Harvard Case - McDonald's Corporation
"McDonald's Corporation" Harvard business case study is written by Frank T. Rothaermel, John Kim. It deals with the challenges in the field of Strategy. The case study is 28 page(s) long and it was first published on : Mar 8, 2023
At Fern Fort University, we recommend that McDonald's Corporation adopt a multi-pronged strategic approach focused on digital transformation, sustainable growth, and global expansion, while simultaneously strengthening its core competencies and brand image. This approach will involve leveraging technology and analytics, innovation, and strategic alliances to navigate the evolving landscape of the fast-food industry and secure a sustainable competitive advantage.
2. Background
The case study focuses on McDonald's Corporation, a global fast-food giant facing numerous challenges in the late 2010s. These challenges include declining sales, increased competition, changing consumer preferences, and a need to adapt to evolving technological trends. The case highlights the company's efforts to revitalize its brand, improve operational efficiency, and expand its reach into new markets.
The main protagonists of the case study are:
- Steve Easterbrook, CEO of McDonald's Corporation, who spearheaded the company's turnaround strategy.
- The McDonald's leadership team, responsible for implementing Easterbrook's vision and navigating the company through a period of significant change.
- McDonald's franchisees, who play a critical role in the company's success and who are impacted by the company's strategic decisions.
- Consumers, whose changing tastes and preferences are driving the need for innovation and adaptation within the fast-food industry.
3. Analysis of the Case Study
SWOT Analysis:
- Strengths: Strong brand recognition, global reach, efficient supply chain, robust franchise model, extensive data and analytics capabilities.
- Weaknesses: Perception of unhealthy food, reliance on a limited menu, declining customer satisfaction in some markets, vulnerability to economic downturns.
- Opportunities: Expanding into emerging markets, leveraging technology for digital ordering and delivery, promoting healthier menu options, focusing on personalized customer experiences.
- Threats: Increasing competition from fast-casual restaurants, rising food costs, health and wellness trends, changing consumer preferences, regulatory pressures.
Porter's Five Forces Analysis:
- Threat of New Entrants: High barriers to entry due to brand recognition, economies of scale, and franchise model.
- Bargaining Power of Suppliers: Moderate, with potential for negotiation leverage based on volume purchases.
- Bargaining Power of Buyers: Moderate, with consumers having a wide range of options in the fast-food industry.
- Threat of Substitutes: High, with consumers increasingly opting for healthier alternatives and fast-casual dining experiences.
- Rivalry Among Existing Competitors: High, with intense competition from established players like Burger King, Subway, and Domino's, as well as emerging fast-casual brands.
Value Chain Analysis:
McDonald's value chain can be analyzed by examining its primary and support activities:
- Inbound Logistics: Efficient supply chain management, global sourcing, and standardized procurement processes.
- Operations: Standardized manufacturing processes, franchise model, and focus on operational efficiency.
- Outbound Logistics: Global distribution network, franchisee-driven delivery, and centralized inventory management.
- Marketing and Sales: Strong brand recognition, targeted advertising campaigns, and digital marketing initiatives.
- Service: Customer service, order accuracy, and fast service times.
- Firm Infrastructure: Strong corporate governance, robust financial systems, and a global network of franchisees.
- Human Resource Management: Employee training, performance management, and focus on employee satisfaction.
- Technology Development: Investment in digital platforms, mobile ordering, and data analytics.
- Procurement: Strategic sourcing, supplier relationships, and cost optimization.
Business Model Innovation:
McDonald's has implemented several business model innovations, including:
- Digital Transformation: Implementing mobile ordering, delivery services, and digital kiosks to enhance customer experience and streamline operations.
- Menu Innovation: Introducing new menu items, including healthier options and customizable offerings, to cater to evolving consumer preferences.
- Franchise Model Optimization: Strengthening franchisee relationships, providing support and resources, and empowering franchisees to make local decisions.
- Global Expansion: Targeting emerging markets with tailored menu offerings and localized marketing strategies.
4. Recommendations
1. Accelerate Digital Transformation:
- Invest in AI and Machine Learning: Utilize AI-powered chatbots for customer service, personalized recommendations, and automated order taking.
- Enhance Mobile Ordering and Delivery: Improve the user experience of mobile ordering platforms, expand delivery partnerships, and explore new delivery models like drone delivery.
- Develop a Seamless Omnichannel Experience: Integrate online and offline channels, enabling customers to order, pay, and collect their meals seamlessly across multiple platforms.
- Leverage Data Analytics: Utilize data to understand customer preferences, optimize menu offerings, personalize promotions, and improve operational efficiency.
2. Promote Sustainable Growth:
- Focus on Healthier Menu Options: Introduce more plant-based and vegetarian options, reduce salt and sugar content, and promote healthier choices through marketing campaigns.
- Embrace Environmental Sustainability: Implement sustainable packaging practices, reduce waste, and promote energy efficiency in restaurants.
- Invest in Renewable Energy Sources: Explore solar and wind energy options to reduce reliance on fossil fuels and minimize environmental impact.
- Support Local Communities: Partner with local farmers and suppliers to source ingredients locally, promote community engagement, and contribute to local economies.
