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Strategic management in context to mcdonalds.

EXECUTIVE SUMMARY-

The following assignment talks about the strategic management in context to McDonalds. Strategic management is one of the critical issues to be studied by a company in order to understand the causes and solution of the problems and hurdles in the way of the success of the business and its market growth. As we all know that it's a world of globalization and competition and therefore every company has to make certain plans and strategies in order to tackle the problems they face due to the competition in the local and global markets. Every company has to make effective strategies and plans in order to tackle the internal and the external problems faced by the company. Internal problems can be linked with any internal department or process such as HR or Pay role or machinery etc and the external challenges can be competition, changing technologies etc. Globalization on one hand gives benefits to the company to explore new markets and increase its customers in order to make more profits but it also poses different problems and challenges which the company has to tackle to continue its success in the new markets. Company has to design proper strategic plan to point out and tackle the problems curbing the success of the business. Either it's a local or a global market company always needs an efficient strategy to tackle the issues curbing its success in the market. This assignment will discuss the various strategic issues of concern for the McDonalds and plans it has designed to tackle these problems. We will be using different strategic models such as Product Life Cycle, Porter's Five Forces model and BCG matrix in order to understand the issues of strategic concern for the company and how to tackle them for the success of its business.

INTRODUCTION-

STRATEGIC MANAGEMENT- Strategic management is the systematic study of the external environment i.e. customers, economical and political environment, competitors etc and the organization's internal environment i.e. customers, competitors, buyers, suppliers etc in order to find the basis of valuable information and knowledge essential for applying the management studies effectively which in turn contributes in improving the efficiency of the business. The main purpose of the study of strategic management is the effective application and use of policies and strategic priorities of an organization.

Strategic management study is the blue print of the company's plan and different measures or steps its going to take in order to achieve its long term goals and objectives. Strategic management helps the organization to prepare it in improving in the areas where it is lagging and which are obstructing its way to success and achieving its future goals and objectives in order to improve its performance and position in the market.

Features of Strategy-

  1. Strategy helps the company to deal with any uncertainties obstructing the company's path to success.
  2. Strategy focuses on the long term goals and objectives of the company rather then its day to day operations.

The strategic management process has following four steps-

  1. Environmental scanning

  2. Formulation of strategy

  3. Implementation of strategy

  4. Evaluation of strategy

COMPANY BACKGROUND- The idea of business was generated by two people Dick and Mac MacDonald who started with a barbeque restaurant in California. In the year 1948 they founded the McDonald which was the first self-service drive in restaurant. After that they kept on expanding locally in the America. It was the year 1967 when McDonalds gone international by opening its first global restaurant in Canada and Puerto rico. The McDonald launched its website mcdonalds.com in 1996.in its history of almost 60 years, McDonalds has grown a lot locally and globally. Today it is running around thirty one thousand restaurants in around one hundred twenty different countries around the world.

STRATEGIC ISSUES, PROBLEMS AND CHALLENGES FOR McDonalds-

We know that McDonald is one of the market leaders in the fast food industry around the world. McDonald has grown a lot globally which has posed some problems and challenges in the path of McDonald's success and future progress. Since from being a local fast food player of America to a global company McDonald has grown a lot and so are its responsibilities. With the time many more fast food companies have made there place posing a stiff competition to McDonalds. In this busy world no body has the time to cook and thus people preference and likeness towards the fast food industry has grown a lot in the past years. People though prefer to eat fast food but also prefer to eat a healthy diet with less calories and fat. All of these issues revolve around one major issue of strategic concern for the McDonalds which is “Diversification”. Since there are a lot of other players which are providing the similar products like McDonalds thus in order to compete with them McDonald have to develop more differentiated and healthy food products keeping in mind the taste and preferences of its customers.

The explanation for the strategic issues for McDonalds is as follows-

  1. COMPETITION- One of the major issue of strategic concern for the McDonalds is the stiff competition by its competitors. The other strong players in the fast food industry are burger king, Wendy's, Hardees, jack in the box and sonic. These competitors provide a lot of different options to the people who enjoy fast food thus posing a stiff competition to McDonald. They provide different unique and healthy products to the customers.
  2. HEALTH FACTOR- All fast food companies work really hard to cater the changing needs and preferences of people. People now days want a healthy diet. Thus it has become an issue of major concern for all the McDonald to introduce healthy products like salads or sandwiches in their menus in order to entertain the needs of their customers and hence retain them. It also focus on not to compromise the items in the original menu.
  3. DIVERSIFICATION- In order to control the above problems like competition or health factor McDonald is working hard on the diversification of its products in order to develop new differentiated and healthy food product in order to cater the changing needs and preferences of its customers.

