An Analysis of External and Internal Environments of McDonald’s

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Table of Contents

Internal and External Factors of McDonald’s: Introduction
McDonald’s General Environment
McDonald’s External Environment Analysis
Improving the stability of McDonald’s
External threats and opportunities
McDonald’s Internal Environment Analysis
Resources, capabilities and core competencies
Value chain analysis
External Environment of McDonald’s: Conclusion
Reference List

Internal and External Factors of McDonald’s: Introduction

The McDonald’s Corporation was listed in1966 under the New York Stock Exchange as a business operating in the restaurant and bar industry. All publian cly traded companies arthe e required to make submissions of public filings to the Securities and Exchange Commission.

Although compliance to the legal environment is one of the external factors that affect the operation of McDonald’s, the organization ensures that it complies wi ofth all legal requirements in all areas of its operations including timely submission of all necessary forms to the Securities and Exchange Commission.

The goal of this paper is to analyze the McDonald’s segments of the generathe l environment, the forces of competition, mechanisms of improving the stability, external threats and opportunities, resources, capabilities, and core competencies, and value chain analysis.

McDonald’s General Environment

Organizational environment refers to all forces that shape or affect organizations. Internal and external environments make up the organizational environment. One of the components of the external environment is the general environment segments including the economic, legal, technical forces, and international forces coupled with social cultural and political segments (Hill & Westbrook, 1997). The second component of the external environment entails the specific environment.

McDonald’s operations have probabilities of being highly influenced by international forces and socio-cultural forces. Health professionals create intense awareness through public health programs on the need of eating low calories foods. High calories foods are associated with obesity, and thus they are considered as a risk factor for ailments such as hypertension and diabetes. Organizations dealing with fast foods face enormous challenges in looking for new products with low calories.

This aspect constitutes a major socio-cultural challenge that fast food organizations need to address sufficiently in a bid to remain profitable. McDonald’s has experienced a myriad of changes in its operational environments, especially in the wake of the increasing emphasis on the need to change eating behaviors to avoid the dangers of health risks associated with eating unhealthy foods.

Health specialists classify foods containing high calories such as fast foods, which form the menus at McDonald’s, as unhealthy. Campaigns incepted by health organizations against such products lead to the emergence of demand for foods rich in fiber. Competing organizations creating their menus meeting these socio-cultural needs are likely to pose a major threat to McDonald’s operations.

One of the McDonald’s strategies for enhancing its performance is venturing into new markets, especially in Asia. For instance, the company has opened various outlets in China and India. This strategic decision opens the company to effects of international forces on its operations. Such forces include differing tastes and preferences, legal, and political forces and McDonald’s is fully aware of these effects. The organization has designed new menus to meet international market needs.

The McDonald’s Corporation (2013) reckons, “McDonald’s restaurants offer a substantially uniform menu, although there are geographic variations to suit local consumer preferences and tastes” (p.1). Although McDonald’s has responded to the challenges of tastes and preferences in the Chinese market by developing chicken humbuggers, international forces related to culturally dictated eating habits remain an essential factor that may affect the performance of the firm in the international markets.

McDonald’s External Environment Analysis

Porter’s five forces method is one of the ways of analyzing forces that shape industry competitions. These forces are “degree of rivalry in the industry, threats of new entrants, threats of substitutes, the bargaining power of customers, and the bargaining power of suppliers” (Porter, 2008, p.57). McDonald’s is the leading organization globally in the fast foods industry. However, the degree of rivalry is one of the most important competition factors.

Numerous organizations are operating in the fast food industry, thus threatening to take up McDonald’s’ market share. Such organizations include Wendy’s, In and Out, Burger King, Jack in the Box, and Taco Bell, among others.

Increased rivalry in the industry makes the fast foods industry incredibly dynamic. Organizations keep on looking for mechanisms of enhancing their competitive advantage, including innovation of new products that meet the emerging needs of the consumers (Hoskisson, Ireland & Hitt, 2008). For McDonald’s innovation and products, differentiation is one of the central mechanisms of ensuring that it remains well ahead of the competitors.

