Names: Nektaria Antoni, Katerina Sinebrohova, Chareclea Psatha

Course: Tourism Management (year 3)

Subject Title: Business Strategy
Assignment Title: The coursework involves the research
and analysis of a strategic issue in a company within the hospitality or tourism
industry of the students choice. The analysis must use a range of techniques
and data (both quantitative and qualitative). The assignment requires the
students to assess the business environment and the strategic challenges
that confront organisations and the people within them.The coursework
involves the research and analysis of a strategic issue in a company within
the hospitality or tourism industry of the students choice. The analysis must
use a range of techniques and data (both quantitative and qualitative). The
assignment requires the students to assess the business environment and the
strategic challenges that confront organisations and the people within them.

Lecturer name: Mrs Marinakou

Hand in date: 21

st

January 2011

Number of words:

Contents
Introduction........................................................................................................3
The company.....................................................................................................3
Business Strategy..............................................................................................3
Three components of strategy...........................................................................3
The Business Strategy of McDonalds...............................................................4
SWOT Analysis..................................................................................................6
Strengths............................................................................................................6
Weaknesses......................................................................................................7
Opportunities......................................................................................................7
Threats...............................................................................................................8
Porter Five Forces Model..................................................................................8
PEST Analysis...................................................................................................8
Political factors...................................................................................................9
Sustainable Competitive Advantage................................................................10
McDonalds Sustainable Competitive Advantage............................................11
Entering new markets......................................................................................13
Mc Donalds New Market.................................................................................13
Research..........................................................................................................14
Advertising.......................................................................................................15
Success...........................................................................................................16
References.......................................................................................................16

Introduction
In this assignment we will examine and evaluate the business strategy of the
fast food chain Mc Donalds. We will look into all the key elements of their
business strategy and the methods they use to sustain their success. We will
also look into a new market they have entered and how successful they have
been.

The company
McDonald's is the leading global fast food retailer with more than 32,000 local
restaurants serving more than 60 million people in 117 countries each day.
More than 75% of McDonald's restaurants worldwide are owned and operated
by independently. Mc Donalds is well known to the world for serving, World
Famous Fries, Big Macs, Quarter Pounders, Chicken Mc Nuggets, Egg Mc
Muffins and many more. Mc Donalds constantly update and improve their
menus to ensure customer satisfaction. The strong foundation that was built
in the 1940s when the company was founded continues today with
McDonald's vision and the commitment of their talented executives to keep
the shine on McDonald's Arches for years to come.

Business Strategy
According to Chandler, Strategy is the determination of basic long-term goals
and objectives of an enterprise and the adoption of courses of action and the
allocation of resource necessary for carrying out these goals. (Chandler,
1962)

Three components of strategy

Chandlers definition of business strategy is very good because it indicates
what makes up a successful strategy. When creating a strategy one must
always have objectives. According to Chandlers theory one cannot succeed
without objectives. Objectives vary within different types of businesses this is

what differentiates business strategies. Each company designs and follows a

strategy according to their aims and objectives.
The term adoption of courses of action refers to the actions one takes in
order to reach their objectives. For example in the case of Mc Donalds theyre
objective is to offer a fast and quality service to their customers. In order for
them to be able to meet this objective they had select and train staff to that
required standard.
The third main component of strategy is the allocation of resources. This
refers to the fact that there is a likely cost for the actions that will be taken to
achieve the objectives. If the course of action does not sufficiently support the
level resources then the objectives will not be accomplished. This is why
strategy is split into three components. All three of the components need to
be completed in order for a strategy to be successful. In order the
components to be completed successfully and for the strategy to work the
correct recourses must be found.

