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McDonald's SWOT Analysis / Matrix
Essays, Term Papers & Research Papers
SWOT analysis is a vital strategic planning tool that can be used by McDonald's managers to do a situational analysis of the company . It is a useful technique to understand the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) McDonald's is facing in its current business environment.
The McDonald's is one of the leading organizatations in its industry. McDonald's maintains its dominant position in market by carefully analyzing and reviewing the SWOT analysis. SWOT analysis an immensenly interactive process and requires effective coordination among various departments within the company such as – marketing, finance, operations, management information systems and strategic planning.
The SWOT Analysis framework facilitates an organization to identify the internal strategic factors such as -strengths and weaknesses, & external strategic factors such as - opportunities and threats. It leads to a 2X2 matrix – also known as SWOT Matrix.
The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix helps the managers of the McDonald's to develop four types of strategies:
- SO (strengths-opportunities) Strategies
- WO (weaknesses-opportunities) Strategies
- ST (strengths-threats) Strategies
- WT (weaknesses-threats) Strategies
SWOT Matrix Strategies Objective
The core purpose of SWOT matrix is to identify the strategies that a company can use to exploit external opportunities, counter threats, and build on & protect McDonald's strengths, and eradicate its weaknesses.
Step by Step Guide to McDonald's SWOT Analysis
Strengths of McDonald's – Internal Strategic Factors
As one of the leading firms in its industry, McDonald's has numerous strengths that enable it to thrive in the market place. These strengths not only help it to protect the market share in existing markets but also help in penetrating new markets. Based on Fern Fort University extensive research – some of the strengths of McDonald's are –
- Automation of activities brought consistency of quality to McDonald's products and has enabled the company to scale up and scale down based on the demand conditions in the market.
- Successful track record of integrating complimentary firms through mergers & acquisition. It has successfully integrated number of technology companies in the past few years to streamline its operations and to build a reliable supply chain.
- Highly skilled workforce through successful training and learning programs. McDonald's is investing huge resources in training and development of its employees resulting in a workforce that is not only highly skilled but also motivated to achieve more.
- Highly successful at Go To Market strategies for its products.
- Good Returns on Capital Expenditure – McDonald's is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams.
- Strong dealer community – It has built a culture among distributor & dealers where the dealers not only promote company’s products but also invest in training the sales team to explain to the customer how he/she can extract the maximum benefits out of the products.
- Strong Free Cash Flow – McDonald's has strong free cash flows that provide resources in the hand of the company to expand into new projects.
- High level of customer satisfaction – the company with its dedicated customer relationship management department has able to achieve a high level of customer satisfaction among present customers and good brand equity among the potential customers.
Weakness of McDonald's – Internal Strategic Factors
Weakness are the areas where McDonald's can improve upon. Strategy is about making choices and weakness are the areas where an organization can improve using SWOT analysis and build on its competitive advantage and strategic positioning.
- There are gaps in the product range sold by the company. This lack of choice can give a new competitor a foothold in the market.
- Not very good at product demand forecasting leading to higher rate of missed opportunities compare to its competitors. One of the reason why the days inventory is high compare to its competitors is that McDonald's is not very good at demand forecasting thus end up keeping higher inventory both in-house and in channel.
- Limited success outside core business – Even though McDonald's is one of the leading organizations in its industry it has faced challenges in moving to other product segments with its present culture.
- Financial planning is not done properly and efficiently. The current asset ratio and liquid asset ratios suggest that the company can use the cash more efficiently than what it is doing at present.
- Investment in Research and Development is below the fastest growing players in the industry. Even though McDonald's is spending above the industry average on Research and Development, it has not been able to compete with the leading players in the industry in terms of innovation. It has come across as a mature firm looking forward to bring out products based on tested features in the market.
- The marketing of the products left a lot to be desired. Even though the product is a success in terms of sale but its positioning and unique selling proposition is not clearly defined which can lead to the attacks in this segment from the competitors.
- Days inventory is high compare to the competitors – making the company raise more capital to invest in the channel. This can impact the long term growth of McDonald's
Opportunities for McDonald's – External Strategic Factors
- Lower inflation rate – The low inflation rate bring more stability in the market, enable credit at lower interest rate to the customers of McDonald's.
- Opening up of new markets because of government agreement – the adoption of new technology standard and government free trade agreement has provided McDonald's an opportunity to enter a new emerging market.
- Decreasing cost of transportation because of lower shipping prices can also bring down the cost of McDonald's’s products thus providing an opportunity to the company - either to boost its profitability or pass on the benefits to the customers to gain market share.
