McDonald’s Corporation.STUDENT NAME: Avika SoniINSTRUCTOR NAME: Mr. Samad Akbar
WORD COUNT: 2533
DATE: 24. 10.2018
TABLE OF CONTENTS
TABLE OF CONTENTS……………………………………………………2
RESOURCES BASED VIEW………………………………………………9
PORTER’S 5 FORCES MODEL………………………………………….14
1940 was the year, where MC Donald got established in San Bernardino, California by the MC Donald’s brothers. Later Ray Kroc joined the brothers and continued to discover the possible diversification of MC Donald. MC Donald is a fast food restaurant which is mostly famous for it’s burgers, fries and drinks. After the popularity of the fast food restaurant grew rapidly, the MC Donald’s brother started a normal restaurant to a franchised fast food restaurant. During that time of period, Michael Quinlan was the 1st MC Donald’s CEO, chosen by Fred Turner who was Ray Kroc long time-colleague and successor CEO.
Presently, Steve Easterbrook is the Chief financial officer also known as CEO of MC Donald’s corporate headquaters. Steve Easterbook became CEO in 1st September of 2015. In 2011, MC Donald was well known for number one performance stock in the Dow 30 with total shareholder return of about 34.7%. However, in 2012 MC Donald’s stock dropped to 30 in the Dow 30 with shareholder return of -10.75%. MC Donald’s sales growth fell by 1.8% in October. Sales continued to decline in the next 2 years.
SWOT analysis (strengths, weaknesses, opportunities and threats analysis) is a framework that identifies and analyzes both the internal and external factors that can have an impact on the viability of a project, product, place or person.
Strengths is an internal factor and resources which supports a successful outcome.
Strength of MC Donald is that it is a strong Global Brand. MC Donald is one of the well recognized brand out of all the well recognized brand. This franchised company provides consistency in it’s food, so it taste the same whether the customer is eating in Canada or other part of the world. The success of the company allowed it to become the world’s largest fast food restaurant chain, till the date.
Another, strength is Diversification of Income. Since the company is well known in the world and is located each corner of the world, it’s total sales and earning from different places tend to neutralize one another. For example, if domestic sales are not getting a good income, other region like Canada possibly could be earning a good income.
Diversification of food- the food items that MC Donald produces and sell to consumer are full of choices. For example, in the case of drinks. if the demand for coca cola falls, customers will switch to fanta or sprite which will not affect the sale of the MC Donald.
Weakness is an internal factor and resources that supports a negative outcome.
It may affect the sales- MC Donald is famous for unhealthy food loaded with fats, carbohydrates, salt, sugar that causes obesity and people have become health conscious, so sales might drop over a period of time.
Negative publicity- It is a franchised company so if one franchised company does a mistake no matter how small or big it is, reputation of all the MC Donald will go down.
Customer Loyalty- the labor that are being hired by MC Donald have been rude to the customers that loved visiting MC Donald. So if the staff are not polite to their customers, customer would not want to visit the restaurant ever, again.
Increased in supply cost- if cost of production increases, less people will buy the product as it will become expensive for them to buy which will lead to customer turnover.
Opportunities are an external factors that the company or a business can capitalize on or use to its advantage.
Expansion Plan- MC Donald must increase it’s percentage settling more franchise company in different regions In order to increase it’s market share and gain high reputation as well as earnings.
Upgrade Menu- Upgrading menu with healthy version of burgers or drinks, so it could expand it’s target market and increase in sales which will lead to more profits.
Threats are also an external factors that could jeopardize the entity’s success.
Competition- MC Donald faces significant competition from international, national, local retailer of food products. the basic of price, convenience to customer, the services, the variety in menu and quality of the products are the main aims that management are working on to survive in the market during competition. Competition are Burger king, Wendy’s, Taco Bell, Subway, Fast Casual and Coffee.
More health conscious customers- Government want their country citizens to be healthy so more people are getting health conscious which means less of middle aged to old people will visit MC Donald.
