MAF745
ADVANCED STRATEGIC MANAGEMENT
INDIVIDUAL ASSIGNMENT 2
Mc Donald’s
NAME
: AMIR MUHAMAD DANIAL BIN MOHAMAD SUHAIMI
CLASS
: AC704F1
STUDENT ID
: 2020262124
LECTURER
: DR ZARINAH BINTI HJ ABDUL RASIT
1. What situation did Easterbrook inherit he became CEO?
When Steve Easterbrook took over, there are several situations that he inherits when he
becomes CEO. In global issues, there are 3 main contributions that influence the reduce in
sales of the company. Firstly, the sales in Asia and the Middle East had fallen sharply which
are mainly due to the food safety concerns with a Chinese meat supplier. Furthermore, there
is a slowdown of the port in LA that caused a shortage of the supply especially French fries.
This affect the company as 30% of their sales mainly comes from fries, Big Macs, hamburgers,
cheeseburgers, and McNuggets. This affects events affects several markets. Then, some of
their outlets in Russia were temporarily closed by food inspectors. It was found that this issue
arises are due to Western sanctions against Russia over its military intervention in Ukraine.
Since that McDonald’s are based in the United States, it is expected that its largest market
is in this country. McDonalds has lost a lot of ground consumers due to several factors. The
main cause of loss of customers are due to changing tastes, which can be seen from its
competitors such as Chipotle Mexican Grill and Panera Bread. These competitors offered a
differentiation strategy which allows them to customize their ordering and using fresh
ingredients. Furthermore, McDonald’s and other competitors such as Burger King and
Wendy’s are losing their customer due to a new designer burger outlet such as Five Guys and
Shake Shack. This cause them to be outdated in term of presentation for their customers.
2. What are the current forces in the external environment that might affect the new
CEO?
The current forces in the external environment might affect the new ceo. In order to analyse
the external environment, PESTEL analysis can be used,
Politics
In term politics, it will significantly effect on how McD operations. Since that McD has outlets
in various countries, every political decision made by the country would affect them. For
instance, some Russian outlets were temporarily closed by food inspectors as retaliation for
Western sanction against Russia over its military intervention in Ukraine. Political decisions
and instability have a significant effect on McD, in this case, their outlet could not operate for
illogical reason since that McD has to be closed down their outlet temporarily due to political
circumstances that they have no control of. Mcd would still have to incurred fixed cost even it
could not operate, thus this shows that political decision and instability would affect the
performance of the company. The company should properly analyze on the country political
stand before venture into it.
Economics
The decrease in revenue might be a sign of economic downturn. This may be due to variety
of choice for the customers. As the fast food industry is growing, the number of competitors
arose, this provide a wide range of options for the customer to choose which fast food they
prefer. Since that McD operates in many countries, even if the revenue is high, if the currency
of that country depreciates, the value that will be converted to USD will be low. Furthermore,
if the company acquired their supply in foreign country, this will significantly affect the cost of
sales. Especially if the currency increases against USD which in turn will reduce the revenue.
Social
The preference of consumers is very important for the sustainability of the company. This will
affect on the which fast food they want to go as their first choice. In this situation, the
awareness of healthier food is raising among consumers. US is in the rise of obesity and a
documentary ‘Super Size Me’ has pointed out that McD as one of the main threats for declining
healthy product consumptions among consumers. Furthermore, there is a change of customer
preference especially among the millennials; who are defecting towards their competitors
since that it offers new design and taste.
Technology
Technology has played a crucial part in the operation of McD. The company able to fully utilize
this as a main competitive advantage and applied these technologies to all of their outlets. For
instance, the technology of drive-thru, and machine order where the customers does not have
to queue just by simply inserting their orders and could wait for their food being delivered to
their tables.
3. What source of competitive advantage does McDonald’s having, and is that position
supported by its value chain and other internal resources?
The source of competitive advantage that we can see being used are by McDonald’s in the
early phase are cost leadership. This can be seen as the primary source of competitive
advantage for fast food chains. After Easterbrook becomes the CEO, he changed the source
of competitive advantage to differentiation for the company. Differentiation can be achieved
by providing a unique and different product or services towards their customers. However,
even though McDonald’s applied differentiation strategy, it is worth to note that they have to
still keep their selling cost as low as possible as the main purpose of fast food is to provide
fast and cheap food. The main method to analyze these differentiations can be used by using
Value Chain analysis. The value chain analysis consists of two main functions which is
Primary Activities and Secondary Activities.
