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INTRODUCTION OF TOPIC:

What is strategy?

Strategy is the direction and scope of an organization over the


long-term: which achieves advantage for the organization
through its configuration of resources within a challenging
environment, to meet the needs of markets and to fulfill
stakeholder expectations.

In other words, strategy is about:

 Where is the business trying to get to in the long-term (direction?)


 Which markets should a business compete in and what kinds of activities are
involved in such markets? (Markets; scope)
 How can the business perform better than the competition in those markets?
(Advantage)
 What resources (skills, assets, finance, relationships, technical competence, and
facilities) are required in order to be able to compete? (Resources)
 What external, environmental factors affect the businesses' ability to compete?
(Environment)
 What are the values and expectations of those who have power in and around the
business? (Stakeholders)

Strategy formulation as part of a strategic management process that comprises three


phases:

 Diagnosis,
 Formulation
 Implementation.

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Strategic management is an ongoing process to develop and revise future-oriented
strategies that allow an organization to achieve its objectives, considering its capabilities,
constraints, and the environment in which it operates.

Strategy formulation:

Strategy Formulation is the stage of strategic management that


involves planning and decision making that lead to the
establishment of the organization’s goals and of a specific strategic
plan.
In other words it include
 Long term vision
 While maintaining flexibility
 Adopting to change

STEPS IN STRATEGIC FORMULATION:

The formulation of strategy may be seen as having six important steps:

1. The company or organization must first choose the business or businesses in


which it wishes to engage. in other words, the corporate strategy.

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2. The company should then articulate a "mission statement" consistent with its
business definition.
3. The company must develop strategic objectives or goals and set performance
objectives (e.g., at least 15 percent sales growth each year).
4. Based on its overall objectives and an analysis of both internal and external
factors, the company must create a specific business or competitive strategy that
will fulfill its corporate goals (e.g., pursuing a market niche strategy, being a low-
cost, high-volume producer).
5. The company then implements the business strategy by taking specific steps (e.g.,
lowering prices, forging partnerships, entering new distribution channels).
6. Finally, the company needs to review its strategy's effectiveness, measure its own
performance, and possibly change its strategy by repeating some or all of the
above steps.

Content of strategy formulation:

First we suggest setting some principles, this allows for a healthy discussion
around authenticity, transparency and humility as well as the defining the engagement
policy with the client. Next we get into the 'Why', clarifying objectives, linking them
with appropriate metrics and if possible setting targets.’ What' comes next covering
stage 3 Substance and stage 4 Sources

Substance focuses the mind on what topics, subjects and point of views the
brand wants to have as well as considering the type of social currency value -
entertainment, useful, monetary, information or personal value. Sources look at who is
going to be creating or producing this content, from employees to agencies to crowd-
sourcing.

Next we get into the 'How', who's going to be managing the content, which social
and digital channels will the content be going out thru, which formats are most
appropriate and a schedule over an agreed time period.

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Lastly, with active listening in place we are able to constantly review the
conversational effect of our content against our objectives and the brand will be able to
respond in accordance with their engagement policy.

THREE ASPECTS OF STRATEGY FORMULATION:

The following three aspects or levels of strategy formulation, each with a different
focus, need to be dealt with in the formulation phase of strategic management. The three
sets of recommendations must be internally consistent and fit together in a mutually
supportive manner that forms an integrated hierarchy of strategy, in the order given.
 Corporate level strategy
 It includes the corporations like joint ventures and mergers.
 Business level strategy
 E.g. textile, chemical, auto parts etc.
 Functional level strategy

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 Include different department e.g.finance, HRM, R&D, marketing, etc.

Corporate level strategy:


Three
Corporate level strategy fundamentally is concerned with selection of businesses
in which your company should compete and with development and coordination of that
portfolio of businesses.

Corporate-Lev
Corporate level strategy is concerned with:
 Reach: defining the issues that are corporate responsibilities. These might include
identifying the overall vision, mission, and goals of the corporation, the type of
business your corporation should be involved, and the way in which businesses

What business
will be integrated and managed.

 Competitive Contact: defining where in your corporation competition is to be


localized.

 Managing Activities and Business Interrelationships: corporate strategy seeks


to develop synergies by sharing and coordinating staff and other resources across
business units, investing financial resources across business units, and using
business units to complement other corporate business activities.

