Recommendation and justification of change management programme that may assist McDonald’s in realising its strategic objectives.

 

          Introduction:

The board of directors of McDonald’s Inc approached me. They wanted my advice, as a strategic consultant, on the future strategic direction of the company. The board of directors wants such a development strategy that makes McDonald’s resilient to changes in the external environment and makes it's business sustainable.

Critical Analysis:

McDonald’s runs a chain of fast-food restaurants across the world. It is present in more than 100 countries. The company’s business strategy is to be a cost leader. It tries to operate at lower costs than rivals. It transfers the cost savings to customers in the form of lower prices.

Lately, the company has been lagging behind its rivals in many large emerging markets. These emerging markets include countries like Brazil, Russia, India, and China. The company’s board is not clear what its future strategic direction should be in these countries.

Development strategy can be one of the following: inventive strategy, denotative strategy, or incremental strategy. Inventive strategy means having a completely new strategic direction for the future. The denotative strategy is not to have a clear strategy but just an indication of what are the strategic objectives of the organization. In incremental strategy the strategic development is slow and gradual; it builds on the existing strategic framework of the organization (Kvint 2009).

 

Analysis of internal factors of McDonald’s

The company’s strength is in delivering good quality fast food items, in a clean ambiance at reasonably low costs. The strategic capabilities of a company include those capabilities, resources and organizational skills that give a sustainable competitive advantage to the organization.

Supply chain management is one of the strategic capabilities of McDonald’s. Efficient supply chain management plays a significant role in McDonald’s ability to keep costs low. It has a network of dedicated suppliers. Some of these suppliers work exclusively for McDonald’s. McDonald’s pursues strategic collaboration with its suppliers (Hill & Jones 2012).

Operations management is also a strategic capability of the restaurant chain company. Operations management in restaurants ensures that there is a standard quality of products and services in McDonald’s restaurants across the world. The standard quality of food and services delivered in its restaurants is an important aspect of its brand image. 

Cost control is implemented at every step of the supply chain.

McDonald’s key resources include its human resources, the location of its restaurants in strategic areas, and the institutional knowledge of the restaurant business that it has gained over the years.

It is these strategic capabilities that give McDonald’s a competitive advantage over its rivals. Competitive advantage is the advantage that a firm has over its rivals. The competitive advantage allows a company to have a higher market share than its rivals, or to charge higher prices than its competitors and work at higher margins (Kvint 2009).

McDonald’s has used its competitive advantage to have a higher market share than its competitors like Burger King, KFC, Subway, and others. Actually, McDonald’s faces competition from a number of local players in every market in which it operates.

The organizational culture of McDonald’s is one that is in sync with its cost leadership strategy. The culture of efficiency prevails across the organization of the company. If McDonald’s adopts an inventive strategy then it will also have to change its organizational culture.

Analysis of external factors of McDonald’s

Most of the countries have not recovered fully from the economic slowdown caused by the 2008 financial crisis. In such an economic scenario, customers have become more value-conscious – they want more value for every dollar that they spend.

Customers in emerging markets have lower per capita income than their counterparts in developed countries. They, therefore, have lower disposable income too. McDonald’s cost leadership strategy suits these emerging markets. In some emerging markets, McDonald’s needs to offer its products at even lower prices than what it is currently charging (Hill & Jones 2012). 

SWOT Analysis

Strengths: McDonald’s enjoys cost leadership over many of its rivals. It has a presence across the globe. Its brand image is one of quality, reliability, and value. Its capabilities in supply chain management and operational management give it a sustainable competitive advantage.

Weaknesses: McDonald’s menu is a limited one. It has been unable to come up with new products at the pace at which many of its rivals have done lately. For instance KFC has become the market leader in many emerging markets as it has been able to offer more products and more value to customers lately.

A large number of restaurants of the company are owned and managed by franchisees. It is a challenge to ensure that the product and service quality delivered in franchisee-owned restaurants is up to the standards of McDonald’s. A few franchisees of McDonald’s in remote developing markets have repeatedly failed in keeping up with the standards required by McDonald’s.

Opportunities: There are significant market penetration opportunities in emerging markets and the least developed countries of Africa. These countries now have a large population of middle-class consumers. McDonald’s target customers are middle-class customers.

Threats: The main threat to McDonald’s comes from its competitors like KFC. Its rivals have emulated its capabilities in supply chain management and operations management. So McDonald’s has lately lost much of its competitive advantage over its rivals.

On the basis of an analysis of the internal and external strategy of McDonald’s, it is recommended that the company’s strategic direction should be one of incremental strategy. It should keep following the cost leadership strategy. It should improve its cost control further so as to strengthen its cost leadership (Drucker 2000).

Such an incremental strategy will enable McDonald’s to increase its market share across markets. It will also make McDonald’s more capable of dealing with the challenges being posed by its rivals.