The bargaining power of the buyers also tops the list of the most important competition forces for McDonald’s, as the success of the organization is dependent on the strength of its customers’ base. Therefore, apart from retaining the existing customers, it also seeks for mechanisms of attracting new customers who are loyal to the competing brands. McDonald’s encounters the main challenges while attempting to attract and keep customers whose influence on their bargaining power base rests on concerns of eating healthy diets.

These concerns force fast foods, consumers, to demand healthier products. In response to the buyer demands, McDonald’s has added salads into its menus coupled with the alteration of cooking oils to reflect healthier foods demands.

Although the organization leads other organization in adopting healthier diets in their menus, negative profiling created by books such as A Fast Food Nation and the film Super Size Me has probabilities of affecting McDonald’s more negatively than other competing originations since the organization has created a strong fast food brand image.

Improving the stability of McDonald’s

In an attempt to maintain its stability in the near future, in the context of the two competitive forces discussed above, McDonald’s has several options at its disposal. The organization can continue with its strategic efforts of innovating and creating new products that do not resemble its traditional products. Indeed, the creation of new products like chicken McNuggets, McFlurry, and Big Mac is not adequate.

The company should invest more on alteration of the buyers’ mental cognition about the nature of its products. Conventionally, McDonald’s has created a strong brand image by positioning its brands as an option for people who do not have time to prepare foods at home.

When such people are hungry, they often turn to McDonald’s for the utility. However, with profiling fast foods as unhealthy, as argued before, when fast food customers feel hungry, they think of what they have been accustomed to as the means of satisfying their need. What comes in their mind is fast foods, but the conceptions of its impacts on their health then follow.

McDonald’s has to complete the above chain of information processing as utilized by consumers before making a decision to buy fast foods products, especially among consumers who have embraced the concerns of healthy meals. This goal is achievable through the strong positioning of their new salads products and foods rich in fibers.

Hence, when people think of buying fast foods, the concept of unhealthy nature of the foods comes in, but then immediately they realize there are other options, which satisfy the definition of healthy fast foods that are offered at McDonald’s. This move changes the brand image of McDonald’s from a fast food center to a healthy meals center. This way, it is perhaps possible to improve the stability of McDonald’s in the near future.

External threats and opportunities

SWOT analysis is the standard approach for analyzing organizational external threats and opportunities. Threats are the external chances that impair the performance of an organization (Hill & Westbrook, 1997). The main threat to McDonald’s is competitive forces. Amid this threat, McDonald’s has opportunities, which it can capitalize on to yield continued success in its industry of operation.

Opportunities are the existing external chances, which when utilized make an organization improve its performance (Hill & Westbrook, 1997). Increasing concerns for healthy eating presents a major opportunity for the firm. Another opportunity is an expansion into global markets into regions where McDonald’s has no stores such as in Africa and other Asian nations apart from China and India.

The justification for the threat above is that other companies are taking leadership in some products. For instance, Wendy’s is dominating the industry in chicken products. With the preference of such products in comparison to beef products in the international markets such as China, the domination of Wendy’s presents major challenges in case it (Wendy’s) would decide to open outlets in the Asian markets.

Wendy’s will also likely develop a strong brand image as a chicken products outlet in the UK and the American markets. McDonald’s may fail to overcome such brand positioning. However, through studying the weakness of the chicken products of Wendy’s, especially on aspects of ‘healthy concerns’, McDonald’s can develop healthier chicken products. This aspect can help it gain immense success in the chicken products’ market.

McDonald’s Internal Environment Analysis

Organizations use their strengths to enhance their performance (Hill & Westbrook, 1997). McDonald’s has several strengths including domestic and international leadership in the fast food industry, utilization of economies of scale to pursue low-cost strategy, ability to make adjustments for its ingredients to develop new product lines, and strong brand portfolio among others. Economies of scale present a major strength of the company.

Compared to any other organization, McDonald’s faced challenges in its operations akin to its weaknesses. One of the weaknesses of the organization is the bureaucratic culture. Employees complain about the denial of the freedom to voice their concerns through unions. McDonald’s has a negative perception that its products are unhealthy and that it advertises them to even small children. People believe that the company is chiefly responsible for making people obese.