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 Management Practices: corporations decide how business units are to be
governed: through direct corporate intervention (centralization) or through
autonomous government (decentralization).
Types of corporate level strategies:
It includes:
 Growth strategy
 Related diversification
 Unrelated diversification
 Merger & acquisition
 Joint venture, etc.
 Stability strategy
 Retrenchment strategy
 Combination strategy
Business Level Strategy
An integrated and coordinated set of commitments and actions the firm uses to
gain a competitive advantage by exploiting core competencies in specific product
markets
In selecting a business-level strategy, the firm determines
 who it will serve
 what needs those target customers have that it will satisfy
 how those needs will be satisfied
At such a level, strategy is a comprehensive plan providing objectives for SBUs,
allocation of resources among functional areas and coordination between them for
achievement of corporate level objectives. These strategies operate within the overall
organizational strategies i.e. within the broad constraints and policies and long term
objectives set by the corporate strategy.
Types of business level strategies:
 Cost leadership strategy
 Differentiation strategies
 Diversification strategies

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 Focus strategies

Functional Level Strategy


The functional level of your organization is the level of the operating divisions
and departments. The strategic issues at the functional level are related to functional
business processes and value chain. Functional level strategies in R&D, operations,
manufacturing, marketing, finance, and human resources involve the development and
coordination of resources through which business unit level strategies can be executed
effectively and efficiently.

Functional strategy deals with a relatively restricted plan providing objectives for specific
function, allocation of resources among different operations within the functional area
and coordination between them for achievement of SBU and corporate level
objectives.Sometimes a fourth level of strategy also exists. This level is known as the
operating level. It comes below the functional level strategy and involves actions relating
to various sub functions of the major function. For example, the functional level strategy
of marketing function is divided into operating levels such as marketing research, sales
promotion, etc. The three levels of strategies have different characteristics as shown
below;

Dimensions Levels
Corporate Business Functional
Impact Significant Major Insignificant
Risk Involved High Medium Low
Profit potential High Medium Low
Time Horizon Long Medium Low
Flexibility High Medium Low
Adaptability Insignificant Medium Significant

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PRACTICAL STUDY:

SELECTED ORGANIZATION:

INTRODUCTION OF MCDONALD:
McDonald's Corporation is the world's largest chain of hamburger fast food
restaurants, serving more than 58 million customers daily.The business began in 1940,
with a restaurant opened by brothers Dick and Mac McDonald in San Bernardino,
California. Their introduction of the "Speedee Service System" in 1948 established the
principles of the modern fast-food restaurant. The original mascot of McDonald's was a
man with a chef's hat on top of a hamburger shaped head whose name was "Speedee."
Speedee was eventually replaced with Ronald McDonald in 1963.

The first McDonald's restaurants opened in the United States, Canada, Costa Rica,
Japan, the Netherlans, Germany, Australia, France, El Salvador and Sweden in order of
openings.
The present corporation dates its founding to the opening of a franchised
restaurant by Ray Kroc, in Des Plaines, Illinois on April 15, 1955 [7] , the ninth
McDonald's restaurant overall. Kroc later purchased the McDonald brothers' equity in the
company and led its worldwide expansion and the company became listed on the public
stock markets in 1965 Kroc was also noted for aggressive business practices, compelling

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the McDonald brothers to leave the fast food industry. The McDonald brothers and Kroc
feuded over control of the business, as documented in both Kroc's autobiography and in
the McDonald brothers' autobiography. The site of the McDonald brothers' original
restaurant is now a monument.
With the expansion of McDonald's into many international markets, the company
has become a symbol of globalization and the spread of the American way of life. Its
prominence has also made it a frequent topic of public debates about obesity, corporate
ethics and consumer responsibility

STRATEGY FORMULATION OF McDonald:

McDonald formulate their strategy on the basis of

Current Situation

Strategy (how do we get


there)

Objectives
(Where do we want to go?)

STEPTS IN STRATEGY FORMULATION OF MCDONALD:


These steps involve in strategy formulation:
 Developing vision and mission
 Identification or external opportunity and threats
 Determining internal strength and weakness
 Establishing long term objectives
 Generating alternative strategies
 Choosing particular strategies to pursue

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Form
For
--Devel
Deve
(6)

-S
ASPECT OF STRATEGY FORMULATION OF MCDONALD:
ic Control (6)
McDonald used
 Corporate level strategies
 Business level strategies
-
Control

 Societal level strategies


 World wide growth strategies

CORPORATE LEVEL STRATEGIES:

a) Growth strategy of McDonald

In corporate level strategies McDonald use the growth strategy. McDonald’s

Stra
Str
grown-up thinking about design is part of its "Plan to Win" growth strategy, initiated in
2003 when executives realized their core markets had gorged on expansion. The Golden
Arches increasingly looked like a corporate shrug, and its stock price dipped below $13 a
share. Since that nadir, the Plan to win has helped drive the stock up 437%. The strategy's

Exte
three pillars are
ic

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 menu innovation,
 store renovation
 An upgrade of the ordering experience.

