One of the largest retail food organizations in the world, McDonald’s has a presence in more than 100 nations at about 36,000 places. The strategic change analysis of McDonald’s is crucial because it has survived through a series of strategic changes.
The competitive advantage set by McDonald’s is being the operationally efficient player in the industry. Founded by Ray Kroc, the organization caused a revolution in the fast food sector in its native nation of US. The secret was the use of discipline and complicated production processes and an effective delivery system. The operations regularity provided McDonald’s a corporate identity, which is taken as a model for many.
The identity of a corporate organization is represented by the strategic tendencies the Company chooses, values dominant in that workplace and the corporate beliefs on how strategic decisions can be made and distinctive competencies can be set (Businessballs.com, n.d). Mc Donald’s has set one such identity through its strategic shifts from time to time.
There were many strategic shifts in McDonald’s, and the success and failure of these shifts can be measured using the increase or decrease in customer bases and revenue for the period following the shift. The company has adopted several forms of strategy to address and respond the challenges posed by the changing environment (McDonalds Case Study, 2012). For the Company McDonald’s, the strategic success and failure can be distinctly identified in two distinct phases and the analysis of success and failure has been done on the same criteria.
The Time when Strategic change was required, the failure of strategic shift
There were two primary thrusts on which the strategy of growth adopted by McDonald’s was based. The first was that the franchisees would pay a certain amount of their sales to McDonald’s and, McDonald’s has its own lands and network stores which mean that the revenues can be added. It is often thus said that there are two ways McDonald’s makes money: through real estate and hamburger.
It was during the years of 60s and 70s that the Company decided to crux its strategy of growth on the component of real estate with the purchase of additional restaurants and lots. This increased the financial leverage of the Company. The major strategic changes taken by the Company could be described as:
International presence: The first strategic change
As soon as McDonald’s took to international markets, it gained strength. The high success rate in international markets meant that the original value of the Company was in danger and was a result of certain reservations from the company’s side. The management of franchises was getting quite careless with lower control and problems in time and quality management. Because of this, the Company decided to stop the assessment of franchises in 1993 as per the national standards. This distorted the distribution network that severely affected the competitive advantage that the Company had set. It was falling behind its closest competitors in terms of service, and the same was being publicized in magazines and media. Accuracy was one area where McDonald’s was the best player in the market.
There was thus a time when the service qualities were deemed as lagging in standards and slow, quality accused of being inconsistent, and staff accused of being off courtesy. The manic approach that the Company wanted to take on its growth thus affected the operational excellence goal that the Company had. Another effect was on the quality and speed of service, for which the Company was well known. There was thus alignment problem in the corporate identity and corporate performance. The external threats increased as well, causing the company to be more vulnerable to market threats.
Managing the health concerns: The second strategic change
The consumers were towards a diet shift. The 1999 statistics of the American Restaurant Association argued that a plateau has been created in the fast food market since 1999. The loss of inertia in the fast food segment was evident. The statistics in 2002 suggested that Canadian restaurants that provided table service had increased sales in the range of 4-5%, in comparison to the ones that did not provide any table service.
These statistics were even confirmed by trusted researches from McKinsey, and it pointed out that the growth increase in the fast-food sector would not exceed more than a 1% for the upcoming eight or so years, which would be till 2010. This was mostly by studying the characteristics of the baby boomers, which were loyal to fast food, but would now be drafted because of inclination towards a bit healthier diet. The change in trend was a blow for McDonald’s, which caused tumbling in its share values for more than six years. However, in 2004, there was some good hope on the line. The announcement of McDonald’s that it had increased its customer base by 1.6 million and had increased sales by 11% came as a relief.
These basic behavior changes in the target customers meant that the firms playing in this industry needed to make some major amendments and adjustments in their strategy. Another concern would be the time that McDonald’s had already taken to respond to the changing scenario of consumer concerns about diets. It was only in 1990, that is, six years after the first debate, that McDonald’s took the issue seriously and showed some action. It was later that the company reacted ferociously by bringing in the new product line with McVeggie, Mclean and others as its saving products, but only in vain.