The political context is critical to McDonald’s environment as it provides the opportunities and threats to its success. Government policies towards issues for instance trade or public health can increase costs on the Organization’s operations. Trade agreements can make it easier (or) harder for organizations to undertake the activities of the business in certain areas, for example, when there are differences in food standards between markets within which the organization is operating, for example, the USA and Arab Countries .However, health issues too makes the activities of the business more expensive. Health issues such as obesity, especially if taxes on fast foods are increased or certain ingredients are banned.
International, national, and local conditions are the Economic factors which impact on McDonalds, due to it being a global brand. This means that the whole company was affected by the 2008 economic recession due to its impact in the USA led to the fall in disposable income, which also increased unemployment and wage stagnation. The success of McDonalds is therefore dependent on a strong economy with low unemployment rates. Falling in sales can also be attributable to changing tastes and increased competition in the industry. The exchange rate also affects on McDonalds and a weaker US dollar enables a better exchange rate.
The changing tastes of consumers plays a huge role on McDonalds in terms of their sales. The growth of the coffee industry has led McDonalds to develop a McCafe menu to provide an alternative to Starbucks. Changes in consumer tastes, such as more focus on health will require brands such as McDonalds to cater to these or loose the sales. Changing customer demographics may mean that McDonalds needs to meet the changing demands such as the health and price conscious nature of the customer . In order to sustain demand and to increase its sales, McDonalds will need to adapt and make changes in their menu choices accordingly to customer, which include low fat choices . The continued concerns regarding obesity has also meant that McDonalds will be needing to provide healthier choices for all of its customers, and particularly children.
Changing technology not only allows McDonalds to improve way of business process like re-ordering and reducing wastage, but also allows it to develop greater connections with its customers to gain customer loyalty. Technology also assist McDonalds in strengthening its brand by providing different channels for ordering by customers, such as in-store self service and collection or online ordering. Online ordering can enable organizations to gather data on customers and undertake personalized marketing through promotions. This technology allows for higher levels of convenience for customers which organizations will need to meet or customers may choose to go to a competitor. Technology can also enable a brand to reach a far greater market and to undertake appropriate social media strategies to engage with their customers.
The interest in environmental issues are taken under consideration for resource protection over the long term and therefore needs businesses to consider their consequences by developing corporate social responsibility policies (CSR) and reporting on these through frameworks such as the Global Reporting Initiative. There are issues that are included like, the requirement for brands and their supply chain to be environmentally friendly and sustainable and ethical supply chain agreements are becoming a firm feature for global companies such as McDonalds. Some of the environmental issues being faced are in food production and this includes issues such as deforestation and food miles. One of the ways in which McDonalds addresses this is to buy beef and milk from UK farmers.
The context of regulatory can have a major impact on how successful a business can be in the present and in future. Higher levels of regulation can stifle business growth, whilst lower levels may enable businesses to make more profit. Employment law regarding issues for instance, minimum wage, holiday and sick pay may increase the costs for a business, but may also reduce the recruitment costs if staff feels that they are receiving the correct rate of pay and other benefits. However, It’s not the same case in UK, there has been an increased use of zero hour contracts which organizations have used to gain a more flexible working force, which is particularly useful for the food industry, which often operates 24 hours per day . Whilst these are legal, there have been some criticisms of their use as they prevent workers from receiving holiday and sick pay. Regulation is always the biggest concern to most of the companies. As a company in the fast food industry, like McDonald’s must adhere to many legal requirements, like the labor and employment law, corporate law and tax requirements.
The resource-based view (RBV)
RBV helps the company to achieve competitive advantage over another company. The resource-based view was invented during 1980s and 1990s, after the major works were published by Wernerfelt, B. ,well known for “The Resource-Based View of the Firm”, Prahalad and Hamel, well known for “The Core Competence of The corporation”, Barney, J. ,well known for “Firm resources and sustained competitive advantage” and others. The supporters of this view believes that organizations should learn to look inside the company to find the better sources of competitive advantage instead of looking at competitive environment for it.
The following model explains RBV and emphasizes the key points of it.
There are two types of resources: tangible and intangible.
Tangible assets are physical things that can be seen and touch . Land, buildings, machinery, equipment and capital are the example of tangible assets.
