Names: Nektaria Antoni, Katerina Sinebrohova, Chareclea Psatha

Course: Tourism Management (year 3)

Subject Title: Business Strategy

Assignment Title: The coursework involves the research

and analysis of a strategic issue in a company within the hospitality or tourism industry of the students’ choice. The analysis must use a range of techniques and data (both quantitative and qualitative). The assignment requires the students to assess the business environment and the strategic challenges that confront organisations and the people within them.The coursework involves the research and analysis of a strategic issue in a company within the hospitality or tourism industry of the students’ choice. The analysis must use a range of techniques and data (both quantitative and qualitative). The assignment requires the students to assess the business environment and the strategic challenges that confront organisations and the people within them.

Lecturer name: Mrs Marinakou

Hand in date: 21st January 2011

Number of words:

ContentsIntroduction.......................................................................................................3

The company....................................................................................................3

Business Strategy............................................................................................3

Three components of strategy..........................................................................3

The Business Strategy of McDonalds..............................................................4

SWOT Analysis................................................................................................6

Strengths..........................................................................................................6

Weaknesses.....................................................................................................7

Opportunities....................................................................................................7

Threats.............................................................................................................8

Porter Five Forces Model.................................................................................8

PEST Analysis..................................................................................................8

Political factors.................................................................................................9

Sustainable Competitive Advantage...............................................................10

McDonald’s Sustainable Competitive Advantage...........................................11

Entering new markets.....................................................................................13

Mc Donald’s New Market................................................................................13

Research........................................................................................................14

Advertising......................................................................................................15

Success..........................................................................................................16

References.....................................................................................................16

Introduction In this assignment we will examine and evaluate the business strategy of the

fast food chain Mc Donald’s. We will look into all the key elements of their

business strategy and the methods they use to sustain their success. We will

also look into a new market they have entered and how successful they have

been.

The company

McDonald's is the leading global fast food retailer with more than 32,000 local

restaurants serving more than 60 million people in 117 countries each day.

More than 75% of McDonald's restaurants worldwide are owned and operated

by independently. Mc Donald’s is well known to the world for serving, World

Famous Fries, Big Macs, Quarter Pounders, Chicken Mc Nuggets, Egg Mc

Muffins and many more. Mc Donald’s constantly update and improve their

menus to ensure customer satisfaction. The strong foundation that was built

in the 1940s when the company was founded continues today with

McDonald's vision and the commitment of their talented executives to keep

the shine on McDonald's Arches for years to come.

Business Strategy

According to Chandler, “Strategy is the determination of basic long-term

goals and objectives of an enterprise and the adoption of courses of action

and the allocation of resource necessary for carrying out these goals.”

(Chandler, 1962)

Three components of strategy

Chandler‘s definition of business strategy is very good because it indicates

what makes up a successful strategy. When creating a strategy one must

always have objectives. According to Chandler’s theory one cannot succeed

without objectives. Objectives vary within different types of businesses this is

what differentiates business strategies. Each company designs and follows a

strategy according to their aims and objectives.

The term “adoption of courses of action” refers to the actions one takes in

order to reach their objectives. For example in the case of Mc Donald’s they’re

objective is to offer a fast and quality service to their customers. In order for

them to be able to meet this objective they had select and train staff to that

required standard.

The third main component of strategy is the allocation of resources. This

refers to the fact that there is a likely cost for the actions that will be taken to

achieve the objectives. If the course of action does not sufficiently support the

level resources then the objectives will not be accomplished. This is why

strategy is split into three components. All three of the components need to

be completed in order for a strategy to be successful. In order the

components to be completed successfully and for the strategy to work the

correct recourses must be found.

The Business Strategy of McDonalds

McDonalds is one of the most successful companies globally in order for them

to have achieved their success they used many business strategies. The

company’s strategies are very much based on the theory of Richard L. Daft,

“The analyzer tries to maintain a stable business while innovating on the

periphery. It seems to lie midway between the prospector and the defender.

