Case Study 2: McDonald's

Company’s History and Growth

McDonald’s restaurants started its long path in the year 1955, being an only restaurant, and it ended being a worldwide spread company. Throughout the years, it has not only improved its products but its quality as well.

McDonald’s founder was called Ray Kroc. When he was fifty two years old, he invested all the money he had to become one of the most important distributors of a specific milk shake maker (the “Multimixer”). One day, he found out that in California there were two brothers (Dick and Mac McDonald) that had a restaurant, and that were using at least 8 Multimixers simultaneously. When Kroc saw the efficacy in which those brothers worked their company, he rapidly saw the business that he could create. He decided to take part of the business and open a new restaurant, in order to get that enterprise spread, and to get more money out of the milk shake makers.

He opened a restaurant in Illinois, and it wasn’t hard for him to realize that the chain he had in hands was a big a deal. He made McDonald’s a franchise because he saw the exponential demand of fast food, which flavor could be found in several cities at the same time. In the year 1965, McDonald’s already possessed 700 restaurants, and for the first time went was publicly known. He was able to reach all of his objectives by persuading and convincing powerful franchises and suppliers. By 1967, he achieved to open a McDonald’s restaurant in British Columbia, what made the enterprise for the first time international.

During the following years, McDonald’s did no other thing but getting spread and introducing new products to the market. They even got to change the eating habits of their customers by introducing new “Breakfast Menus”, innovative ice creams, its popular “McCafé”. Of course, the business path is not always a flower path, there are also problems that business are obliged to face. During McDonald’s way, there has been a lot of criticism by the way they treat their raw material (as their animals can be), and they were obliged to create a “Balanced Lifestyle Initiative”, a campaign that focused in well being.

As every single enterprise existing today, to keep being a strong competitor, in 2009 McDonald’s management team made the decision to open a Twitter page, with the objective of getting their publicity and campaigns worldwide spread and to be in a 24/7 communication with its costumers.

(“Our history”, www.mcdonalds.ca)

Strengths and Weaknesses Within the Company

As every “big fish” in business, McDonald’s enterprise can be judged with several weaknesses, but its strengths have made this company to live on.

On the one hand, between its weaknesses, I can name the high demanding population. It overtakes McDonald’s raw materials, so they’ve been pushed to find new ways to cover their costumers necessities. One of this ways (and one of the most judged), has been using toxic chemicals to accelerate the process of the final material acquisition. Several documentaries (such as “Super Size Me”), show the horrible effects that the constant consumption of McDonald’s food can cause in a person’s body.

On the other hand, between its strengths, we found publicity. The constant TV advertisings and the road advertisements has made people to tend to go to McDonald’s rather than to Burger King (for example). It has also made a strength of its consciousness-raising campaigns, showing its environmentally friendly policies and actions, or even increasing their food quality. McDonald’s has also made a great job when creating market directed products, this means that the company has tried to cover the demands and desires of an specific population (fitting with its culture and eating habits). This type of actions has also created more loyal consumers (what could be understood as another strength. McDonald’s has got a constant innovation culture, what makes its market share to keep growing. Every time, McDonald’s tries to re-invent itself. Its management team is always focused in creating new innovative ideas so that people that weren’t interested in their food before could start feeling attracted for their products. This has made McDonald’s a strong culture organization, what makes the core values be deeply settled in every single employee, and that is always showed to the customer.

External Environment

As we mentioned before, an enterprise as large as McDonald’s will always have opportunities and threats in its way. Its competitive and qualified staff has made McDonald’s survive within its competitors, which in the food market are the “sharks” of business.

On the one hand, we can say that the strong competition to which McDonald’s is suppressed has led this company to enter in a costs war. The margins between its gain and its costs are always a matter and a problem they have to deal. Another threat we can name for McDonald’s, is the quality of its food. The fact that each day there are more well-being food alternatives, and that society is raising their consciousness about this, McDonald’s is starting to be left aside. Money is another matter. Even if McDonald’s can get to be pretty cheap in some countries (due to the currency change), in the United States of America (for example) it’s still a company which products aren’t sold as cheap as others. McDonald’s isn’t considered a five star restaurant, but if people is obliged to choose (in no matter what circumstances), McDonald’s won’t be their first election.

On the other hand, McDonald’s has got still a lot of opportunities in its intense competition environment. McDonald’s market is still growing, as we mentioned before. Even if it’s at a standstill in some regions (due to the crisis that countries are going through, for example in Europe), there are still surging markets. Another positive fact for McDonald’s, is that they’ve got their stockholders happy with their revenues. They’ve been increasing their dividend program and it might keep growing in the future. In the last place, we can also name product innovation (as we mentioned before). This makes McDonald’s constantly gain new consumers and surprise their loyal customers while fulfilling their desires.

(“McDonald’s: Strengths, Weaknesses, Opportunities, Threats”, Ryan Guenette)

My Findings

With the information compiled in the last sections the next table has been created to make the reader create a “graphic” idea of how strengths and weaknesses have been interrelated. Square number one shows the strengths that McDonald’s have got that can definitely defeat the threats that the external environment signifies to the company. Square number two shows how the company’s strengths are making profit of the opportunities of the external environment. Square number three show the threats that the company is having to face, and that are dangerous because they are meeting McDonald’s weaknesses. And square number four shows the opportunities that McDonald’s has got to overcome its weaknesses.