3. Expand Global Reach:
- Target Emerging Markets: Identify high-growth markets with potential for fast-food expansion and tailor menu offerings and marketing strategies to local preferences.
- Adapt to Local Cultures: Conduct thorough market research to understand local tastes, dietary habits, and cultural sensitivities.
- Develop Strategic Alliances: Partner with local businesses, restaurants, and distributors to leverage existing infrastructure and expertise.
- Explore Joint Ventures: Collaborate with local partners to share risks and resources, facilitating faster market entry and cultural adaptation.
4. Strengthen Core Competencies:
- Enhance Operational Efficiency: Implement lean manufacturing principles, optimize supply chain management, and streamline operational processes to reduce costs and improve service speed.
- Invest in Employee Training: Provide comprehensive training programs for employees, focusing on customer service, food safety, and operational excellence.
- Foster a Culture of Innovation: Encourage creativity and experimentation within the organization, fostering a culture of continuous improvement and adaptation.
- Develop Strong Leadership: Identify and nurture future leaders with a strong understanding of the evolving fast-food industry and the ability to drive strategic change.
5. Enhance Brand Image:
- Focus on Brand Storytelling: Communicate McDonald's values, history, and commitment to sustainability and community engagement through compelling storytelling.
- Leverage Social Media: Engage with customers on social media platforms, responding to feedback, promoting new initiatives, and building online communities.
- Partner with Influencers: Collaborate with relevant influencers to reach new audiences and promote positive brand associations.
- Focus on Customer Experience: Deliver exceptional customer service, create a welcoming environment, and ensure a positive dining experience for all customers.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of McDonald's current situation, considering its core competencies, external customers, competitors, and quantitative measures of attractiveness. The recommendations are aligned with McDonald's mission to serve delicious food and provide a positive customer experience, while also addressing the evolving needs of its customers and the competitive landscape.
Assumptions:
- The fast-food industry will continue to evolve, driven by technological advancements, changing consumer preferences, and increased competition.
- Consumers will continue to demand healthier and more sustainable food options.
- Emerging markets will offer significant growth potential for fast-food companies.
- McDonald's will continue to invest in technology and innovation to remain competitive.
- The company will prioritize the development of strong leadership and a culture of innovation.
6. Conclusion
By implementing these recommendations, McDonald's Corporation can achieve sustainable growth, strengthen its brand image, and secure a competitive advantage in the evolving fast-food industry. The company's focus on digital transformation, sustainable practices, and global expansion, while simultaneously strengthening its core competencies, will enable it to navigate the challenges and opportunities of the future.
7. Discussion
Alternatives:
- Focusing solely on cost leadership: While cost leadership can be effective, it may not be sustainable in the long term, as consumers increasingly prioritize quality, health, and sustainability.
- Acquiring competitors: While acquisitions can be a strategic move, they can be costly and complex, and may not always be successful in integrating different cultures and operations.
- Maintaining the status quo: This would likely lead to further decline, as the company would fail to adapt to the changing market landscape.
Risks:
- Technological disruption: Rapid advancements in technology could render current strategies obsolete, requiring continuous adaptation and investment.
- Economic downturn: A global economic recession could impact consumer spending, affecting sales and profitability.
- Regulatory changes: New regulations regarding food safety, environmental sustainability, or labor practices could increase costs and impact operations.
Key Assumptions:
- The recommendations assume that McDonald's will have the financial resources and organizational capacity to implement the necessary changes.
- The recommendations also assume that McDonald's will be able to attract and retain talented employees to drive innovation and execute the strategy.
8. Next Steps
Timeline:
- Year 1: Implement key digital transformation initiatives, including AI integration, mobile ordering improvements, and data analytics.
- Year 2: Expand into new markets, focusing on emerging economies with high growth potential.
- Year 3: Introduce new menu items, emphasizing healthier and more sustainable options.
- Year 4: Continue to invest in technology, innovation, and employee development, ensuring long-term sustainability and competitive advantage.
Key Milestones:
- Launch of AI-powered chatbot for customer service.
- Expansion into three new emerging markets.
- Introduction of a new plant-based menu item.
- Achieving a 10% reduction in environmental footprint.
- Developing a comprehensive employee training program focused on customer service and operational excellence.
By following these recommendations and implementing the proposed timeline, McDonald's Corporation can position itself for continued success and maintain its position as a global leader in the fast-food industry.
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Case Description
The case is set in 2023; the protagonist is Chris Kempczinski, CEO of McDonald's Corporation. McDonald's is the world's largest hamburger fast-food restaurant chain, with 40,000 restaurants in over 100 countries, $23 billion in annual revenue, and a net income of $6 billion. Since being appointed CEO in 2019, Kempczinski launched the Accelerating the Arches strategic initiative (MCD, also the ticker symbol): maximize our Marketing, commit to the Core Menu, and double down on the 4 Ds of delivery, digital, drive-thru, and development. Although McDonald's has significantly outperformed the broader stock market for most of the past decade, Kempczinski wonders how long this can last. McDonald's faces significant headwinds, including recessionary pressure, high inflation, supply chain problems, rising wages, and significant labor shortages.
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