PLAN -

After the restructuring and change in management in 2003 McDonalds introduced a plan called as plan to win and is still following the same plan and strategy to become a successful player in the fast food market. The “plan to win” emphasized on five factors; people, product, place, price, promotion. McDonald knew that by focusing on the four major p's of marketing it can become the market leader and a successful business.

The first factor on which McDonald has a focus is people. McDonald understands how important are its customers and their perception for the success of the business. Thus McDonald focus on providing the adequate training and giving rewards to the employees in order to motivate them, so that they can provide a better customer service to its customers. We know that the major earning and the success of the business depends on the retained customers and this all depends on a good customer experience because if customer will be happy and satisfied then he will surely come back to purchase your product next time. Understanding its importance McDonald is working on this issue.

The second factor is product. Product does not only mean a tangible thing, it also means the benefit, quality and appeal that a customer expects from the product. We all know that today customer also wants a healthy diet. McDonald focuses on the changing preferences of the customers and has introduced white meat nuggets and salads in its menu.

The third factor is place. McDonald understands the important of hygiene for its customers. Thus McDonald works a lot to develop its restaurants in a place where people prefer to come with their family and friends and enjoy their time. McDonald has introduced wireless connectivity in many of its restaurants where its customers can come and enjoy their meal along with surfing the internet. McDonald has also introduced Mccafe and also restructured and relocated its restaurant keeping in mind the preferences of its customers in order to win their loyalty. McDonald is continuously opening new restaurants and franchises around the world.

The fourth factor is price. McDonald focus on providing best value meals to is customers at competitive prices in order to attract more customers and retain the old customers and to compete with the other players in the fast food industry.

The last factor is promotion. McDonald focus on the promotion of its products in order to aware more customers and to build a rust and brand loyalty for its products in the mind of its customers. McDonald has introduced some slogans in its add campaigns such as”I'm lovin' it” to connect more to its customers.

STARTEGIC MODELS USED-

PORTERS FIVE FORCES MODEL

Porter five forces are-

  1. Power of buyer
  2. Power of supplier
  3. Threat of new entrants
  4. Threat of substitutes
  5. Industry competitiveness

Applying porters five forces model to McDonalds-

  1. Power of buyer- as we know that the fast food industry has grown a lot in past years and a lot of players have established their place in the market, giving stiff competition to McDonalds. In this competitive environment every company is trying to produce products with better quality and at competitive prices. Companies also focus on producing products which can differentiate them from other competitors thus attracting more customers. Therefore customers have a lot of options available when they decide to purchase a product. Thus we can say that the power of buyers is more in the fast food industry. Customers will purchase a product which they perceive as value for money and thus companies are trying to provide different options for them to fight with the competition from other players.
  2. Power of supplier- Buyers does not have a significant bargaining power because the companies in the fast food industry get their supplies from various outlets. The company may have different suppliers for meat, food, dairy products etc. there are a number of suppliers available for a same product, it becomes easy for the companies to switch to different supplier if they are not satisfied with the one they are dealing with. Since the fast food industry has a lot of options available to decide which supplier to approach or not, therefore the buyers have a very little or no bargaining power.
  3. Threat of new entrant- its easy for a new entrant to enter the market and introduce products at competitive prices. But if the new firms want to compete with the already established major players in the fast food industry they need a large investment to build restaurants and machinery etc. Since the market is already saturated it becomes really difficult for the new entrants to develop a new customer base and earn profit.
  4. Threat of substitutes- McDonald not only faces a stiff completion from the competitors in the fast food industry but also from the players of other industries providing substitute products to the customers. The substitute products involve products available in the grocery shops or the restaurants or the food products such as pizza. These substitute products are easily available to the customer and customers tend to perceive these products as better in quality and value for money. People now days are really conscious about their health and majority of the people perceive the fast food products as a food high on fat and calories content and therefore they try to find a food which better meet their health requirements. On the other hand though fast food industry may lag behind in meeting the health requirements of the people but enjoy the power to attract customers on the basis of its ability to provide cheap and instant food.
  5. Industry competitiveness- McDonalds face a lot of competition not only from the other competitors in the fast food industry but also from other industries producing substitute products. These competitive forces pose a stiff competition to McDonalds by introducing new offensive and defensive strategies in order to attract more customers and increase their market share. Competitor Wendy's introduced a low price menu of 99 cent and in response to that the McDonald used an defensive strategy by adding items of low price in its menu to compete. Thus the companies keep on trying the defensive and offensive strategies in order to compete with the competitors.

