McDonald’s Business Level Strategy & Corporate Strategy

McDonald’s Corporate Level Strategy & Business Strategy: Introduction

Strategies refer to plans detailing necessary actions for achieving an overall aim. Business level strategies focus on “organization as a business and its relationships to consumers and other businesses” (D’Aveni, Ravenscraft & Anderson, 2004, p.365). Corporate level strategies relate to an entire organization. This paper discusses corporate level and business level strategies while using McDonald’s as a case example. The company operates in the fast food industry, and it trades publicly on the New York Stock Exchange under the name MAC.

McDonald’s Business Level Strategy

Business level strategies entail the integrated and coordinated commitments coupled with actions taken by a firm in an effort to acquire a competitive advantage through the exploitation of its core competencies in particular products’ markets (Hitt, Ireland & Hoskisson, 2013). At McDonald’s, business level strategy defines the target customers, necessary needs for delivery to them, and the manner for satisfying them. Therefore, customers form the fundamental foundation for the derivation of successful business strategies. McDonald’s has three paradigms for the selection of the best and most appropriate business strategies.

The company classifies its consumers based on parameters like age, tastes and preferences, and cultural affiliations, among other demographic characteristics. It then proceeds to define the needs of its target market segments. In the context of tastes and preferences, McDonald’s offers delicious, quick, and non-expensive meals that are appropriate for each age group. Facella (2008) reckons that the company also offers a number of breakfast packages and lunch coupled with dinner meals, drinks, and snacks for both children and adults in different places across its global outlets. This aspect suggests that business level strategy for McDonald is ‘make and offer what the customers want and how they want it done’. Deploying this principle has seen the organization build huge brand loyalty in all its areas of operations.

McDonald’s has several business-level strategy options. Some of the options are “broad target strategy, narrow target strategy, cost uniqueness strategy, competitive advantage strategy, competitive scope strategy, integrated cost leadership strategy, and cost leadership focused differentiation strategy” (Facella, 2008, p.111). Arguably, an integrated cost leadership strategy constitutes the strategy with the capacity to yield the most significant long-term success, which then comes out as a good choice for McDonald’s.

Operational challenges faced by McDonald’s justify the choice. The organization has a rich history of struggles to provide better services and low-priced fast foods. Due to rising concerns over the nutritional value of fast foods, McDonald’s resorted to the provision of healthier foods, which have low calories. In the context of aspects like price, management, quality, and employee empowerment, the company remains ahead of its competitors. These strategic efforts are part of the integrated cost leadership strategy (D’Aveni, Ravenscraft & Anderson, 2004, p.365). The efforts enable the company to adapt to environmental changes fast, acquire new operational skills, become technologically perceptive, and leverage its core competencies while engaging in competition with its rival organizations.

McDonald’s Corporate Level Strategy

Corporate level strategies aim at examining what an organization does coupled with its command decisions. This aspect includes determining whether a business establishment deserves to diversify into new regions, develop partnerships with other rival companies, or abandon certain product lines to focus on the most profitable ones (Hitt, Ireland & Hoskisson, 2013).

McDonald’s long-term target outlines its growth and increased performance intents within a specified time. The company has a variety of corporate-level strategies to assist its continued growth. It can focus on staying on a single activity in the industry with the chief purpose of creating a competitive position. McDonald’s defines its industry as fast food. It does not intend to change the industry. Indeed, by focusing specifically on the fast food industry, the organization has established a very strong worldwide brand image and loyalty. The only challenge is how to sustain this achievement in the long term.

As a second corporate level strategy, McDonald’s can diversify its products by moving into new business lines. It can compete in similar industries and engage in similar activities to build a strong business synergy (Bowen & Wiersema, 2005). Alternatively, it can engage in unrelated diversification. This aspect calls for the organization to enter a new industry and then focus on building a new brand portfolio. The view that McDonald’s is a leader in the fast food industry nullifies this option.

McDonald’s can also focus on vertical integration. This move aids in reducing costs via the provision of methodologies for forward integration and the establishment of channels of distribution, inputs, and selling of outputs. Lastly, it can focus on international expansion as a mechanism for performance sustenance. Expanding internationally permits a company to “compete in more than one market to serve the needs of other markets and/or countries” (Bowen & Wiersema, 2005, p.1155). In the US, many organizations, such as Starbucks and YUM Foods, have been established, and they produce products that may substitute McDonald’s products. Hence, focusing solely on internal expansion is not advisable.