Strengths vs. Threats

Increasing food quality is one of the campaigns that McDonald’s has been developing since society is being “consumed” by obesity. It represents a threat because this company isn’t known as a luxurious food company, so it will have to break the outline. As well, even if McDonald’s has got millions of loyal consumers, the recent fashion for well-being are making this clients to “get away”, so it’s a threat for McDonald’s to try to keep them. The great market share also represents a strength, but it’s a also a threat because of the lack of raw material in a certain period of time.

Strengths plus Opportunities

Publicity, consciousness raising campaigns (for well being or even eco-friendly), and market directed products are some of the several strengths of the company, which has known how to use them to make the biggest profit out of circumstances and opportunities.

Weaknesses plus Threats

As we mentioned before, the high demanding population represents a threat for the company because each time is more difficult to meet the raw material necessity. The eco-friendly campaigns also collide with the actions they’ve been accused of making in order to satisfy the exponential demand.

Weaknesses vs. Opportunities

The costs war and the prices are a great opportunity for McDonald’s to vanquish their competitors. This can be also tagged as a weakness because even if McDonald’s isn’t a top quality food restaurant, its food costs money. Surging markets are as well an opportunity for McDonald’s to stabilize their consumers loss (because of their food quality), which is obviously a weakness. 

With this analysis we can conclude that the company is in a strong competitive position and it can definitely continue at its current pace, as McDonald’s has been doing since the company was created.

Corporate Level Strategy

A corporate level strategy is “what makes the corporate whole add up to more than the sum of its business parts...Portfolio management, restructuring, transferring skills, and sharing activities are four concepts of corporate strategy that companies most commonly use” (“On Competition”, Michael E. Porter).

There are several sources that clarify that McDonald’s made use of related diversification. This means that they try to mix the products components they have in a way that they create new final products (for example, all the burgers carry bread, meat and lettuce, but they vary the sauces, bacon, etc). There are also other benefits that the enterprise can make profit of with the related diversification, and it’s that for example, if there are more than one McDonald’s in the same city, they can work together to pay for the publicity costs and both make profit out of it. (“Corporate Level Strategies of McDonald’s 2, http://www.scribd.com/doc/43975350/Corporate-Level-Strategies-of-MC-DONALDS-2). Anyway, nowadays McDonald’s corporate level strategy is focusing in a single business (fast food), and making it its “core business”.

Business Level Strategy

As McDonald’s corporate level strategy is a single business, its business level strategy is the same. In regards to its general focus (as seen in McDonald’s website), its “brand mission is to be their customers’ favorite place and way to eat and drink”. The company’s competitive strategy used to meet this objectives is called “Plan to Win”, which the enterprise affirms to be centered in the customers experience and on the five P’s (Products, Place, Price and Promotion). In regards to costs, McDonald’s has always tried to be a leader in the costs war with its competitors. McDonald’s marketing strategy is based in maintaining relationships with their customers (encouraging and working on loyalty), and creating products that meet the customers necessities, demand and desires, what makes differentiation an important task.

Implementations

The initial McDonald founder, Kroc, created a system which employees and the management team had to follow every time that a restaurant was about to be established. A rule book specified how things had to be done, in what order, and in what amount of time. These rules were taught by a “training process” to every manager and to every employee that became part of the company. “Prospective franchise owners had to attend Hamburger University, the company’s training center in Chicago, where they learned all aspects of a McDonald’s operation in an intensive, month-long program”. The goal that Kroc wanted to achieve with the implementation of this system was to create the organizational culture of the company, in order to standardize all of McDonald’s restaurants (regarding food and services). This system made the customers always receive what they were expecting, and also helped the company to organize its structure while it was growing.“Thus, the McDonald’s reward and incentive system allowed it to keep control over its operating structure as it expanded”.

 Regarding employee rewards, as the “about Mcdonald’s” website affirms, the company counts with incentives that can be either short term (based on annual performance) or long term, for those employees that “create a link between future performance and the rewards for individuals that may influence in a long term business results”.

In relation to levels of hierarchy in the company, McDonald’s is structured by departments, depending of their function. It counts with the following major areas:

-       Operations (equipment and franchising).

-       Development (property and construction).

-       Finance (supply chain and new product development).

-       Marketing (sales marketing).

(“Strategic Management: An Integrated Approach”, Charles Hill, Gareth Jones)

(“Investigation of McDonalds”, 123HelpMe.com)

My recommendations

In my opinion, McDonald’s has been doing a great job until now. The way they’ve structured the worldwide enterprise and how they have homogenized their products and services show the strong organizational culture of the company, that creates a great cohesion between the management team and the staff. I would recommend McDonald’s to leave aside the costs war and focus on the quality of their products. Society is each time increasing their worry for well being and good eating habits, so if they get to improve in this aspect (maintaining their core values and products that fulfill their already loyal customers), they would increase amazingly their revenues.