerful and compelling mental image of a shared future, one that would be massively inspiring, overarching, and long-term, that represented a destination that is driven by and evokes passion? Is the original vision still applicable given the present circumstances?
The organizational mission also needs to be considered: a mission encompasses both the purpose of the company as well as the basis for competition and competitive advantages. In writing a mission statement, it is important to understand the definition of the business: 1) who are its customers, 2) what customer need is the organization trying to fulfill, and 3) how does the business create and deliver value to customers and satisfy their needs. Organizations must respond to multiple constituencies if they are to survive and prosper, and the mission provides a means of communicating to diverse organizational stakeholders. Although vision statements tend to be quite enduring and seldom change, a firm’s mission can and should change when competitive conditions dramatically change or the firm is faced with new threats or opportunities.
Anticipating that things might change, an organization’s leadership must then establish strategic objectives to operationalize the mission statement with specific yardsticks. That is, objectives help to provide guidance on how the organization can fulfill or move toward the “higher goals” in the goal hierarchy—the mission and vision.
External forces had begun pushing for healthier forms of food. Company-owned and franchisee restaurants had inconsistency in service and décor. New menu items had to be accepted by loyal customers. Skinner appeared to have continued with the original vision & mission. Should Thompson do the same? McDonald’s provides an interesting example of a firm that did very well for decades with a clear strategy and then stumbled as it tried to reevaluate what it wanted to do. It is clear from the case that McDonald’s had been tremendously successful primarily as a fast food chain, with particular emphasis on hamburgers. Should Thompson rethink strategy as a result of factors in the environment?
During strategic analysis, the leader does “advance work” to anticipate unforeseen environmental developments, identify unanticipated resource constraints, assess changes in his or her preferences for how to manage. During strategy formulation, the organization addresses the issue of how to compete in a given business to attain competitive advantage. Strategies are formulated at the business, corporate, and international levels. Entrepreneurial initiatives may also play a role. In strategy implementation, depending on the type of organization structure, the leader might include key individuals in a discussion around selecting which strategies might be best to implement at which level within the organization. The leader must ensure proper strategic controls and organizational design, and establish effective means to coordinate and integrate activities within the firm as well as with suppliers, customers and possible alliance partners. Leaders should also be committed to excellence and ethical behavior while promoting learning and continuous improvement. Here’s where innovation is important.