Some products will be targeted toward stable environment in which an

efficiency strategy designed to keep current customers is used. Others will be

targeted toward new, more dynamic environment where growth is possible”.

The pie chart below shows how the large chain of McDonald’s restaurants

duplicate all over the world especially in Europe and the USA which make up

65 % of all McDonald’s restaurant and 75% of its revenues. In order for them

to be able to satisfy all of their potential clients and to attract new ones

McDonald’s come up with different marketing campaigns for each region. The

reason behind this is because consumers in different countries have different

needs therefore they use different ways to attract them.

A vice-chairman of the company, Jim Skinner quoted, “if you are looking for a

command centre with one push button that operates our restaurants in every

corner of the world you won’t find it”. What Skinner meant was that even

though McDonald’s is a chain and promises to give the same quality of

service in every store around the world there is no fixed plan of how to work

as in each country the consumer needs vary therefore they adapt their

strategy to the countries. For example when McDonald’s opened in China it

was not very successful as the food was not to the Chinese peoples’ taste. In

order to become successful and increase the demand in the region they

introduced more Chicken meals including Chinese spices.

The company’s business strategy concludes that they must provide

customers in each country with the same standard of hygiene, service,

packaging, low prices and value for money, standard menu with additional

products in each region for example in Greece you can find the “Greek Mac”

which is not available in other regions.

One of the cleverest strategies McDonald’s used was the introduction of the

“happy meal”. The “happy meal” is a meal that was introduced for children

with the meal the child receives a toy that changes according to trends. This

was a very clever way to start attracting small children and giving them the

motive to start collecting the toys. This was a very good way to market

McDonald’s because the children tell each other about the meals “word of

mouth”.

SWOT Analysis

SWOT stands for strengths, weaknesses, opportunities, and threats.

Strengths and weaknesses are internal factors. Opportunities and threats are

external factors. It is the first stage of planning and helps marketers to focus

on key issues. By carrying out a SWOT analysis one can identify what they

are doing wrong but also what they are doing correctly. This is an easy way

to evaluate the company’s success and to improve the company’s strategy

and find solutions for any problems in the strategy.

Strengths

As a company McDonald’s have many strengths, in fact they seem to have

more strengths than weaknesses. The fact that they have so many strengths

is a major advantage for the company. These strengths are:

Large Market share

They promote ethical products

Strong position and financial performance

Strong brand name, image and reputation

Availability of nutritional information on packaging

They plan to win focuses on People, Products, Place, Price and

Promotion otherwise known as the 5 Ps.

Strong performance and position in the global market

Specialized staff training to ensure high quality of service

Strong supply chain

Risk diversity

Although all these strengths are very important to the company’s success

some are more important than others. For example the fact that the company

has a well respected image, brand name and reputation has a large impact

on the company’s success. In the food market especially the company’s

whole image, reputation is very important in order for a company to be

successful.

Weaknesses

The company just like every company has some weaknesses. Although there

are not many weaknesses they do have to be taken into consideration and

must not be underestimated. One of the biggest weaknesses the company

faces is the unhealthy food image. As McDonald’s is a fast food Chain

stereotypically and traditionally fast food places are seen as unhealthy. They

employ a large amount of staff that means there are high costs in the staff

turnover department. Another main weakness is the one that most

companies face in any industry fierce competition. There are many other

services that compete with McDonald’s such as Burger king and KFC.

Opportunities

McDonald’s also many opportunities as a company. These opportunities are:

Consolidation with retailers likely to have better locations for

franchises.

They respond to social changes that take place e.g. healthy eating

range.

Strengthening its value proposition

The new services McDonald’s offer the introduction of Mc Cafe,

availability of free WIFI internet, play parks for children and focusing on

healthy food range.

International expansion into parts of Africa and Asia

Growth of the fast food industry

Low cost menu that attracts customers

It is important for McDonald’s just like any other company to take in to

consideration and take advantage of the advantages in order to maintain and

increase the company’s success.

