Choose an organization or industry-sector in a country which you are familiar and in each case consider how the various factors had impacted or could impact on your chosen organization or...

Contemporary Developments in Business and Management 1

Contemporary Developments in Business and Management
Contemporary Developments in Business and Management 2

Contemporary Developments in Business and Management
Introduction
McDonalds is one of the biggest food service retail outlet which is operating across the globe
which began its operations in 1940‟s by Brother Dick and Maurice McDonald, who focused
on adopting a „Fordist approach‟ to produce the hot food and serve them quickly to the
consumers. The company is known for its burgers and French fries which is sold across the
globe in more than 32800 restaurants across 117 countries, serving more than 50 million
customers per day. The company‟s retail outlets are either owned by the company or by
franchisees. The company focuses on delivering high quality and value to its customers
through its services, product range and constant quality check of its products. The company
has a strong focus on attracting youngsters and children with a strong focus on adopting
emotional bonding with its customers with a strong focus on its tagline „I’m loving it’
Vision of McDonalds:
„To be our customer‟s favorite place and way to eat.‟ (corporate website)
McDonald‟s Promise:
„To provide simple easy enjoyment to every customer at every visit.‟ (corporate website)
Mission Statement:
„McDonald‟s aim is to be the leader in the Quick Service Restaurant (QSR) industry by
maximizing Profits and through our Principles of QSC & V (Quality, Service, Cleanliness &
Value) consistent with the needs of our Customer, Employees and Community.‟ (corporate
website)
Values
„McDonald‟s mission is to be their customers‟ favourite place and way to eat – with inspired
people who delight each customer with unmatched quality, service, cleanliness and value
every time.‟ (corporate website)
Contemporary Developments in Business and Management 3

Core Competency of McDonalds:
Core competency of McDonald‟s lies in providing fast food at a competitive price to its
customers, focusing on delivering best value for money for its customers. It‟s speed for
delivering food, quality, cleanliness are few of its core competencies.
In this paper we will bring into picture the developments in business and management of
McDonalds.
Outline the main external, internal, task and general environment factors which would
need to be considered by the potential outside investor when making a major investment
decision;
There are several aspects that are considered by an investor when they focus on making an
investment decision in an organization. The investor needs to have a strong focus on the
analysis of the external as well internal environment, so as to assess the strengths,
weaknesses, opportunities and threats in which the company operates. The environmental
variables are consideres three broad groups which are classified as: Task, internal and
external/general environment. Task consists of the main activities and business in which the
organization deals in. It will take into consideration different aspects of the business.
McDonalds being a global foodservice company, so the main consideration here will be the
quality of the food that is being delivered by the company to its target consumers across the
globe. The internal environment of the company will take into consideration, the internal
business operations and management. It takes into consideration the owner of the business,
the managing director, the infrastructure of the business and the culture of the organization.
The external or the general environment, takes into consideration, competitors, consumers,
substitution products, and the prospective enters of the business. These are considered as the
task environment for the external environment. The general environment can be segregated to
the PESTLE analysis which takes into consideration political and legal, economical, social,
Contemporary Developments in Business and Management 4

technological and environmental factors.
All these aspects are taken into consideration by the investor before taking the investment
decision.
Explain on how some of the major operational / operational environment factor would
impact on the functional areas within the chosen industry;
There are several aspects or the major operational environment which highly affects the
McDonalds. With the changing need and preferences of the consumers, the company needs to
have a strong focus on changing its menu as per the needs and preferences of the consumers,
with a strong focus on quality of the food, as the people today have highly become health
conscious and the people are preferring healthy food. Apart from this the company also has a
strong focus on information technology and using high end technology so as to cater to the
needs of the consumer in a better way. Apart from this the major factors which affects the
functional area of the company is the economic condition of the country or globe as well as
the intensity of competition in the market, the company faces intense competition from food
brands across the globe like KFC, Burger king, Yum yum brands and other food chains.
In relation to the industry chosen, explain in general terms on how PESTLE-C categories
applies and please give at least an example;
Political – Legal Analysis:
The food industry is highly governed by different laws and political constraints, as
McDonalds operates on a global scale, there are different laws that needs to be followed by
the company so as to operate in that particular country. One of the increasing concern in
today‟s consumers and world is the health concerns and issues. The companies needs to have
a strong focus on adopting different legal concerns and laws that are applicable in the
foodservice company. Some of the laws that needs to be followed by the companies are the
regulations set by the U.S. Departments of Agriculture, Commerce, and Labor, the U.S. Food
Contemporary Developments in Business and Management 5