In my opinion, the most viable corporate level strategy entails focusing on international expansion. However, it makes McDonald’s susceptible to varying cultural influences. Therefore, the strategy also demands diversification of products in a bid to meet the cultural needs of different people in the global fast food markets. Since the establishment of McDonald’s in China and India, it has been successful after the introduction of chicken burgers rather than offering beef buggers. This diversification counters cultural influences in the new international market. The Chinese and Indians prefer chicken to beef. Evaluating preferences of other international fast food markets can reveal a different cultural preference. Through its creative and innovative team for new product design, McDonald’s can come up with appropriate products to meet the specific needs of the new markets.

Competitive analysis

McDonald’s has a large market share in its industry of operation. It has the most number of franchises and company-owned outlets in the US. Additionally, it offers high-quality products. Thus, it outperforms its competitors in the industry. In a bid to secure a big market share, competitors like YUM Foods continuously increase their operations through local and foreign joint ventures.

Local investors pressure McDonald’s operations by introducing low-cost products to attract a large clientele. The continued growth of competitors increases their economies of scale. Nevertheless, McDonald’s continues to run smoothly. The company opened its first store in 1940. It grew in an environment that had minimal competition (Facella, 2008). The company grew into a large entity early enough than its competitors, such as YUM Foods (which owns Pizza Hut, KFC, Taco Bell, A&W, Long John Silver’s, and others), Subway, Arby’s Group, Starbucks, and Burger King Corporation.

The extent of competition amongst inter-organizations is either low or high. The degree of rivalry amongst firms determines the nature of competition. Like in other industries, the “competition in the fast food industry is not head-to-head” (D’Aveni, Ravenscraft, & Anderson. Firms operating in the industry have different market shares. When combined with advantages associated with high economies of scale, large firms in the industry encounter minimal competition.

Organizations expanding rapidly through foreign and local joint ventures like YUM Foods have the possibility of eventually becoming large in the future. Hence, they can take more advantage of economies of scale in comparison to McDonald’s. YUM Foods is likely to become successful in the long term. The justification for this choice is that by forming joint ventures, the resulting advantages of economies of scale would allow the firm to offer lower-cost products than it is currently doing as compared to McDonald’s in a bid to attract rapid clientele growth.

Influences of slow-cycles and fast -cycle markets on corporate level strategies

The selection of YUM Foods as an organization likely to succeed in the future does not suggest successful sailing during slow-cycle and fast-cycle markets. Bowen and Wiersema (2005) posit, “In slow-cycle markets, capabilities coupled with resources of any particular organization are difficult to imitate” (p.1160). This aspect ensures that products and services reflecting the resource position of an organization are shielded strongly. This element has an overall impact of ensuring that competitive pressures do not consume an organization’s profitability and the sources of an organization’s strategic competitiveness. In the slow market cycles, YUM Foods can maintain unique product attributes coupled with sophisticated product designs. This aspect enhances ease of definition coupled with customers’ identification of products.

Bowen and Wiersema (2005) add that in “the fast-cycle markets, an attempt to maintain a competitive advantage based on the single set of competencies leading to its success during the slow-cycles markets translates into competitive inertia” (p.1161), and thus by YUM Foods should focus on the same. The overall implication is overrunning of YUM Foods by competitors who have already established new strategies for gaining global competitiveness.

McDonald’s Business Level Strategy & Corporate Strategy: Conclusion

Organizations have dynamic operation environments. Therefore, they must change appropriately in a bid to ensure sustained operations in both the short and long run. This assertion explains the need for McDonald’s to develop both business-level and corporate-level strategies.

References

Bowen, H., & Wiersema, M. (2005). Foreign–based competition and corporate diversification strategy. Strategic Management Journal, 26(12), 1153-1171. Web.

D’Aveni, R., Ravenscraft, D., & Anderson, P. (2004). From corporate strategy to business–level advantage: relatedness as resource congruence. Managerial & Decision Economics, 25(7), 365-381. Web.

Facella, P. (2008). Everything I know about business I learned at McDonald’s: the 7 leadership principles that drive break out success. New York, NY: McGraw Hill. Web.

Hitt, M., Ireland, R., & Hoskisson, R. (2013). Strategic management: Concepts and cases: Competiveness and globalization (10th ed.). Mason, OH: South-Western Cengage Learning. Web.