Intangible assets are non-physical things that cannot be seen and touch but can still be owned by the company. Brand reputation, trademarks, intellectual property are all intangible assets.
Heterogeneous- The first assumption is that skills, capabilities and other resources that organizations try to differ from one company to another. If organizations would have the same amount and mix of resources, they will not be able to employ different strategies to outcompete each other. What one company would do, the other could simply follow and no competitive advantage could be achieved.
Immobile- The second assumption of RBV is that resources are not mobile and do not move from company to company, especially during in short-run. Due to this immobility, companies cannot replicate their rivals’ resources and apply the same strategies. Intangible resources, such as brand equity, processes, knowledge or intellectual property are usually immobile.
In 1991, Barney has identified VRIN framework that examines if resources are valuable, rare, costly to imitate and non-substitutable. The resources and capabilities that answer yes to all the questions are the sustained competitive advantages of the corporation . The framework was later improved from VRIN to VRIO by adding the following question: “Is a company organized to exploit these resources?”
VRIO framework adopted from Rothaermel’s in 2013.
Question of Value. Resources are valuable if they help organizations to increase the value offered to the customers. This is done by increasing differentiation or by decreasing the costs of the production. The resources that cannot meet this condition, leads to competitive disadvantage. McDonald’s holds a high value, according to its brand image and exploitation of the available resources which had helped it evolved successfully for more than five decades.
Question of Rarity.
Resources that can only be acquired by one or few companies are considered rare. When more than few companies have the same resource or capability, it results in competitive parity. The utility of the resource may be franchised oriented and spread through its breadth but the main control still remains in the hands of the top 50 management authorities. The franchises companies has to follow the rules of the company strictly to run a franchise of McDonald’s.
Question of Imitability. A company that has valuable and rare resource can achieve at least temporary competitive advantage. However, the resource must also be costly to imitate or to substitute for a rival, if a company wants to achieve sustained competitive advantage. McDonald’s may not be difficult to imitate in aspect of the product but it’s functionally is very difficult to achieve.
Question of Organization.
The resources itself do not accept any advantage for a company if it’s not organized to capture the value from them. Only the firm that is capable to exploit the valuable, rare and imitable resources can achieve sustained competitive advantage. McDonald’s is always ready to exploit new resource and the organization structure is well recognized. It provides a good support to its franchise operations, as well.
Table 1. The implication of the VRIO framework for McDonald’s Corporation.Capabilities and Resources Rare Valuable Resources being exploited? A weakness or strength? Sustainable advantage?
Financial Position No Yes Yes Strength No
Creativity and Innovation Yes Yes No Strength Yes
Management and managing the staff Yes Yes Yes Moderate No
Technology existence and managing the technology is used No Yes Yes Strength No
Brand Awareness No Yes No Strength Yes
The Table above presents the VRIO framework for McDonald’s corporation. The corporation has a strong financial positing, the employees ability and the level of the creativity or the innovation tells us that the corporation is having a very good Human Resource and the corporation manage its technology well, as well. The production and brand awareness suggest a strong resource for the airline. The financial position, creativity and innovation, technology existence and managing the technology is used and brand awareness are the main strength of McDonald’s corporation and the only a single factor provides moderate value for the corporation.
There is only one that is marked as moderate could turn into strength but there are some problems that the corporation needs to work on to overcome that problem. Management and managing staff are marked as moderate because not all the customers are satisfied with the behavior of the staff, some complained that the staff in McDonald are not treating right to the customers. Human Resource needs to be careful when recruiting the staff.
SHORT ANALYSIS- PORTER’S 5 FORCES MODEL
Industry Force High/Medium/Low Why?
Threat of new entrants High Subway, Chipotle, Taco bell which are offering more healthier fast food menu
Power of buyers Low Less chance of switching, high brand image through differentiation and uniqueness
Power of suppliers Low McDonald resources from multiple supplier to minimize risk
Power of substitutes High Consumer could easily substitute product with any kinds of food
Rivalry among competitors High Focus rival such as burger kind and wendys