The Business Strategy of McDonalds

McDonalds is one of the most successful companies globally in order for them
to have achieved their success they used many business strategies. The
companys strategies are very much based on the theory of Richard L. Daft,
The analyzer tries to maintain a stable business while innovating on the
periphery. It seems to lie midway between the prospector and the defender.
Some products will be targeted toward stable environment in which an
efficiency strategy designed to keep current customers is used. Others will
be targeted toward new, more dynamic environment where growth is
possible.
The pie chart below shows how the large chain of McDonalds restaurants
duplicate all over the world especially in Europe and the USA which make up
65 % of all McDonalds restaurant and 75% of its revenues. In order for them
to be able to satisfy all of their potential clients and to attract new ones
McDonalds come up with different marketing campaigns for each region. The
reason behind this is because consumers in different countries have different

needs therefore they use different ways to attract them.

A vice-chairman of the company, Jim Skinner quoted, if you are looking for a
command centre with one push button that operates our restaurants in every
corner of the world you wont find it. What Skinner meant was that even
though McDonalds is a chain and promises to give the same quality of
service in every store around the world there is no fixed plan of how to work
as in each country the consumer needs vary therefore they adapt their
strategy to the countries. For example when McDonalds opened in China it
was not very successful as the food was not to the Chinese peoples taste. In
order to become successful and increase the demand in the region they
introduced more Chicken meals including Chinese spices.
The companys business strategy concludes that they must provide
customers in each country with the same standard of hygiene, service,
packaging, low prices and value for money, standard menu with additional
products in each region for example in Greece you can find the Greek Mac
which is not available in other regions.

One of the cleverest strategies McDonalds used was the introduction of the
happy meal. The happy meal is a meal that was introduced for children
with the meal the child receives a toy that changes according to trends. This
was a very clever way to start attracting small children and giving them the
motive to start collecting the toys. This was a very good way to market
McDonalds because the children tell each other about the meals word of
mouth.

SWOT Analysis
SWOT stands for strengths, weaknesses, opportunities, and threats.
Strengths and weaknesses are internal factors. Opportunities and threats are
external factors. It is the first stage of planning and helps marketers to focus
on key issues. By carrying out a SWOT analysis one can identify what they
are doing wrong but also what they are doing correctly. This is an easy way to
evaluate the companys success and to improve the companys strategy and
find solutions for any problems in the strategy.

Strengths
As a company McDonalds have many strengths, in fact they seem to have
more strengths than weaknesses. The fact that they have so many strengths
is a major advantage for the company. These strengths are:
Large Market share
They promote ethical products
Strong position and financial performance
Strong brand name, image and reputation
Availability of nutritional information on packaging
They plan to win focuses on People, Products, Place, Price and
Promotion otherwise known as the 5 Ps.
Strong performance and position in the global market
Specialized staff training to ensure high quality of service
Strong supply chain
Risk diversity

Although all these strengths are very important to the companys success
some are more important than others. For example the fact that the company
has a well respected image, brand name and reputation has a large impact
on the companys success. In the food market especially the companys
whole image, reputation is very important in order for a company to be
successful.

Weaknesses
The company just like every company has some weaknesses. Although there
are not many weaknesses they do have to be taken into consideration and
must not be underestimated. One of the biggest weaknesses the company
faces is the unhealthy food image. As McDonalds is a fast food Chain
stereotypically and traditionally fast food places are seen as unhealthy. They
employ a large amount of staff that means there are high costs in the staff
turnover department. Another main weakness is the one that most companies
face in any industry fierce competition. There are many other services that
compete with McDonalds such as Burger king and KFC.

Opportunities
McDonalds also many opportunities as a company. These opportunities are:
Consolidation with retailers likely to have better locations for
franchises.
They respond to social changes that take place e.g. healthy eating
range.
Strengthening its value proposition
The new services McDonalds offer the introduction of Mc Cafe,
availability of free WIFI internet, play parks for children and focusing on
healthy food range.
International expansion into parts of Africa and Asia
Growth of the fast food industry
Low cost menu that attracts customers

It is important for McDonalds just like any other company to take in to

consideration and take advantage of the advantages in order to maintain and
increase the companys success.

Threats
The threats the company faces are similar to all threats international
companies today face. One of the main threats is the global recession that is
taking place. Health experts accusing McDonalds of contributing to health
problems such as diabetes, cholesterol and blood pressure. Another main
threat is the fact that McDonalds are an American company and there is a lot
of racism towards the Americans.

