Introduction to McDonald’s
Discuss about the Business Strategy of Macdonald.
McDonald is an American Fast food company which was founded in the year 1940 as a restaurant which was operated by Richard and Maurice McDonald in California. It was Ray Kroc, a businessman who purchased the chain from the brothers and started opening the stores across the globe(McDonald & Wilson, 2016) The fast food chain company at present has over 36,900 stores across the globe and employees over 375,000 people. The fast food chain whose product offering include Hamburgers, chicken, French fries, salads, desserts, wraps, coffee, breakfast earned a revenue of over US $ 24 billion in the year 2016. The sustainable strategy of McDonald is to customize its menu according to the country in which it is operating and providing fast delivery to millions of its customers (McDonald, 2016).
The underlying purpose of the assignment here is to understand the strategic innovation and threats posed to McDonald in its highly dynamic business ecosystem, and to understand how the business organization is responding to the threat and the opportunities. In order to assess the threat to McDonald an analysis of PESTLE model will be done and its current growth strategy will be analysed using the BCG matrix and McKinsey GE frameworks. Towards the end using the MACS model one innovation opportunity the company is pursuing will be analysed.
In the earlier days, the average life cycle of a business model used to be easily over 50 years, but it is not the same anymore. Due to high degree of innovation and technological advancement the average lifecycle of a business model has reduced to 20 overs. Hence, it is the need of the hour to consistently bring innovation in the business model to ensure sustainability in the business model (Christensen, Raynor, McDonald, 2016).
Threat from industrial Rivalry-The fast food market segment is highly saturated, due to this high saturation there is a threat to McDonald position from KFC and Hungry Jack. Moreover the consumers have low switching cost and large number of firm’s competing for the same market share. This implies that the company has to innovate to sustain and achieve competitive advantage over its competitors (Cox, McDonald, Wang & Hallen, 2015).
Threat due to high Bargaining power of the buyers-Low switching costs, large number of players in the market and more substitutes available in the market means the buyers has high bargaining power. Thus McDonald has to innovate to reduce the effect of higher bargaining power of the buyers.
The Need for Strategic Innovation
Threat due to Suppliers Power-McDonald as of now does not possess threat from the suppliers, because of large number of suppliers available in the market. Moreover the secret of McDonald is safe with them; this implies no threat to innovate from suppliers end.
Threat of substitutes- McDonald needs to innovate due to high threat from the large number of substitutes available in the market. The fast food chain has to create product differentiation as its innovation strategy to sustain its business revenue (Grant, 2016).
Threat of New Entrants-It is easy to enter the fast food industry due to low cost in setting up the businesses, moreover the industry is plagued with plethora of competition from the local players. This implies the urgency to bring innovation in the existing product offering of McDonald (Rothaermel, 2015).
The threat identified from the PESTLE analysis of McDonald which would emphasise the urgency for innovation at McDonald is as follows:
Political Threat-It is extremely necessary to comply with the different FSI and food regulation imposed by the countries in which McDonald is important. It becomes imperative for McDonald to highly company with the rules and regulation to safeguard its position in the market (Bereznoi, 2015).
Economic Threat-McDonald has to keep in mind the increase in the purchasing power parity of its consumers and the rate of inflation and numerous economic indicators before adding the viability of its innovation in its business.
Social Threat- Consumers taste and preferences is evolving on a daily basis, they are moving towards a healthier option to satiate their hunger. McDonald which is known for its unhealthy burger and fries has to think of adding healthier benefits through innovation in its product offerings.
Technological Threat-McDonald has achieved operational excellence due to its technological advancement in its business operation. However, as the technology is progressing, McDonald has to add machine automation as innovation in its existing business model to further expedite its manufacturing process (Souto, 2015).
Environmental Threat- Countries across the globe are raising concern towards environmental sustainability. McDonald has to add innovation in creating recyclable material in its packaging and disposing off the waste.
Legal Threat-Minimum wage, labour employment, health regulation and animal welfare regulation are some of the examples where the company has to add innovation in its business model to ensure the compliance with the existing legal threats (Leavy, 2014).
