As a company, McDonald’s was first introduced in Des Plaines, Illinois in 1955. This was the very first McDonald’s restaurant, which all started in San Bernardino, California in 1954 when Ray Kroc approached the McDonald brothers with a business proposition to start a new company. In 1965 McDonald’s went public and was later, in 1985 added to the Dow Jones Industrial Average. The company has gone through quite a few changes with its changing CEO’s over the years, but the company seems to be on track with CEO Jim Skinner, named in 2004. Skinner was named the new CEO just in time to clean up after McDonald’s first ever quarterly loss. He succeeded by showing that McDonald’s revenue had climbed 11% during 2006 and net profits had climbed 36%
II. Statement of the Problem
Business-level 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 it is, 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. This study will discuss the various strategic issues of concern for McDonalds and plans it has designed to tackle these problems
Using Porter’s Five Forces Analysis, the following details were taken into consideration:
1. Threat of new entrants
? The threat of new entrants for McDonald’s and the fast-food industry is low. With so many different kinds of fast-food restaurants already in the industry, entering at this point would cause struggle for the new entrant
2. Bargaining power of suppliers
? There are 3,700 new outlets being built each year in the U.S., meaning the power of suppliers is not an issue for McDonald’s.
3. Bargaining power of buyers
? Consumers have more power over buying McDonald’s products because they can demand what type of products they want to see from them. Today, consumers are demanding healthier food and beverage choices from fast-food restaurants such as McDonald’s. McDonald’s had to reclaim its name by showing America that their company cares about the health of their customers and cut out their “supersize” program.
4. Substitute products/services
? In the fast-food industry, including McDonald’s, the threat of substitutes is greater now more than ever with the convenience food industry growing. More convenience food stores are offering similar products as the fast-food restaurants. Convenience stores sell many food items such as hot dogs, egg rolls, pizza stuffed breadsticks, and countless beverage choices.
5. Competitive rivalry
? Fast casual food chains such as Subway are tougher competition to the fast-food chains in both the U.S. and international industries. Some franchisers were also complaining that McDonald’s was granting too many franchisees too close to each other and actually stealing business away from each other
IV. Decisions – Formulation
The foregoing analysis showed us that in order to achieve a sustainable competitive advantage, McDonald’s has to evaluate its ability to contend with other fast-food restaurants. The question of how to compete in a given business to achieve competitive advantage requires an valuation of the types of competitive strategies, including the three generic strategies that are used to overcome the five forces and achieve a competitive advantage:
? Overall cost leadership
? Focus strategy
Cost-effectiveness has been the customary strategy for the fast-food industry, but McDonald’s kept costs under control in order to achieve parity with competitors. McDonald’s tried to develop a differentiation advantage while keeping costs at a reasonable level so customers are willing to pay a premium for the value offered by the firm.
V. Actions – Implementation
The CEO should do “advance work” to anticipate unexpected environmental progresses and identify unanticipated resource constraints. During strategy formulation, the organization addresses the issue of how to compete in a given business to attain competitive advantage. Schemes are formulated at the business, corporate, and international levels. Moreover, in strategy implementation, depending on the type of organization structure, the CEO might include key individuals in a discussion around selecting which strategies might be best to execute at which level within the organization. The CEO 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.