Porter Five Forces Model

Porters Model is made up of five forces, these five forces are:

Strength of Supplier
Competition
Strength of Buyer
Substitutes
Ease of Entry

All of these five points are very important in maintaining a businesss success.
The restaurant industry is a very competitive industry. Fast food industry is
becoming more and more competitive as there are many small companies in
the industry as well as the large ones. In order to limit the competition Mc
Donalds tries to differentiate their products. To try and enter the food industry
it is difficult and especially to gain a good reputation and brand name. In the
industry there are many substitutes as there are many products that can be
chosen to be substituted. The suppliers in the fast food industry do not have
much power as many of the products are ready made. The buyer has a lot of
strength as they are what keep the company alive.

PEST Analysis
PEST analysis stands for political, economical, social and technological
factors of a company. The PEST analysis method is used vey often in looking
at business strategy and Success.

Political factors
All international operations of McDonalds are tough controlled by the
government because of health problems, like cholesterol, obesity and
cardiovascular concern. McDonalds Company has to give mutual benefits as
tax. Also company should to protect the employees by full hiring,
compensations, training etc.

Economic factors
McDonalds as an international company have to be alert on the global supply
and currencies exchange. Because not all local markets have an abundant of
products, McDonalds have to import the largest part of its raw material like
potatoes and beef to gather the demand of its product. Any change in the
rates of currencies and especially dollar influence on its cost of purchase.
McDonalds must follow the regulation of each country, where exits the
difference in scales and tax between them. The company has to pay both tax
on profit and entertainment and restaurants service tax. Stores must to shell
out the percentage of the profits to a mother company in the USA. Also, the
countrys economic conditions affect on incomes of the company.
Social and cultural factors
McDonalds pay a huge attention to its customers, their preferences and
needs, because of variety of countries and its cultures. So, McDonalds
launched new different menu for each country where stores located. For
example, McDonalds should the changes in the menu in such countries like
India, where people dont eat beef, in Muslim countries where prohibited to
eat the pork. To attract German clients should be offered a good quality beer,
for Finnish menu with accent on fish, for Americans big-sized menu etc. Also
to attract teens and business class clients, company introduce such facilities
as relaxing and comfortable place, wireless internet, credit card payment etc.

Technology factors
McDonalds must to improve itself all the time in sphere of technology and
innovation, like in inventory system, provide chain management system to
supervise its supply, easy payment and ordering systems for its.
McDonalds and the last promotion campaign loving it had a huge success in
the market. McDonalds bring in new technologies like wireless internet, play
spots, computers with the games, happy meals.
Legal factors
McDonalds have to protect clients confidence and its honour by ensuring all
materials and process as its claimed by the law. Another law issues that
company must followed are working hours, business registration, tax
requirement, labour and employment laws and quality and environment
certification.

Sustainable Competitive Advantage

For a company to have good productivity, constant demand and long-term
success in the consumer market the organisation needs to have sustainable
competitive advantage known as SCA (Hoffman).
Discussions related to SCA began with Hall (1980) and Henderson (1983).
Both Hall and Henderson recognised that firms must do something unusual
and different to their competitors in order for them to survive.
The first official definition of SCA was proposed by Barney (1991) he stated A
firm is said to have a sustained competitive advantage when its implementing
a value creating strategy not simultaneously being implemented by any cured
or potential competitors and when these other firms are unable to duplicate
the benefits of this strategy.
In other words we can say that SCA is an advantage that one firm has over
another, with a creating a strategy which is impossible to imitate by their
current and future competitors. The SCA of a firm must be something new,

sustainable, and difficult for other companies to repeat and must be useful for
any kind of situations.
These advantages can be the product, brand, customer care dynamic, the
cost structure or its patterns. From all the benefits the more sustainable of
them should be owned or distinctive to be considered (Prahald and Hamel,
1990).
There are some general strategies that are needed in order for SCA to be
successful they are as followed:
Overall cost leadership for example low-cost position, management of
the relationships throughout the entire value Chain.
Differentiation, creating a product or services that are unique in
comparison to others and are valued.
Focus strategy, narrow product lines, buyer segments or targeted
geographic markets and to attain advantages wither through
differentiation or leadership cost.