Task 2: Critical evaluation of the recommended strategy

The recommended strategy is to follow an incremental strategy over the existing cost leadership strategy. Following a completely new inventive strategy will not be a suitable strategic direction for McDonald’s. It will require a change in the entire culture of McDonald’s. Without a change in culture, a new strategy will not work effectively.

The existing strategy of cost leadership has worked till now. It won’t be appropriate for the company to change its strategy of cost leadership. It just needs to make its existing strategy more effective by following an incremental approach. This will make its competitive advantage more sustainable and will ensure that McDonald’s remains resilient in the face of adverse external shocks.

A denotative strategy has no clear long term goals and objectives. Such indicative strategy changes in response to changes in the external environment. A denotative strategic direction is taken by companies that don’t have a clear strategic direction. A denotative strategy is suitable for companies who are not sure what would be the right strategy for them. They, therefore, adopt an indicative or denotative strategy as a hit-and-trial way of identifying the right strategy.

An incremental strategy will involve McDonald’s tightening its cost control so as to create more value for itself and for its customers. The company’s human resources are competent inefficient operations management. They can be educated and trained further so that they can become more efficient in operations management.

The company’s supply chain capabilities can be leveraged further. Its suppliers can collaborate in strategic implementation. Its capabilities in operations management and store management can be honed to lower operational costs further (Drucker 2000).

McDonald’s follows a strategy of customization when it comes to products and pricing. It customizes its menu according to the local culture and local tastes and preferences. It doesn’t sell its popular beef burgers in its Indian restaurants because eating beef is considered a taboo in Hindu India. It doesn’t sell pork products in Islamic countries; it sells only kosher products in Jewish Israel.

It prices its products at lower margins in low-income countries in order to make them affordable for customers. By implementing tighter cost control McDonald’s can lower the price of its products further. This will enable it to increase its market share in emerging markets and in the least developed countries.

McDonald’s should follow this incremental strategy in product innovation. It needs to expand its menu by creating more products. More value offerings need to be created for customers in low-income countries.

McDonald’s has the financial resources required for implementing an incremental strategy that can make its operations even more efficient. It can invest in training of its franchisees so that they can become more efficient in the management of the stores.

McDonald’s training facility, Hamburger University, is in Illinois. The training facility is spread in an area of over 130,000 square feet. McDonald’s can use its training infrastructure for training its employees so that they can become more efficient and effective.

It has the technological infrastructure, like electronic data interchange, in place. This technology infrastructure enables it to share data and information with suppliers in real-time. Using its technology infrastructure McDonald’s can implement the incremental strategy effectively.

Task 3: Change Management Program

The implementation of the incremental strategy will require tightening of cost control. This will require some change in the organizational culture. Employees need to become conscious about costs as well as customer service at the same time. New areas of cost savings will have to be identified.

The employees have to be involved in this change. The need for this change should be communicated to them. The strategic objectives of the company should be explained to them. How will the employees benefit from the change? This should be explained to them.

Employees may be resistant to changes. This resistance to change can be dissolved by having clear communication with employees during the change management process. Communication is the key to change management. It is through clear two-way communication that cooperation of employees in change management can be gained (Mulcaster 2009).

Resistance from employees can hinder the change management program. This in turn will prevent the company from achieving the objectives of the incremental strategy. The organizational culture of the company in emerging markets will have to be changed. Only then will McDonald’s be able to lower prices further in these markets. One of the key strategic challenges before McDonald’s is how to increase market share in emerging markets (Mulcaster 2009).

It will be difficult to implement the culture of efficiency in some emerging markets. McDonald’s policy is to employ locals in each national market. Many emerging markets do not have a culture of efficiency. Employees coming from such cultures may find it a challenge to adjust to McDonald’s culture of discipline and efficiency.

McDonald’s has a process-oriented approach to operations. In order to enhance the efficiency of its operations, it needs to improve its processes further. This will require training of human resources so that they can operate the improved processes.

The change management program for the incremental strategy should have the following stages:

i) Communicating with the employees the need for change. How the change program will benefit them?

ii) Addressing any grievances that employees have about the new strategy and the ensuing change.

iii) Implementing the change across the organization at the two levels: people & processes.

iv) Monitoring the implementation of change.

The implementation of change in organizational culture should be simultaneous with the implementation of an incremental strategy.

Conclusion:

The development strategy should be informed by the current strategy of the organization. If the current strategy has been successful in achieving organizational goals and objectives then the incremental strategy is the right approach. The current strategy of McDonald’s has been highly successful in achieving its objectives. Therefore it should follow an incremental strategy. Such an incremental strategy that strengthens its cost leadership will make McDonald’s more resilient in the face of adverse external shocks like an economic crisis. It will also give a sustainable competitive advantage to the company thereby ensuring its sustainability in the long run.