McDonald's efficiency and its continued expansion of premium menu items snack
wraps! Sweet tea! Frappes! Has helped boost the average annual store gross by 25% over
the past six years to around $2 million. McDonald's execs say, depends on design.
"People eat with their eyes first," says president and COO Don Thompson. "If you
have a restaurant that is appealing, contemporary, and relevant both from the street
and interior, the food tastes better."Mc Donald’s is horizontally integrating itself by
increasing the number of outlets. At current timing there are nine outlets operating only at
Lahore and they have Twenty one outlets in all over Pakistan. They are also planning
firstly to go into the Metro Areas like Islamabad and Rawalpindi and then they will look
toward Mutant.

b) WORLDWIDE GROWTH STRATEGY

McDonald is operating more than 121 countries which mean it is following global
diversification strategy. McDonald's world wide growth strategy is based on three
elements;

 Adding restaurants,
 Maximizing sales and profits at existing restaurant
 Improving international profitability.

Maximizing sales and profits at existing restaurants will be accomplished through


better operations, reinvestment, product development and refinement, effective marketing
and lower development and operating costs. Improved international profitability will be
realized as economies of scale are achieved in individual markets and as the company
benefits from the global infrastructure.

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c) Retrenchment strategy:
McDonald also uses the retrenchment strategy for growth in corporate level. For
example, in its retrenchment, McDonald's reduced complexity in its operations, in part by
simplifying the menu. Any new item had to meet the company's stringent test-kitchen
demands for being simple to prepare consistently. It repositioned its brand, refined its
pricing strategy and pulled the market segmentation lever, making sure it was targeting
young adults and moms with kids.

BUSINESS LEVEL STRATEGY

Customers are the foundation of successful business-level strategies and Levels


should never be taken for granted. When selecting a business-level strategy the firm
determines:

 Who will be served?

 What needs those target customers have that it will satisfy?

 How those needs will be satisfied?

McDonald’s answers to these 3 questions were:

 People of various ages globally,

 A quick, delicious, and non-expensive meal,

 They offer a variety of breakfast, lunch, and dinner meals, snacks, and drinks for
adults and children in various places around the world.

Since McDonald’s operates in 119 countries on 6 different continents they have different
food selections for most, than what we see in the United States. They offer these different
products because of different needs in each country, due to religion, diets, and resources
of each individual country. This flexibility and knowledge allows McDonald’s to achieve
global targets and compete with the other competitors.
I would have to say that McDonald’s uses the Integrated Cost Leadership/
Differentiation Business-Level Strategy. McDonald’s has strategically planned to stay
ahead of their competitors by providing customers with more options of healthy meals,

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cheaper prices, and better service. McDonald’s is competitive in many categories like
price, quality, management, and employee training.

From looking at the Direct Competitor Comparison for 2006-2008 I saw that
McDonald’s was indeed ahead of the others in revenue by as little as 12 billion to as
much as 22.15 billion. Obviously, they are doing something right, but in these times
things change at such a fast pace that you have to know how to keep up or your
competitors will blow you out of the water. Most people are also more inclined to follow
trends to be accepted and fit in, so if your competitor comes out with a new product you
better have something better in your back pocket or you

a) Differentiation

McDonald’s has “Broad Target” and it wants to achieve competitive strategy


adopted by McDonald’s is “Differentiation” i.e. Mc Donald’s wants to a make its
products unique and highly differentiated.

Gen
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b) Cost leadership strategy of McDonald:

A leading cost strategy for McDonalds is the ability to purchase the land and
buildings of its restaurants. McDonalds also developed a strong division of labor for its
production processes, tight management control and product development strategy.
Creating a strong top-down style of management is another leading cost strategy for
McDonalds. Using fewer in-store managers allows the company to hire lower-wage
workers to complete tasks. Limiting autonomy is also central to avoiding costly and
unnecessary restaurant expenditures like improvements or altering business processes.

These five forces influence the business level strategy of McDonald.

OPERATIONAL /FUNCTIONAL STRAEGY OF MCDONALD:

An operations strategy consists of a sequence of decisions that, over time, enables


a business unit to achieve a desired operations structure, infrastructure, and set of specific
capabilities in support of the competitive priorities.

Statement of McDonald’s Operations Strategy


“To provide unmatched consistency in operations in support of
high product quality. This must be accomplished with
adequate speed, low cost, and process innovation to
accommodate changes in consumer tastes.”