McDonalds Sustainable Competitive Advantage

Both the managerial and organizational process should share a good
integration and coordination. The 'value' that is much needed is created as
everyone works towards a common goal. The organization should be ready
to learn and react to changes according to the needs and must always be
flexible to changes in the environment such as customer trends, legal or
government restriction and developments in the technology. Presently
McDonalds is focusing on this advantage by concentrating on organizational
behaviour and managerial expertise. In the past this advantage was ignored
as the organisation was more into expansion of its outlets over the globe than
trying to strengthen its core advantage. As a result the companys revenue
didnt seem to change so they decided to change their managerial method.
Technological, structural and financial assets of a company have a big impact
on the companys sustainable competitive advantage. McDonalds is rich with
aspects like structure, technology and finance. In order to be able to

recognize and put into practice these assets in the direction towards the
improvement of the company is all that is required. Since 2003 the company
has made it its priority to concentrate on its greatest advantages.
The companys greatest advantage is the vision or the dream that they
started. The ability to sustain this dream over a large period of time is any
companies' greatest advantage. McDonalds originally began in order to help
people who had little time to cook or were busy and could not afford to dine at
a proper restaurant. The vision was to provide cheap quick service, with
quality satisfaction. Over the years the company have tried as hard possible
to stick to this vision and to make it successful.
In simple words and to sum the term up sustainable competitive advantage
means putting into practice the best value based strategy using all the unique
advantages to the company that cannot be copied or replicated by any other
competitors. The importance of the sustainable competitive advantage can
be obvious by what investment guru Warren Buffet gave as an answer when
asked about how he evaluates his investment portfolio. He simply answered
'sustainable competitive advantage'. Based on the dynamic integrated and
intelligent human resources can always be the only dependable and
sustainable SCA.
Today everything is outsourced from employee appointment to finance and
customer care. In many cases no organisation is one of the best ways in
which to handle many different types of work. Sometimes concentrating on
every detail is not possible especially with companies such as McDonalds.
Great care however must be taken in order for them not to outsource the
companys core competence. The main advantages of outsourcing
competitors are to provide cheap service, knowledge of markets offshore,
flexible resources, speedy operations, .expansion in supplier relationship and
so on. One of the ways McDonalds decided to use in order to ensure they
offer an efficient service is the drive through. The drive through means
customers wanting takeout meals can do that from their car, this means that
cues in the store will be reduced and customers in a rush do not have to
waste time getting out of their car.

Although now McDonalds is now one of the most successful fast food
services globally when it first began it had many competitors and it was very
difficult for them to succeed in the market. Today it is the biggest and most
well known fast food service globally and this is mainly due to its good
reputation and high standard of service. When the business first began there
was no guarantee that they would succeed. However they managed to not
only succeed but become one of the biggest companies worldwide, this is
mainly due to their clever strategy and their high standard of service.
McDonalds made marketing a big part of their strategy. They spent a lot of
time and money in order to market all their products new and old in the correct
way. They used many methods to carry this out and made sure they were
becoming a big part of peoples everyday lives no matter the age group.

Entering new markets

Identifying and pursuing new markets requires one to explore and play
outside their traditional business boundaries. Learning and decision-making
about how to address new competitors, consumers, customers, partners,
suppliers and other market dynamics is required as the company will be
entering unfamiliar territories.
Entering a new market with an existing product or service can be difficult but
introducing a new innovation into a new market is even more challenging. A
large amount of research had to be conducted in order for the company to
decide whether their product or their new product would be successful in a
new market. However entering a new market does not only mean expanding
your company but just differentiating an existing product and using a different
marketing method. The majority of companies operate successfully in niche
markets without ever expanding into new markets. A niche market is what is
known as a focused, targetable portion of a market. Many businesses find it
makes sense for them to expand into new markets to increase their turnover,
increase profitability and market share. Many companies are creating as
much value as they can by cutting costs and look to grow domestic markets,
as well as construct new markets and revenues in overseas markets.