Threats

The threats the company faces are similar to all threats international

companies today face. One of the main threats is the global recession that is

taking place. Health experts accusing McDonald’s of contributing to health

problems such as diabetes, cholesterol and blood pressure. Another main

threat is the fact that McDonald’s are an American company and there is a lot

of racism towards the Americans.

Porter Five Forces Model

Porter’s Model is made up of five forces, these five forces are:

Strength of Supplier

Competition

Strength of Buyer

Substitutes

Ease of Entry

All of these five points are very important in maintaining a business’s success.

The restaurant industry is a very competitive industry. Fast food industry is

becoming more and more competitive as there are many small companies in

the industry as well as the large ones. In order to limit the competition Mc

Donald’s tries to differentiate their products. To try and enter the food industry

it is difficult and especially to gain a good reputation and brand name. In the

industry there are many substitutes as there are many products that can be

chosen to be substituted. The suppliers in the fast food industry do not have

much power as many of the products are ready made. The buyer has a lot of

strength as they are what keep the company alive.

PEST Analysis

PEST analysis stands for political, economical, social and technological

factors of a company. The PEST analysis method is used vey often in looking

at business strategy and Success.

Political factors

All international operations of McDonalds are tough controlled by the

government because of health problems, like cholesterol, obesity and

cardiovascular concern. McDonalds Company has to give mutual benefits as

tax. Also company should to protect the employees by full hiring,

compensations, training etc.

Economic factors

McDonalds as an international company have to be alert on the global supply

and currencies exchange. Because not all local markets have an abundant of

products, McDonalds have to import the largest part of its raw material like

potatoes and beef to gather the demand of its product. Any change in the

rates of currencies and especially dollar influence on its cost of purchase.

McDonalds must follow the regulation of each country, where exits the

difference in scales and tax between them. The company has to pay both tax

on profit and entertainment and restaurants service tax. Stores must to shell

out the percentage of the profits to a mother company in the USA. Also, the

country’s economic conditions affect on incomes of the company.

Social and cultural factors

McDonalds pay a huge attention to its customers, their preferences and

needs, because of variety of countries and its cultures. So, McDonalds

launched new different menu for each country where stores located. For

example, McDonalds should the changes in the menu in such countries like

India, where people don’t eat beef, in Muslim countries where prohibited to

eat the pork. To attract German clients should be offered a good quality beer,

for Finnish menu with accent on fish, for Americans big-sized menu etc. Also

to attract teens and business class clients, company introduce such facilities

as relaxing and comfortable place, wireless internet, credit card payment etc.

Technology factors

McDonalds must to improve itself all the time in sphere of technology and

innovation, like in inventory system, provide chain management system to

supervise its supply, easy payment and ordering systems for its.

McDonalds and the last promotion campaign “loving it” had a huge success in

the market. McDonalds bring in new technologies like wireless internet, play

spots, computers with the games, happy meals.

Legal factors

McDonalds have to protect client’s confidence and its honour by ensuring all

materials and process as it’s claimed by the law. Another law issues that

company must followed are working hours, business registration, tax

requirement, labour and employment laws and quality and environment

certification.

Sustainable Competitive Advantage

For a company to have good productivity, constant demand and long-term

success in the consumer market the organisation needs to have sustainable

competitive advantage known as SCA (Hoffman).

Discussions related to SCA began with Hall (1980) and Henderson (1983).

Both Hall and Henderson recognised that firms must do something unusual

and different to their competitors in order for them to survive.

The first official definition of SCA was proposed by Barney (1991) he stated “A

firm is said to have a sustained competitive advantage when it’s implementing

a value creating strategy not simultaneously being implemented by any cured

or potential competitors and when these other firms are unable to duplicate

the benefits of this strategy”.

In other words we can say that SCA is an advantage that one firm has over

another, with a creating a strategy which is impossible to imitate by their

current and future competitors. The SCA of a firm must be something new,

sustainable, and difficult for other companies to repeat and must be useful for

any kind of situations.

These advantages can be the product, brand, customer care dynamic, the

cost structure or its patterns. From all the benefits the more sustainable of

them should be owned or distinctive to be considered (Prahald and Hamel,

1990).