From the above discussion we can see that McDonalds has to face a lot of competition from the competitors and companies producing the substitute products. Thus McDonald has a need of diversification in its products in order to survive and compete in the industry. McDonald have to work strategically in order to produce differentiated products with competitive prices meeting the preferences and the health requirements of the people in order to attract more customers for the success of its business.

BCG MATRIX-

Market share

High Low

High Market growth

Low

in the past years McDonalds has grown a lot locally and globally and so is the competition. Due to the presence of other competitors and substitute products in the market, the growth opportunities have fallen or have come to a saturation level in some markets. Being an old and a strong player McDonalds enjoys a high market share. But to survive and compete in these markets McDonald have to accelerate its market growth to become a star again. For this McDonald has a need of diversification in its product and a need of a new strategy to design new products which are different from its competitors fulfilling the preferences and the health needs of the customers and making these products available to them at competitive prices for the success and profit of its business. McDonald is also focusing on opening more restaurants globally in search of new markets.

PRODUCT LIFE CYCLE-

Due to a lot of competition and presence of substitute in the markets it has become really difficult for the McDonalds to attract more customers and grow in its business. In these markets the saturation stage has come and for the McDonald to create new opportunities of growth and business in these markets it needs to plan a strategy to introduce new and different products with competitive prices in order to attract the customers and again grow in these markets. The other option for McDonald is to expand its business in other countries to explore new markets with a fresh start.

RECOMMENDATIONS-

There are a lot of strategies which McDonalds can follow to achieve success in its business and are as follows-

  1. Stay-on-the-offensive strategy- this strategy focuses on becoming a market leader. the company following this strategy, tries to introduce changes in its business and products in order to keep itself ahead of its competitors. McDonald is already a market leader in the fast food industry and therefore it can make use of this strategy by bringing changes in technology, infrastructure and its products in order to stay ahead of its competitors and make more profits by attracting new customers. McDonald should also provide training to its employees to impart them with the skills required to provide a good customer service.
  2. Fortify-and-defend strategy- This strategy focuses on giving a stiff competition and making it hard for the competitors to achieve success and new companies to enter the market. This strategy is good for the companies which have already gained a strong position in the market. McDonald being a strong player in the fast food industry can make use of this strategy to continue enjoying their success and maintain it. McDonald should continue opening new restaurants worldwide and this will help to defend the new companies to enter or gain hold of the market. They should also spend money on the R&D in order to develop new and better technologies and to introduce them into the business operations to increase the efficiency. In this way McDonalds can achieve cost effectiveness and can stay ahead in terms of technology.
  3. Global strategy- McDonald is already a strong player in the fast food industry worldwide. It already has a global presence. My recommendation is that McDonald should continue its expansion strategy and should open business in new emerging markets rather than concentration on saturated domestic markets. Since they provide cheap and quick food. People can easily afford it and thus they can target low economic areas.
  4. Diversification- McDonald is already following this strategy and my recommendation will be that it should continue following it and produce new and different products catering the changing needs, preferences, trends and health requirements of the customers.

CONCLUSION-

From the birth of McDonald, till date McDonald has seen many good and bad times. Today McDonald has become a market leader in the fast food industry. Due to its expansion globally and the stiff competition by the competitors, new entrants and the industry producing substitute products McDonald is loosing its market growth and in some countries it has come to a saturation level. McDonald should focus on its core competencies and it understand the situation and is already working hard on its strategy of “plan to win” to continue its strong position in the market. McDonald is already working hard on its diversification part in order to provide products to its customers that can fulfill their needs and preferences such as health factor. McDonald should work hard to provide better and quick customer service. Though there was a downturn but we can see that McDonald is really working hard in improving in the areas it is lagging and is coming out of the bad times

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