and Drug Administration, and the U.S. Federal Trade Commission. Being a global player,
different countries have different laws and regulations in respect to the quality and the
ingredients that can be used by the company in different operating nations, example in India
Beef cannot be used by McDonalds as it is restricted by government. The company also
needs to follow different rules in respect to the advertising, relations with distributors and
retailers, health, safety, and the environment. Apart from this the company also needs to
comply with different food and occupational safety and act set by particular nation.
McDonalds have also faced different issues in respect to its quality in 2002, and the company
has different legal proceedings and plantiffs. The plaintiffs alleged on McDonalds are: „(1)
engaged in a deceptive advertising campaign to “be perceived to be less nutritionally
detrimental-than-in-fact”; (2) failed to disclose adequately its use of certain additives and
ingredients; and (3) failed to provide nutritional information about its products.‟ (10-K
Report, 2009)
Economic Factors:
The world has recently witnessed economic downturn which has affected the levels of
income and currency instability across the globe. The level of unemployment has increased
considerably with the economic down turn which has resulted in inflation, this has
considerably affected the purchasing power of the consumers in the market. Different
companies operating under the food industry have come up with different range of products
at a low price so as to attract more and more customers. The market is trying to appeal health
conscious people by providing them healthy offerings. The GDP of a country is greatly
related to food industry as people tries to cut down their expenses on outside food with
increasing inflation and decrease in income.
To cope up with the economic downturn, the company has lowered the prices of its products
so as to attract more and more customers. With the current economic conditions, McDonalds
Contemporary Developments in Business and Management 6

is moving optimistically, and with lowering its prices, the company is targeting mass market.
McDonalds also opened 511 outlets in 2009 to expand its reach to its customers.
Social Factors:
The customers today have become more brand conscious and they prefer branded products
over any other products available in the market. Customers have changed their preferences in
terms of liking. The technological advancement and increasing use of e-commerce and
internet have made the consumers information oriented. Youngsters prefer gathering
information about the products and brands online rather than focusing on advertisements. The
changing lifestyle of the consumers is also one of the forces. Consumers today look for brand
who gives them best value.
Consumers today are demanding low priced products with high quality; customers today look
for quality, convenience and speed by which service is provided to them.
Most families pass through the progression of family life cycle which is generally start from
young singles, young married, parenthood, post-parenthood, and dissolution (Schiffman et.
al., 2008). Every family needs are different. McDonalds have made a strong move in offering
different set of offerings so that customers can choose from the dame according to their
needs.
McDonalds targeted to all segments of social class from a lower-middle class to upper class,
by providing its products as substantial prices, it is able to attract and provide value meals to
lower middle class segment.
Today, the lifestyle of consumers are changing drastically, they want speedy service, at
convenience. People today prefer more and more fast food especially children. Consumers
today are demanding drive through, take away food which can be eaten at a convenience.
Technological Factors:
With the increasing technological advancement, McDonalds is also making a move in
Contemporary Developments in Business and Management 7

adapting technology in its operations. Through innovation and increasing use of
telecommunication, McDonalds is moving its step in delivering online services to its
customers. McDonalds is making a move by increasing its call centers so as to cater
maximum market. It has adopted online payment and credit card options so as to deliver ease
in payments to its customers.
Environment:
As the company is operating in an highly competitive market, the working of the company is
highly affected by the surrounding environment, which also relates to the weather, climate,
geographic position, change in climate and insurance.
Briefly explain the forces in Porter‟s Five Force Analysis and illustrate your answer with
the industry-specific examples; and,
Intensity of Rivalry among incumbent firms:
McDonald‟s operates in a highly competitive industry, with large brands operating under the
industry. The companies compete on the basis of the quality of the products, speed of the
service and the variety of food. With strong brands such as Burger King, KFC, Wendy‟s,
Subway and local restaurants and brands operating within different countries gives a tough
competition to McDonalds. In a broader perspective the competition that is faced by
McDonalds also includes quick service eating joints, pizza parlors, coffee shop, fast food
centers, coffee shops, street vendors. According to the 10-K report of McDonalds the US
restaurant industry is composed of 575000 restaurants having annual sales of about #370
billion. McDonalds in USA accounts for 2.4% of restaurants operating in US generating 8.1%
of the sales. McDonalds operates in 117 countries having about 6262 company owned
restaurants and 26216 franchised restaurants.
KFC is one of the one biggest competitor of McDonalds, having its operations in 108
countries with 5162 outlets operating in US and 11102 units operating across the globe. KFC
Contemporary Developments in Business and Management 8