Mc Donalds New Market

Mc Donalds is traditionally known as a fast food restaurant selling burgers,
nuggets, chips and so on. In 2004 they decided to enter a new market
making healthier food options such as salads and a deli bar. This new type of
food that Mc Donalds was offering made them differentiated them from other
fast food companies. Although the new healthy range is not the main source
of income for Mc Donalds it has changed their image. Before Mc Donalds
was seen as a junk food restaurant whereas now it is also considered for
healthy snacks. They have also entered a new target audience.

Research
We carried out a research in a few Mc Donalds restaurants in London asking
customers how theyre view of Mc Donalds changed with the healthy food
range. From this survey we wanted to see how successful Mc Donalds were
with their new market. We decided that the most effective way to gather this
information was to ask the customers themselves. We decided to visit the
restaurant located in Londons Oxford Street. The reason behind this decision
is because the restaurant is located in the centre of London and in one of the
busiest streets in the whole of the country. Another reason why we selected
this store is because there is a wide variety of customers that belong to both
different age groups, different careers groups. Due to this wide variety we
thought that it
would be a good
way to create a
more accurate
view.
We asked 100
people at random
50 of them being
25 and under and
the other 50 were
25-55. We decided
to split them into two categories because usually the under 25s are either

students or single, whereas 25-55s are stereotypically more mature and

usually are in very different stages in their personal lives. Half of the people in
the categories were females and the other half males. From our research we
found that there males and females had very different views. Most of the
male under 25s were not influenced a large amount by the new healthy food
range in fact one of them quoted If I wanted healthy food I would eat at
home. Although there was a rare few around 20% of the population we
asked that thought it was good that the variety was available. Around 30% of
females under the age of 25 said that it changed the stereotypical view that
they had of Mc Donalds however they dont usually eat food from the healthy
food menu however the other 70% said it didnt influence them at all and they
still see Mc Donalds as a regular fast food restaurant. In comparison to the
younger category they over 25 said that the new healthy range that Mc
Donalds offered changed the views towards the chain a large amount. The
females said that it was very good as many of them were on diets or on
healthy eating regimes so this made it easier for them not to ruin their diet.
60% of the females in the category of 25-55 that we asked worked in or close
to Oxford Street and said on many occasions they now eat or buy take out
lunch from Mc Donalds whereas in the past they wouldnt have. The males in
the category of 25-55s had a slightly different view to the females. 40% of
them said they know about the healthy food range but it wasnt as attractive to
them as the other meals on the menu. The 60 % said that although they dont
often buy salads they do however buy Deli Sandwiches as a healthy fast
lunch option.

Advertising
Mc Donalds needed a very effective way to advertise their new food range.
The most effective way of course was television advertisements. The target
age group they were aiming to attract was 20-40. They decided to play
advertisements after 7 oclock pm when more adults watch television. They
also advertised by putting posters up on bill boards inviting people to come in
and try the new range. Another way they thought would be very effective was
radio commercials. They reason why they used these marketing methods

was because they believed that they were three ways that were incorporated
in peoples everyday lives whether they are at home, out or at work. It is also
the most attractive of attracting people to any product even more so a food
product.

Conclusion
The conclusion we came to from our conversations with both the staff and the
customers and also from our observations is that although the healthy food
range has given Mc Donalds a whole new healthier and more respected
image it is not the most popular product they are selling. They have managed
to attract a new target audience but their larger portion of customers are the
same as they were before and they usually chose to eat from the traditional
menu. Even though the new healthy range has not contributed a large
amount to Mc Donalds success it has made some changes at it has proved
very good for the company.

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http://baike.baidu.com/view/4676.htm
http://www.mcdonalds.com/
www.aboutmcdonalds.com