Strategic issues
Every company’s success depends on how it handles its strategic issues. Over the past years, entities have increasingly put a lot of emphasis on how they handle their strategic issues. This subject raises questions of necessity for every business. In order to build a wide perspective on strategic issues, selecting a company that is likely to face these issues in future, summarizing the business the company is in, assessing how the company uses the tools of evaluating the risks and identifying and describing the key strategic risks that the business is facing will help evaluate the subject of discussion more. Categorizing the risks of the company and giving an opinion on whether company’s strategy can or cannot be successfully pursued will also form a deep analysis of strategic issues in a company.
McDonalds is a public company and will form the basis for discussion on strategic issues. McDonalds is a company which was founded in America in 1940, operated by Maurice McDonalds and Richard. The business operated its business as a hamburger stand but after sometime they turned the company into a franchise (Boyar & Davis-Friday, 2019). A franchise is a tool for marketing where by an organization sells its rights for their logo, model and name to a franchisee. This is usually a mode of expansion by companies. McDonalds company is one of the biggest companies and most successful in the chain of restaurant.
Schawel & Billing, (2018) denotes that Mcdonalds uses intensive growth strategy to maintain its position and competitive advantage in the market. To penetrate the market fully the company has franchised its operations thus new restaurants are opened often. Apart from franchising the company has joint ventures. Also the company sells its products at very cheap prices which help the company to easily penetrate the market. Product development of McDonalds involves developing new products each new day. The company does this with the aim of bringing on board new customers with introduction of new products.
To support the strategy of the company these key four questions of strategy helps the company in realizing their main strategy. First, how does the company differentiate its products?, Secondly, how does the company determine the market to penetrate in?, Thirdly, how does the company reward and motivate its management to enhance success of the company? And lastly what is the product mix of McDonalds? From the McDonalds 10-k annual report for the fiscal year ending Monday December 31,2018, the global comparable sales increased by 4.4% which reflects positive sales in all segments. From the questions above, the report says that the performance was due to Velocity Growth Plan which was as a result of global segments momentum.
McDonalds has adopted various measures that are intended to meet the strategies in the questions asked above. The company differentiates its products by stressing out on quality products which are superior (Boyar & Davis-Friday, 2019). It develops tastes which are very distinct and they change the process of cooking which provides an opportunity that is better for the company to attract more demand. They also differentiate using better services to customers and ensuring that nutrition for the health-conscious is maintained. Penetration of the company is determined by the statistics that are collected by the company. Since the company aims at penetrating in new locations they carry out a pilot test for their products thus they are able to know how a certain community will receive their products.
McDonalds has the best criteria of rewarding its employees to keep them dedicated towards the goal. Motivation in this company is a menu (Wheelen et.al, 2017). The company supports the behaviors that they feel a desire on by providing a two bonus scheme to its employees as well as providing incentives to them. The managers of the company are usually gives bonuses on quarterly basis based on the rate of growth, and profitability of the company. The employees of McDonalds are given an opportunity to choose the benefits that suits them better based on their age. According to the 2018 10-k report, the earnings per share of the company were $1.97 an increase of 15% over the prior year earnings per share. This was attributed to a very good product mix (promotion, products, place, and price) which covers the various organization outputs which helps to attract more shareholders who buy the shares thus increasing earnings per share of the company.
McDonalds has put in place three tools to help it meet the strategy and evaluate strategy risks. The first tool is Porters five Forces. This is a tool which is of much help in analyzing the of a company’s competition. It uses five forces to determine the intensity of competition in a business McDonalds has its competitors and this tool helps them to maintain a better position compared to their competitors. This tool was developed by Michael Porter. The first force is threat of new entrant. McDonalds attracts new firms into the market due to its high yields (Zhao et.al, 2016). The firm has developed various ways to make it difficult for new entrants to enter the market. Entrance of new firms means reduced profitability. The company has made it difficult for the companies by ensuring customer loyalty to their brands and ensuring proper product differentiation thus fighting the strategic risks.
The second force is threat to substitute. This describes a situation where a different technology is used to solve a need that is economically the same (Zhao et.al, 2016). McDonalds has ensured that its products are of high quality thus making it difficult for substitution. Also it has ensured that its products are sold at a very cheap price thus making it difficult for customers to shift their demand to substitutes. Through this tool the company is able to evaluate the strategy risk of competitors. The third force is, bargaining power of customers. This is ability of customers to keep the company under so much pressure (Wheelen et.al, 2017). The company has ensured that its prices are buyer sensitive, information to buyers is available and its products are unique to that of competitors.