There were attempts from McDonald’s to correctly adjust the Company strategy so that these changes could be dealt with. There was definitely a diversified menu with the introduction of products like Mclean and Mac veggie. Even with this diversified menu, it was challenging its own identity that was characterized by a limited menu, prompt service and low prices. The Company was moving farther from its limited product line and standards in processes. Thus, this new move meant that there was a gap between what McDonald’s truly represented and how it represented its values. The identity and strategy of the Company were clashing.
Why the strategic shift failed?
The strategy that McDonald’s once adopted; an attempt at being “everything for everybody” made it fall into an identity crisis in the stakeholder views. This trap held McDonald’s from capturing the market opportunities, and that was the reason why the Company needed to change its strategy time and again to adjust with the dynamic environments.
What could have been done better?
In both the cases, the aspect of strategy that could have been better utilized is the power of strategic integration. Technology could have been one of the major aspects that could have uplifted the effect of strategic changes introduced in the company. Other aspects could be contingency planning and better use of manpower.
More recently, the strategy front at McDonald’s seems to be active with the introduction of strategic adjustments once and again. There have been additions of new products and lines into the McDonald’s family in an attempt to boost up sales and reorganize the management so that costs are cut to a significant amount. Delivery experiments are another tactics used by the Company, which includes partnerships with almost 88 restaurants that operate at the local levels. The menus will be full, along with 24-hour delivery by some of the restaurants.
This service extension that McDonald’s has announced in the form of McDelivery is an attempt at exploration of its competitive position among the players. The service part is where the Company’s strategies are focused at present, with the major goal of rebranding itself at a more successful level.
All these strategic shifts were the results of the poor performance that the Company showed in its last quarter. The sales decline was alarming, with a drop in revenue up to 11 percent and which was mainly analyzed due to unfavorable guest traffic in varied sectors. The company has taken the issue seriously and put down all the resource foundation to best implement the strategy while updating it as per the need (Mujtaba and Patel, 2011).
The streamlining of McDonald’s management is one of such strategic decisions. There will now be four key segments in the international market for McDonald’s. Bureaucracy statistics have also been amended to support efficient decision-making. The refranchises for McDonald’s will be opened again with about 3500 restaurants being able to join the network at the closure of 2018. The financial burden and operations costs of the Company are thus reduced through this corporate structure. Within the closure of 2018, about 90 percent of restaurants under McDonald’s will operate as a part of their franchises.
The expected net savings from all this strategic realignment is about three hundred million annually. This turnaround plan will definitely be a success maker or breaker as the affiliates are large in number, and the expectations are high (Peterson, 2015).
The effectiveness of the current strategic change can also be presented by using performance implication chart.
Conclusion:
McDonald’s has had to realign its strategies time and again, to suit the changing dynamics in the external environment. In the yester years, it was unable to correctly locate the requirements of a successful strategic change (Qureshi and Hassan, 2013). In the present times, the Company is trying to capture the consumer sentiments and announcing offers and discounts that would cause the minimal cost to them and highest surplus to the consumers. With the recent announcements and success of its previous campaign of Plan to win, it is only time that will tell how McDonald’s will be able to reposition itself with all the strategic changes (Soergel, 2015). Effective implementation of the strategic changes will be judgmental.
References
Businessballs.com. (n.d). change management principles, process, tips and change theory and models. [online] Available at: http://www.businessballs.com/changemanagement.htm [Accessed 17 Mar. 2016].
McDonalds Case Study. (2012). [Place of publication not identified]: Datamonitor Plc.
Mujtaba, B. and Patel, B. (2011). McDonalds Success Strategy And Global Expansion Through Customer And Brand Loyalty. Journal of Business Case Studies (JBCS), 3(3), p.55.
Qureshi, A. and Hassan, M. (2013). Impact of performance management on the organisational performance: An analytical investigation of the business model of McDonalds. IJAREMS, 2(5).
Soergel, A. (2015). Does McDonald's Have a 'Plan to Win 2.0'?. [online] US News & World Report. Available at: http://www.usnews.com/news/articles/2015/05/04/mcdonalds-announces-major-restructuring-strategy [Accessed 17 Mar. 2016].
Peterson, H. (2015). McDonald's turnaround strategy has one major flaw. [online] Business Insider. Available at: http://www.businessinsider.com/mcdonalds-turnaround-strategy-doesnt-help-drive-thru-2015-8 [Accessed 27 Mar. 2016].