Primary Activities
Inbound Logistics:
There is no changes in their inbound logistics. This may be due to standard purchase from
the same suppliers that McDonald has made contract with. For instance, the soft drinks are
exclusively from Coca-cola. Regarding raw materials, the salads are obtain in bulk and
managed by the headquarters to deliver to its outlets. Furthermore, this can be seen as a
problem since that they have a fixed supplier, they might have to expand their suppliers. There
is a problem with safety concerns of Chinese meat suppliers and shortage of French fries.
This can be considered as strengths for the company.
Operations:
Furthermore, to attract more customers, there are two solutions suggested by Cantalupo at
that time which to increase their sales. The first solutions, he suggested that refurbishing the
outlets would increase the company sales. It was just that customers eat with their eyes first.
Thus, they tried made their restaurant appealing, contemporary and relevant both from the
street and interior to attract more customers. The second solutions provided are extending
the operation hours of each outlet. This can be considered as strengths for the company.
Outbound Logistics:
The company currently has two method of outbound logistics that are simple which is dine-in
and drive-through. Franchises with a drive-through provided a feature which included music
that are aimed at queuing vehicles and a small window to allow the customer to see their
meals being prepared. This can be considered as strengths for the company.
Marketing & Sales:
In term of marketing, the company revamped their menus by increase the emphasis of salad
through a new slogan which is “I’m loving it”. To reach their target audience, the slogan was
delivered by pop idol Justin Timberlake through a set of MTV-style commercials. This can be
considered as strengths for the company.
Service:
McDonalds is one of the largest food chains in the US. Thus, it is important to for them to
ensure that all of their outlets and franchises could maintain an acceptable level of service.
The company has stopped their once-vaunted service and quality since its expansion in the
1990s. furthermore, they stopped grading their franchises speed and service. However, they
would still remain one of the fastest fast food services in the US as they came third in the
industry for average service time. This can be considered as strengths for the company
however, it would be a weakness if the company does solve this issue.
Secondary Activities
Technology Development:
McD has introduced a kiosk for their customer to order food. This allows them to skip queuing
and enables them to order directly what their want and customize their foods. Technology
plays a significant role as it will affect on the way of cooking and preparing their product to the
customers.
Firm infrastructure:
McD refurbished their stores across US in a short period. This action is achieved through
shared cost with the franchisee when the company was not company owned.
Human resource:
McD struggled hard to find new recruits, hence the company began to cut back on training.
As a result, there is a dramatic falloff in their employee’s skills. Their employees have a low
skill due to this. The company must ensure that their employee skills are maintained and
increased. To successfully implement this, they should provide training and frequently monitor
their performances. This can be considered as weakness for the company.
Procurement:
Based on the scenario, we could only suggest that McD provide a platform for their franchisee
to easily managed and purchase their raw materials.
There are several weaknesses that can be identified based on McD value chain analysis. The
company needs to improve their value chain in order to delivered high value product and
services towards their customers.
McDonalds has an adequate internal resource both in term of tangible and intangible. These
resources need to be managed effectively and efficiently for the company to compete with
their competitors.
Branding:
The company has a very strong branding which is one of the core strengths for McDonalds.
As one of the largest outlets, they should maintain it as one of their competitive advantage.
Branding are relatively important for every business; it could influence the choice of customers
based on the firms branding. We can see that McD is attempting to make their product as a
lifestyle brand rather than just a fast food chain. The company owns almost half of the US
market share for fast food burger
Innovation:
McD has a variety of innovation in their product line. Their product does not only consist of
burgers but also salads, fries, and a McCafe. Furthermore, they managed to innovate a
customizable kiosk to attract younger customer. Innovation is an intangible resource which
can be obtain by thorough planning and brainstorming. It is one of the important aspects for
McD to remain competitive.
Finance:
The company financial resources are strong and are managed very efficiently. This can be
seen when they managed to refurbish all their outlets. Although the company has a decrease
in revenue of 7 percent in the last quarter of December, the company aware of the issue and
making adequate arrangements to ensure that their financial performance maintained.