- Stable free cash flow provides opportunities to invest in adjacent product segments. With more cash in bank the company can invest in new technologies as well as in new products segments. This should open a window of opportunity for McDonald's in other product categories.
- New trends in the consumer behavior can open up new market for the McDonald's . It provides a great opportunity for the organization to build new revenue streams and diversify into new product categories too.
- Organization’s core competencies can be a success in similar other products field. A comparative example could be - GE healthcare research helped it in developing better Oil drilling machines.
- Economic uptick and increase in customer spending, after years of recession and slow growth rate in the industry, is an opportunity for McDonald's to capture new customers and increase its market share.
- New environmental policies – The new opportunities will create a level playing field for all the players in the industry. It represent a great opportunity for McDonald's to drive home its advantage in new technology and gain market share in the new product category.
Threats McDonald's Facing - External Strategic Factors
- Changing consumer buying behavior from online channel could be a threat to the existing physical infrastructure driven supply chain model.
- Intense competition – Stable profitability has increased the number of players in the industry over last two years which has put downward pressure on not only profitability but also on overall sales.
- Imitation of the counterfeit and low quality product is also a threat to McDonald's’s product especially in the emerging markets and low income markets.
- No regular supply of innovative products – Over the years the company has developed numerous products but those are often response to the development by other players. Secondly the supply of new products is not regular thus leading to high and low swings in the sales number over period of time.
- Liability laws in different countries are different and McDonald's may be exposed to various liability claims given change in policies in those markets.
- Increasing trend toward isolationism in the American economy can lead to similar reaction from other government thus negatively impacting the international sales.
- New environment regulations under Paris agreement (2016) could be a threat to certain existing product categories .
- As the company is operating in numerous countries it is exposed to currency fluctuations especially given the volatile political climate in number of markets across the world.
Limitations of SWOT Analysis for McDonald's
Although the SWOT analysis is widely used as a strategic planning tool, the analysis does have its share of limitations.
- Certain capabilities or factors of an organization can be both a strength and weakness at the same time. This is one of the major limitations of SWOT analysis . For example changing environmental regulations can be both a threat to company it can also be an opportunity in a sense that it will enable the company to be on a level playing field or at advantage to competitors if it able to develop the products faster than the competitors.
- SWOT does not show how to achieve a competitive advantage, so it must not be an end in itself.
- The matrix is only a starting point for a discussion on how proposed strategies could be implemented. It provided an evaluation window but not an implementation plan based on strategic competitiveness of McDonald's
- SWOT is a static assessment - analysis of status quo with few prospective changes. As circumstances, capabilities, threats, and strategies change, the dynamics of a competitive environment may not be revealed in a single matrix.
- SWOT analysis may lead the firm to overemphasize a single internal or external factor in formulating strategies. There are interrelationships among the key internal and external factors that SWOT does not reveal that may be important in devising strategies.
Weighted SWOT Analysis of McDonald's
In light of the above mentioned limitations of the SWOT analysis / matrix, corporate managers decided to provide weightage to each internal strength and weakness of the firm. Organizations also assess the likelihood of events taking place in the coming future and how strong their impact could be on company's performance.
This method is called Weighted SWOT analysis. It is better than doing simplistic SWOT analysis because with Weighted SWOT Analysis McDonald's managers can focus on the most critical factors and discount the non-important one. It also solves the long list problem where organizations ends up making a long list but none of the factors deemed too critical.
Limitation of Weighted SWOT analysis of McDonald's
This approach also suffers from one major drawback - it focus on individual importance of factor rather than how they are collectively important and impact the business holistically.
Example of Weighted SWOT Analysis
You can email us to get an example document of Weighted SWOT analysis.
SWOT Worksheet & Template
If you like to do your own SWOT analysis or want to make your own Weighted SWOT SWOT matrix then feel free to download Fern Fort University SWOT Analysis Template.
References / Citations & Bibliography
- M. E. Porter, Competitive Strategy(New York: Free Press, 1980)
- A. D. Chandler, Strategy and Structure (Cambridge, Mass.: MIT Press, 1962)
- O. E. Williamson, Markets and Hierarchies(New York: Free Press, 1975);
- L. Wrigley, Divisional Autonomy and Diversification (PhD, Harvard Business School, 1970)
- R. E. White, Generic Business Strategies, Organizational Context and Performance: An Empirical Investigation, Strategic Management Journal7 (1986)
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