There are some general strategies that are needed in order for SCA to be

successful they are as followed:

Overall cost leadership for example low-cost position, management of

the relationships throughout the entire value Chain.

Differentiation, creating a product or services that are unique in

comparison to others and are valued.

Focus strategy, narrow product lines, buyer segments or targeted

geographic markets and to attain advantages wither through

differentiation or leadership cost.

McDonald’s Sustainable Competitive Advantage

Both the managerial and organizational process should share a good

integration and coordination. The 'value' that is much needed is created as

everyone works towards a common goal. The organization should be ready

to learn and react to changes according to the needs and must always be

flexible to changes in the environment such as customer trends, legal or

government restriction and developments in the technology. Presently

McDonalds is focusing on this advantage by concentrating on organizational

behaviour and managerial expertise. In the past this advantage was ignored

as the organisation was more into expansion of its outlets over the globe than

trying to strengthen its core advantage. As a result the company’s revenue

didn’t seem to change so they decided to change their managerial method.

Technological, structural and financial assets of a company have a big impact

on the company’s sustainable competitive advantage. McDonalds is rich with

aspects like structure, technology and finance. In order to be able to

recognize and put into practice these assets in the direction towards the

improvement of the company is all that is required. Since 2003 the company

has made it its priority to concentrate on its greatest advantages.

The company’s greatest advantage is the vision or the dream that they

started. The ability to sustain this dream over a large period of time is any

companies' greatest advantage. McDonalds originally began in order to help

people who had little time to cook or were busy and could not afford to dine at

a “proper” restaurant. The vision was to provide cheap quick service, with

quality satisfaction. Over the years the company have tried as hard possible

to stick to this vision and to make it successful.

In simple words and to sum the term up sustainable competitive advantage

means putting into practice the best value based strategy using all the unique

advantages to the company that cannot be copied or replicated by any other

competitors. The importance of the sustainable competitive advantage can

be obvious by what investment guru Warren Buffet gave as an answer when

asked about how he evaluates his investment portfolio. He simply answered

'sustainable competitive advantage'. Based on the dynamic integrated and

intelligent human resources can always be the only dependable and

sustainable SCA.

Today everything is outsourced from employee appointment to finance and

customer care. In many cases no organisation is one of the best ways in

which to handle many different types of work. Sometimes concentrating on

every detail is not possible especially with companies such as McDonalds.

Great care however must be taken in order for them not to outsource the

company’s core competence. The main advantages of outsourcing

competitors are to provide cheap service, knowledge of markets offshore,

flexible resources, speedy operations, .expansion in supplier relationship and

so on. One of the ways McDonald’s decided to use in order to ensure they

offer an efficient service is the drive through. The drive through means

customers wanting takeout meals can do that from their car, this means that

cues in the store will be reduced and customers in a rush do not have to

waste time getting out of their car.

Although now McDonald’s is now one of the most successful fast food

services globally when it first began it had many competitors and it was very

difficult for them to succeed in the market. Today it is the biggest and most

well known fast food service globally and this is mainly due to its good

reputation and high standard of service. When the business first began there

was no guarantee that they would succeed. However they managed to not

only succeed but become one of the biggest companies worldwide, this is

mainly due to their clever strategy and their high standard of service.

McDonald’s made marketing a big part of their strategy. They spent a lot of

time and money in order to market all their products new and old in the correct

way. They used many methods to carry this out and made sure they were

becoming a big part of people’s everyday lives no matter the age group.

Entering new markets

Identifying and pursuing new markets requires one to explore and play

outside their traditional business boundaries. Learning and decision-making

about how to address new competitors, consumers, customers, partners,

suppliers and other market dynamics is required as the company will be

entering unfamiliar territories.