Physical Assets:
In term of physical resources, the company has a large amount of physical assets in their
restaurants as they 35,000 restaurants. If the company faced a financial crisis, they could
liquidate their assets to sustain in the long run. In daily business operations, the outlet must
fully utilize and properly maintained their assets to ensure that there is minimal error in
delivering their product to customers.
4. What steps could Easterbrook take to fix the problems McDonald’s faced.
McD has greatly expanded their menu which lead to a significant increase in costs and
longer preparation times. This is because having a various menu would cause more space
and equipment to be used to prepare each menu. Furthermore, this would cause the
employee having difficulties in remembering all the menu simultaneously made having new
recruits a problem. The existing problem of staff performance are deteriorating would make
the situations worse. Fast food chains are well known for having high turnover, before
pursuing a higher-level education. This can be seen when the company provided millions of
Americans their first jobs. Then, out of 35,000 outlets, only 14,200 outlets are fully owned by
McD franchise. The company might face problems if their franchisee are unhappy with the
management.
a growing number of competitors which cause consumers especially millennials to defect
from traditional fast food to a new designer burger outlet which also at the same time provided
a new taste in the industry. In order to fix the problems, Easterbrook could make some
changes to the company.
Firstly, since that there are wide range of menu in their product line, Easterbrook may
simplify the menu based on the most favorable and low cost. Since that there is a changing
in taste, McD has to comply on the highest demand product. This will attract more customers
rather than providing all sorts of menu. However, for the least favorable product, they could
rebrand it and make it a seasonal product. This would create a demand for the customers
since that it can only be obtained in a limited period.
Then, human resource is very crucial as there are many outlets, McD would require many
employees to continue to operate. The main problem that this industry has is that it has a high
employee turnover. Easterbrook should provide a secured career plan for their employees.
This would allow them to settle down and make McD as their career. Benefits for employee
should be provided based on the employment period. The longer their employee have served
the company, the higher benefit would be given. Then, performance incentives are required
to all outlet to ensure that their employee are motivated to perform well and increase their
skills.
Finally, it is important for McD to manage their relationship with franchisee. Since that
more than half of the outlet in US are from franchisee, it is safe to assume that the franchisee
contributes a significant portion of McD revenue. Easterbrook must provide to give certain
amount of power that would not change the franchisee outlets to keep happy. This is because
some owners are not profit oriented, and they are motivated power, thus giving them certain
power would ensure that they do not go far off from McD mission and vision such as the power
to manage their employee. Furthermore, Easterbrook should ensure that the franchisee would
not given too much power as they might intervene with the management of McD.
As conclusion, these are the initial steps required by Easterbrook if he wants to fix the
problem faced by McD. There are various stakeholders that should be taken care of to ensure
the sustainability of the company. Thus, Easterbrook may use Mendelow’s Matrix to analyses
which stakeholders should be taken care first.
5. What other strategies did McDonald’s formulate to achieve a competitive advantage
McDonald’s has formulated various strategies to compete in the US market. As there are
rising competitors in the US market and globally, it is crucial for the company to remain
competitive. Furthermore, a change of taste would require the company to enhance their
product so that it would remain in the heart of the society. It is important for McD to apply
startegies that could create value for the company.
The arises of food safety problems with the Chinese meat suppliers shows that there is a
problem in the procurement of raw materials in term of quality and cleanliness. McD has low
power in managing these scenarios as there are not many suppliers that could provide a high
amount of demand on daily basis for McD. Thus to counter this issue, the company should
involve consider to merge, acquire, form a strategic alliances, joint venture or internal
development. By doing so, the company would have power and could acquire raw materials
based on the quality and standards they desired.
McD should have a wide range of product diversification as a source of competitive
advantage. Diversification of product would allow the company to attract a wide range of
customers. For instance, previously, the company only attracts burgers enthusiast, but after
creating McCafe, they could attract coffee drinkers into their store. By attracting more
customers, McD could manage their marketing to attract these coffee enthusiasts to spend
more than just a cup of coffee, they could influence these customers to spends on meals too.
Since that McD is one of the largest fast food chains in US, they should focus on expanding
their product across the globe and strive to be the largest food chain in every country. If they
decided to expand to other countries, McD should focus on countries that have low
competitors. It would be easier to penetrate these markets as McD wouldn’t have to compete
with others. A thorough of Porter’s Diamond Model can be used to analyze the countries that
McD intends to expand.