Thus, industry analysis and PESTLE analysis strongly suggests the need of innovation at McDonald to ensure the sustainability of its business momentum
PESTLE Analysis of McDonald’s
McDonald’s innovation is primarily based on the four pillars, viz; menu innovation, store renovation, digital ordering and delivery. These are the prime element of innovation the company is actively pursuing. BCG matrix and McKinsey GE framework will be used in this section to understand its innovation strategy
(Source: Harding, 2017)
McDonald in itself was initially a star, as it had high growth rate and a high market share, but at the present moment the company has moved into the quadrant of Cash Cows. Cash cow implies that the growth rate is low, but it has a higher business share for the product. At present none of the offerings of McDonald can be placed into the Dog category as all its products are doing well.
Stars- In accordance to the BCG framework, stars is the category which has high market share and high growth in the industry. If geographical locations have to be considered, Europe is most definitely in the Star category. Thus the company has to focus on doing innovation in the European market to taste higher success. Digital ordering can certainly help the company to leverage the market and sustain its competitive position in the star category (Loredana, 2016).
Cash Cows-This segment provides high financial stability to the business, this segment is characterized by low sales growth and high market share. America for example falls into the category. McDonald has to here add innovation in its food offering and focus on enhancing the consumer experience at the store to make it move in the quadrant of star.
Question Mark-McDonald is unable to leverage the opportunity offered by the emerging economies of the Asia pacific countries, which makes it fall into the category of question mark. Yum Brands one of its biggest competitors is opening up more franchise in this location. The company has to focus on product development and menu innovation here to get a competitive advantage in those locations (Ayling. et al, 2015).
Dogs-The biggest product failure of McDonald was it’s highly talked about straw with which people could not relate with, the company quickly killed the product to offer better innovation to its customers. Fortunately McDonald does not have any offering or any location in the Dog category, which is actually good for the company.
(Source: Tsakalerou, 2015).
The nine box matrix which was created in the year 1970 is a useful framework offering a systematic approach for a decentralized corporation to identify where it is best to invest the company’s resources including cash. The two factors used to judge a business unit is attractiveness of the industry and the competitive strength in the industry. The nine box matrix provides an analytic map for managing the innovation in the business units (Johnson, 2016).
Analysis of McDonald’s Innovation Strategy using BCG Matrix
The units occurring above the diagonal, the company can pursue the strategies of growth and investment. In the case of McDonald the company has to focus on the emerging economies for product development and market penetration. In the case of Europe and star markets, the company has to add innovation in its product offering by the virtue of menu innovation. In saturated markets like USA the company has to focus on the in-store experience just the way Starbucks does for its customers.
The units following along the diagonal are the categories where the company has to be cautious in investing and predicting the growth. McDonald here can focus on it’s much talked about Fresh patties which is soon to be launched in selected markets. Here, McDonald has to evaluate in which countries it has to launch the product for Beta testing and getting the first-hand experience of the customers (Halkos, 2015).
The category falling below the diagonals include the ones which have to be immediately killed or liquidated with the time in hand. McDonald here did the best thing by killing of its Straw, which the company initially thought of as one of its unique and creative innovation.
It can be said that all the current innovation that McDonald is pursuing which is Self-Service Kiosks, Digital delivery and ordering, menu innovation and store innovation. All of them falls above the diagonal and it is very much essential for the company to speed up its pace of innovation and sustain its competitive advantage against Hungry Jack, Burger King, Yum Foods and the local competition.
MACS (Market Activated Corporate Strategy Framework) highly represent the most recent thinking of McKinsey in the department of strategy and Finance. The model which was an extension to the McKinsey GE Framework in the similar manner offers a systematic approach for the MNC to prioritize its investment in the business units. The MACS framework in the similar manner as that of McKinsey GE framework evaluates the option to consider on the basis of market attractiveness and the competitiveness. However, an addition of analysis to deciding which option will extract the best value for the business can be identified with the help of the model (Marquis & Raynard, 2015).
The key insight of MACS is estimating the ability of the business organization to extract value from a business unit in reference to other potential owner of the business. The MACS matrix has replaced the axes from the 40 year old McKinsey model measuring the market attractiveness and the ability of the business unit to compete in the market with a single horizontal axis, which represents the business unit’s potential for creating a standalone enterprise. In the similar manner the vertical axis is the representation to measure the organization’s relative ability in extracting value from each business unit.