is working on the same standards of McDonalds, except that KFC specializes in chicken
food. KFC is a leader in chicken segment of the world.
McDonalds faces intense competition from local brands and local suppliers across the nation
of its operations. Thus, the intensity of competition within the industry of its operations is
very high.
Industry concentration:
The fast food industry has a very high industry concentration with a mass market and large
number of firms operating under the segment. The industry is ruled not only by few top
companies such as KFC, Subway, McDonalds, Wendy and Burger King but also large
number of local food suppliers operating in the nation along with different coffee shops, pizza
parlor, fast food centers and local street vendors.
Despite of large industry concentration, McDonalds has positioned itself as delivering quality
and value for price food to its customers.
Industry Growth:
Fast food industry has been marked with high growth rate, with the changing preferences of
the customers, fast food industry has seen a tremendous growth in recent years. The industry
had seen a slow down in growth recently with the economic crisis that had hit the world, but
the industry has picked up its growth slowly. In 2008, the global fast food industry growth
was marked by 6.6% with a value of $154.7 billion. The industry is expected to grow to $200
billion by 2013, with an increase by 29.3% since 2008.
Product differences:
Each firm operating in this industry are marking their existence by delivering differentiated
products to its customers. Companies are adding value to their offerings by differentiating
their product variety. Different firms operating in this industry focuses on specializing in their
product offerings example, KFC specializes in chicken offerings and McDonalds specializes
Contemporary Developments in Business and Management 9

in burgers and Subway specializes in fresh baked footlongs and breads filled with salads.
With their differentiated offerings, the firms have positioned themselves distinctly.
Switching cost:
The state of economies of scale of fast food industry relies on tight local control and
maintaining good services. The fragmentation in the industry has been overdone by national
advertising media.
McDonalds has overcome its fragmentation in the industry through franchising its outlets,
which are marketed by a brand name and central purchasing and other services. Thus, with
these things the firms work under high switching cost.
Exit barriers:
The big brands such as KFC, McDonalds, subway has high exit barriers, with its strong brand
positioning, brand image and the demand of products worldwide, so the exit barrier of big
firms is quite high.
Threat of New entrant:
Considering the big firms operating in the segment, the threat of new entrant is low. With
strong brands such as McDonalds, Subway, KFC, Wendy, and Burger King the new entrants
find it difficult to compete in the market with the existing firms on the basis of price and
brand. There are several factors and strategies that affect the entry of new entrants.
Economies of Scale:
McDonalds has high economies of scale with its high production and volume, the company is
able to sell its products at a competitive low price. With its specialization and expertise
service the company has achieved economies of scale.
Brand Identity and Product Differentiation:
The firms operating in this industry are marked by strong brand identity such as McDonalds,
Subway, KFC, and Burger King. McDonalds has a strong brand image globally, I’m loving it
Contemporary Developments in Business and Management 10

is a tagline which is known even to the kids worldwide, thus having a strong brand identity
and image. McDonalds has also differentiated its offerings and products according to the taste
and demand of its customer.
Capital requirement:
For a firm to operate on a big scale, the companies need high capital requirements. With the
high capital requirement, the threat to entrant is low.
Government regulations:
The firms which are operating globally in fast food industry are often controlled by several
government rules and regulations. Several regulations in respect of health, safety and
environment are levied by government of fast food industry. The companies operating under
this segment needs to follow several acts and laws in respect of their working.
Threat of Substitutes:
The fast food industry operates with high threats of substitutes available across the market.
The treats of substitutes for McDonalds include company like Burger king and local burger
supplier. McDonalds operates globally, and faces high threats of substitutes globally. Looking
a wider scope the other threats of substitutes includes pizza, sandwiches, and footlongs. The
substitutes of McDonalds include family restaurants, fast food joints, coffee shops, pizza
parlors, and local street food suppliers. Many food joints and companies like Dominos, Pizza
hut, Burger king are the major...