Entering a new market with an existing product or service can be difficult but

introducing a new innovation into a new market is even more challenging. A

large amount of research had to be conducted in order for the company to

decide whether their product or their new product would be successful in a

new market. However entering a new market does not only mean expanding

your company but just differentiating an existing product and using a different

marketing method. The majority of companies operate successfully in niche

markets without ever expanding into new markets. A niche market is what is

known as a focused, targetable portion of a market. Many businesses find it

makes sense for them to expand into new markets to increase their turnover,

increase profitability and market share.  Many companies are creating as

much value as they can by cutting costs and look to grow domestic markets,

as well as construct new markets and revenues in overseas markets. 

Mc Donald’s New Market

Mc Donald’s is traditionally known as a fast food restaurant selling burgers,

nuggets, chips and so on. In 2004 they decided to enter a new market

making healthier food options such as salads and a deli bar. This new type of

food that Mc Donald’s was offering made them differentiated them from other

fast food companies. Although the new healthy range is not the main source

of income for Mc Donald’s it has changed their image. Before Mc Donald’s

was seen as a “junk food” restaurant whereas now it is also considered for

healthy snacks. They have also entered a new target audience.

Research

We carried out a research in a few Mc Donald’s restaurants in London asking

customers how they’re view of Mc Donald’s changed with the healthy food

range. From this survey we wanted to see how successful Mc Donald’s were

with their new market. We decided that the most effective way to gather this

information was to ask the customer’s themselves. We decided to visit the

restaurant located in London’s Oxford Street. The reason behind this decision

is because the restaurant is located in the centre of London and in one of the

busiest streets in the whole of the country. Another reason why we selected

this store is because there is a wide variety of customers that belong to both

different age groups, different careers groups. Due to this wide variety we

thought that it

would be a good

way to create a

more accurate

view.

We asked 100

people at random

50 of them being

25 and under and

the other 50 were

25-55. We decided

to split them into two categories because usually the under 25s are either

students or single, whereas 25-55s are stereotypically more mature and

usually are in very different stages in their personal lives. Half of the people in

the categories were females and the other half males. From our research we

found that there males and females had very different views. Most of the

male under 25s were not influenced a large amount by the new healthy food

range in fact one of them quoted “If I wanted healthy food I would eat at

home”. Although there was a rare few around 20% of the population we

asked that thought it was good that the variety was available. Around 30% of

females under the age of 25 said that it changed the stereotypical view that

they had of Mc Donald’s however they don’t usually eat food from the healthy

food menu however the other 70% said it didn’t influence them at all and they

still see Mc Donald’s as a regular fast food restaurant. In comparison to the

younger category they over 25 said that the new healthy range that Mc

Donald’s offered changed the views towards the chain a large amount. The

females said that it was very good as many of them were on diets or on

healthy eating regimes so this made it easier for them not to ruin their diet.

60% of the females in the category of 25-55 that we asked worked in or close

to Oxford Street and said on many occasions they now eat or buy take out

lunch from Mc Donald’s whereas in the past they wouldn’t have. The males in

the category of 25-55s had a slightly different view to the females. 40% of

them said they know about the healthy food range but it wasn’t as attractive to

them as the other meals on the menu. The 60 % said that although they don’t

often buy salads they do however buy Deli Sandwiches as a healthy fast

lunch option.

Advertising

Mc Donald’s needed a very effective way to advertise their new food range.

The most effective way of course was television advertisements. The target

age group they were aiming to attract was 20-40. They decided to play

advertisements after 7 o’clock pm when more adults watch television. They

also advertised by putting posters up on bill boards inviting people to come in

and try the new range. Another way they thought would be very effective was

radio commercials. They reason why they used these marketing methods

was because they believed that they were three ways that were incorporated

in people’s everyday lives whether they are at home, out or at work. It is also

the most attractive of attracting people to any product even more so a food

product.

Conclusion

The conclusion we came to from our conversations with both the staff and the

customers and also from our observations is that although the healthy food

range has given Mc Donald’s a whole new healthier and more respected

image it is not the most popular product they are selling. They have managed

to attract a new target audience but their larger portion of customers are the

same as they were before and they usually chose to eat from the traditional

menu. Even though the new healthy range has not contributed a large

amount to Mc Donald’s success it has made some changes at it has proved

very good for the company.

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