The fourth force is competitive rivalry which refers to the ability of the company to understand its rivals in terms of strategies of marketing and pricing. McDonalds maintains high rate of innovation thus maintaining a better advantage than the competitors. The last force is usage. This force is used to evaluate the strategic position of a company. The company has adopted various measures to ensure that its position remains high than its rivals.
The second tool that McDonalds uses in order to meet its strategy goal is ansoff matrix. This tool is mostly used in strategic planning because it provides dimensions that help management involving marketers, senior managers and executives in putting in place strategies for growth in future. McDonalds adopts this tool to keep it in line with its goal. Ansoff came up with four alternatives of growth to develop an organization (Schawel, C., & Billing, 2018).. First is market penetration which involves a company trying to grow using its existing. The company uses this tool to ensure the strategic risk is handled with. It does so through ensuring brand loyalty by customers.
Second alternative is market development which involves a company expanding to new markets using the already existing products. This helps McDonalds in assessing its strategic risk because it ensures that different segments are reached thus maintaining the brand (Wheelen et.al, 2017). Third alternative is Product development which involves creating new products for the existing market. McDonalds assesses strategic risks using this tool because they carry out research and developments of additional products thus keeping the pace. The last alternative is diversification which involves the company creating new products for new markets. This alternative helps the company to assess risk by ensuring that proper moves are done to ensure growth is promoted.
The last tool that McDonalds uses to assess strategic risks is SWOT analysis. This involves looking at Strengths, Weaknesses, Opportunities and Threats in order to stay ahead of competitors (Bohari & Fuad, 2017). McDonalds evaluates risks by looking at its strengths which involves having a brand that is strong globally and having income that is diversified. They look at their weaknesses which involve Publicity which is negative and high turnover of employees to ensure they remain relevant.
The opportunities of McDonalds are plans for expansion and a menu that is upgraded each time thus helping them to evaluate the risk of competitors taking the market. The company also evaluates the risks through taking into account threats which involve competition and more customers who are health conscious. Through those tools the company is able to evaluate strategic risks which in turn help it to remain focused on implementation of the strategy.
There are various strategic risks that face McDonalds in pursuit of its strategy of intensive growth. The strategic risks involve operational, reputation, legal and currency. (Dzhandzhugazova et.al, 2015). Operational risks in meeting the strategy involve increased labor strikes and demonstrations against the company on matters regarding increase of wages. Reputation risk occurs in the company when the company changes its menu to accommodate various health issues. This might not be taken positive by all customers thus having a negative reputation on the company.
Legal risks arises because operating in developed markets require many formalities and if one is not followed legal risk arises which compromises the company’s strategy of growth. Currency risks occur where the currency keeps on fluctuating and the company has debts dominated in foreign currency.
These risks have implications on the company’s pursuit of its strategy. Positive impacts of the risks is that the helps the company to concentrate on their goal because to achieve that that various risks have to be addressed (Boyar & Davis-Friday, 2019). Secondly the risks help the company to work more to get amount to cater foe penalties that come with these risks whenever they occur. Negative impacts are that these risks once they happen they might lead to closure of business which in turn may make the company lose its market share. Also many costs are incurred to cater for t6hose risks whenever they happen thus reducing the profits of the company.
These risks can be avoided, mitigated, transferred and accepted. Operational costs can be mitigated (Dzhandzhugazova et.al, 2015). This involves the McDonalds taking various steps to reduce the effects of this effect. To mitigate this risk the company can come up with various measures and processes to be followed before workers go on strike. Unless such measures have failed then they can go on strike. Another approach to mitigate this risk is by ensuring that workers are motivated and paid well this risk may not be a bother.
Legal risks can be avoided by ensuring that the company abides with the stringent rules and regulations of the economies it is situated. Reputation costs can be reduced by ensuring that change of menu of customers is tailored to meet all the health issues of all customers. Currency risks can be transferred because the company can take loans from countries where exchange rates are expected to remain stable for a long period of time.
It is possible that the company’s strategy cannot be pursued successfully but the strategy of McDonalds is sound. Although there are many risks involved in pursuit of their strategy of intensive growth, they have appropriate ways of dealing with those risks and this makes them manageable.
In conclusion, strategic issues are a major concern of all companies because they play a pivotal role in the success of any company. Companies that fully observe the risks that come about with strategic issues and come up with ways to address such risks maintain a better position compared to companies which do not. As discussed above McDonalds has been able to be a leader in the market because of its main strategy and other frameworks that it has put in place to help in the realization of the mission of the company.