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From the statement of McDonald’s operations strategy, it is clear that both consistent and
high-performance qualities are considered order winners, while speed, cost, and
innovation are considered order qualifiers.

Evaluation of the operations strategy:


 Internal and external consistency - Looking at the operations strategy along the
seven dimensions, they all support the operations mission and the business
strategy from the previous page.
 Contribution to competitive advantage - Systemic strategy creates unmatched
consistency in operations that has been difficult to imitate.
 McDonald’s Operations Strategy

Dimension Strategy
Capacity • Growth as needed through additional stores - but capacity added
carefully. Well-utilized - franchisee's well-being depends on it
being used heavily
Facilities • Distributed facilities, each facility being very similar to the next,
all focused around the same menu - although the uniformity is
beginning to change
Process • High degree of process understanding, emphasis on "fool-proof"
Technology processes
• A leader in the technology of fast-food delivery
Vertical • Partnership arrangement
Integration
• Long-term relationship with suppliers to promote innovation and
quality improvement
Workforce • Franchisees: well-trained, carefully selected, entrepreneurs
• Operators: high-turnover, cheap
Organization • Guidelines provided by corporation, but franchisees push to

locally optimize

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Control • Centralized buying
Systems
• Bulk contracts
• "Push" system for basic supplies, "pull" system day-to-day in the
restaurants

DATA COLLECTION METHOD:


I took data from internet, books, reports, etc.i have collected secondary data
which I use as my primary data.

DATA ANALYSIS:

Strengths
 Good innovation and product development. It continually innovates to retain
customers in the business.
 The McDonalds brand offers consumers choice, reasonable value and great
service
 Globalization: 31,000 restaurants serving 120 countries. Of the 31,000 restaurants
at least14,000 restaurants in the US
 It adapts to the cultural differences regarding the region where the restaurant is
set up.
 It has located itself in major airports, cities, highways, tourist locations, theme
parks.
 It has an efficient food preparation style that follows the process in a systematic
way.

Weaknesses

 Core product line out of line with the trend towards healthier lifestyles for adults
and children. Product line heavily focused towards hot food and burgers
 Seasonal

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 Quality issues across the franchise network.

Opportunities

 Joint ventures with retailers (e.g. supermarkets).


 Consolidation of retailers likely, so better locations for franchisees.
 Respond to social changes - by innovation within healthier lifestyle foods. Its
move into hot baguettes and healthier snacks (fruit) has supported its new
positioning.
 Use of CRM, database marketing to more accurately market to its consumer target
groups. It could identify likely customers (based on modeling and profiles of
shoppers) and prevent brand switching
 Strengthen its value proposition and offering, to encourage customers who visit
coffee shops into McDonalds.
 The new “formats”, McCafe, having Wifi internet links should help in attracting
segments. Also installing children’s play-parks and its focus on educating
consumers about health, fitness.
 Continued focus on corporate social responsibility, reducing the impact on the
environment and community linkages.
 International expansion into emerging markets of China and India.

Threats

 Domestically is the lack of growth opportunities


 Social changes - Government, consumer groups encouraging balanced meals, 5 a
day fruit and vegetables.
 Focus by consumers on nutrition and healthier lifestyles.
 Competitive pressures on the high street as new entrants offering value and
greater product ranges and healthier lifestyles products. E.g. subway,
supermarkets, M&S.

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 Recession or down turn in economy may affect the retailer sales, as household
budgets tighten reducing spend and number of visitors.
 Pressure groups - environmental.

Conclusion
McDonald’s faces some difficult challenges. Key to its future success will be
maintaining its core strengths an unwavering focus on quality and consistency while
carefully experimenting with new options. These innovative initiatives could include
launching higher-end restaurants under new brands that wouldn’t be saddled with
McDonald’s fast-food image. The company could also look into expanding more
aggressively abroad where the prospects for significant growth are greater. The
company’s environment efforts, while important, should not overshadow its marketing
initiatives, which are what the company is all about.

RECOMMENDATION:
After writing the conclusion of the company I personally recommend the
managers of McDonalds to take of the politics form their employees and also treat the
employees on the equal basis. The people get jobs with huge references in it. These
processes of references are very common in country like Pakistan but the company needs
to appoint new people on merit basis a good working environment also enhance the
capabilities of the people working in an organization so mangers can work to improve
those conditions in order to get good results.

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REFERENCES:
 http://www.mcdonalds.com

 http://www.wikipedia.com

 http://www.scribed.com

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