In my opinion, healthy eating concerns of customers present the biggest weakness for McDonald’s. The justification for this challenge is that people are increasingly concerned about how they can live free from ailments such as hypertension and diabetes among other diseases associated with obesity.

Hence, they are likely to stop consuming any product that may pose the risk of becoming obese. With increased media attention on effects of fast foods on the health of their consumers, the question of the relationship between fast foods sold by McDonald’s and obesity becomes even more imperative in affecting the future success of the organization.

Dealing with the weakness proactively requires McDonald’s to utilize its strengths such as its strong positioning ability and high financial base to introduce various products that meet customers’ perception and definition of healthy foods and investing heavily in their marketing via both traditional and new media while abandoning the products considered as unhealthy.

Since the company is large, it can also take advantage of economies of scale to pursue low costs strategies while attempting to reclaim its loyal customers and attracting new consumers to the new healthy products.

Resources, capabilities and core competencies

These elements form the “foundation of the competitive advantage of an organization and resources are either tangible or intangible” (Hoskisson, Ireland, & Hitt, 2008, p.83). McDonald’s tangible resource includes financial resources, organizational resources, physical resources, and technological resources. In terms of financial resources, it has strong borrowing capability since it possesses large asset bases globally and the ability to generate funds internally through sales.

McDonald’s is in a position to maintain strong planning, controlling, and coordinating procedures in its operations to deliver high-quality products. These aspects constitute the organizational resources of the organization. McDonald’s has patented its brand and products. It has also established other technological resources such as protection of its products through trademarks and possession of trade secrets. In terms of physical resources, McDonald’s has the ability to source raw material from across the globe.

Intangible resources for McDonald’s include resources such as brand name, reliability, and quality of its products coupled with good suppliers’ reputation on the corporation. Another essential intangible resource of the organization is innovation resources including the ability to generate ideas and make new products that meet the emerging needs of the consumers.

The firm’s capacities include the capacity to produce high-quality products, ability to conduct intensive market studies to determine appropriate strategies for success and consumer perceptions of their products, and the capability to position its products. Quality, which is the ability to produce and deliver with both speed and hygienic manner, forms the core competency of the firm.

Value chain analysis

Resources, which are core competences and capabilities, aid in McDonald’s’ realization of the value chain. The organization stands out as one of the biggest global fast food retailer outlet offering fast foods in more than119 countries all over the globe. McDonald’s restaurants and franchises, which stood at about 34, 480 by December 2012 (The McDonald’s Corporation, 2013), continue to grow as the organization penetrates new markets in Asia.

This immense success is attributed to several factors among them being an incredible emphasis on engagement of consumers, appropriate leaderships that fit the business of the organization and exceptional investments of the organizational resources in brand management.

Deployment of core competences, resources, and capabilities to create value forms of pillars for McDonald’s market capitalization. The corporation offers low price and diverse products to average consumers. The McDonald’s workers emphasize quality and speed of delivery in their work. McDonald’s has also been using the same suppliers throughout its history of operation, which led to the establishment of good relationships with the suppliers. The firm thus benefits through the suppliers’ reliability to supply quality and enough raw materials.

External Environment of McDonald’s: Conclusion

McDonald’s operates in an environment that exposes it to various internal threats such as competition with other organization, which have developed products meeting the emerging needs of consumers in the fast foods industry. However, amid various threats and weaknesses encountered, the McDonald Corporation has deployed its opportunities, core competences, values s, and strengths to gain market success.

This success has been possible due to the ability of the organization to respond proactively to consumers needs. Apart from the emerging consumers’ needs such as the concerns of healthy eating having the ability to expose McDonald to new weaknesses, they also give buyers an immense capacity to influence the nature of the products produced by the organization coupled with creating new opportunities for the future success.

Reference List

Hill, T., & Westbrook, R. (1997). SWOT Analysis: It’s Time for a Product Recall. Long Range Planning, 30(1), 46–52.

Hoskisson, R., Ireland, D., & Hitt, M. (2008). StrategicManagement: Competiveness, Globalizationand Concepts. New York, NY: Cengage Learning.

Porter, M. (2008).The five forces that shape strategy. Harvard business review, 3 (1), 56-63.

The McDonald’s Corporation. (2013). Corporate Info.

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