The MACS Model to Prioritize Business Units
(Source: Yaprak, Tasoluk & Kocas, 2015)
As explained earlier McDonald understands the importance of business innovation in its business practices, food menu, packaging, delivery, online ordering, in store experience, new product offering and fresh patty and is actively changing the gear towards sustained innovation. However, it is not possible to work simultaneously on all the business innovation at the same time. Thus, the company is focused on its Digital innovation strategy and wants to build the restaurant of the future as a start-up.
In accordance with the MACS framework, digital revolution is something that the company cannot ignore, and it is one of its strongest innovation suites to achieve a competitive advantage which is fuelled by market attractiveness and profitability. The digital team at McDonald grew from 4 people to 130 people and the management wanted the team to re-imagine the restaurant experience of tomorrow. The digital innovation strategy was focussed on two parameters both being highly contextual to the present industry scenario:
Customer Experience- The Company wants to build digital products for its specific future in terms of ordering, payment and mobile. McDonald in order to do so, have shifted from agency and created its own digital team which is focussed on creating a unique digital restaurant of the future.
Customer Engagement-Here the company is aspiring to add features of engagement on social media and the application with its customers. The company wants to ensure that people engage on high levels with the digital innovation of McDonald and have a never to be found experience.
This strategies in tandem to the MACS framework for the digital innovation team at McDonald are:
- Improving the in-store experience of the customer by offering them the control of the restaurant, this can be done by customizing the menu at the table, which the customers would like to meet and many more.
- Giving the customers to integrate ordering while driving, this will be a killer integration and most definitely one of the most useful innovations.
- McDonald is creating an Uberification of its food
Thus, it can be easily said that the Digital innovation is the most viable and need of the hour opportunity for the McDonald in reference with the MACS framework, using the digital landscape as its growth vehicle.
Conclusion
Innovation is the pre-requisite of every business organization and more so in industries which are characterized by high industry rivalry. McDonald the American Fast Food Chain restaurant has to innovate rapidly to maintain a competitive edge and work towards the model of business sustainability. The company’s innovation is based on the pillars of Store restoration, digital ordering and delivery and menu innovation. The company which faces tough competition from Burger King and Hungry Jack is prioritising Digital innovation at McDonald to create a restaurant of the future for its customers.
References
Ayling, C., Chan, C., Driver, E., Fletcher, S., Haugen, J. and Livingston, K., 2015. McDonald’s Canada’s 50th Anniversary Campaign.
Bereznoi, A., 2015. Business model innovation in corporate competitive strategy. Problems of economic transition, 57(8), pp.14-33.
Christensen, C.M., Raynor, M.E. and McDonald, R., 2016. What is disruptive Innovation. The Encyclopedia of Human-Computer Interaction, 2.
Cox Pahnke, E., McDonald, R., Wang, D. and Hallen, B., 2015. Exposed: Venture capital, competitor ties, and entrepreneurial innovation. Academy of Management Journal, 58(5), pp.1334-1360.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Halkos, G.E., 2015. Climate change actions for sustainable development. International Journal of Innovation and Sustainable Development, 9(2), pp.118-136.
Harding, S., 2017. MBA management models. Routledge.
Johnson, G., 2016. Exploring strategy: text and cases. Pearson Education.
Leavy, B., 2014. India: MNC strategies for growth and innovation. Strategy & Leadership, 42(2), pp.30-39.
Loredana, E.M., 2016. The Use Of Ansoff Matrix In The Field Of Business. In MATEC Web of Conferences (Vol. 44, p. 01006).
Marquis, C. and Raynard, M., 2015. Institutional strategies in emerging markets. The Academy of Management Annals, 9(1), pp.291-335.
McDonald, M. and Wilson, H., 2016. Marketing Plans: How to prepare them, how to profit from them. John Wiley & Sons.
McDONALD, M.A.L.C.O.L.M., 2016. Strategic marketing planning: theory and practice. In The marketing book (pp. 108-142). Routledge.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.
Souto, J.E., 2015. Business model innovation and business concept innovation as the context of incremental innovation and radical innovation. Tourism Management, 51, pp.142-155.
Tsakalerou, M., 2015. GE/McKinsey matrices revisited: a mixed mode tool for multi-criteria decision analysis. European Journal of Contemporary Economics and Management, 2(1), pp.92-98.
Yaprak, A., Tasoluk, B. and Kocas, C., 2015. Market orientation, managerial perceptions, and corporate culture in an emerging market: Evidence from Turkey. International business review, 24(3), pp.443-456
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