Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for McDonald’s (United States)
Based on various researches at Oak Spring University , McDonald’s is operating in a macro-environment that has been destablized by – cloud computing is disrupting traditional business models, there is backlash against globalization, wage bills are increasing, central banks are concerned over increasing inflation, talent flight as more people leaving formal jobs, geopolitical disruptions, increasing inequality as vast percentage of new income is going to the top 1%,
increasing transportation and logistics costs, supply chains are disrupted by pandemic , etc
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Introduction to SWOT Analysis of McDonald’s
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that McDonald’s can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the McDonald’s, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which McDonald’s operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of McDonald’s can be done for the following purposes –
1. Strategic planning of McDonald’s
2. Improving business portfolio management of McDonald’s
3. Assessing feasibility of the new initiative in United States
4. Making a Restaurants sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of McDonald’s
Strengths of McDonald’s | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of McDonald’s are -
Sustainable margins compare to other players in Restaurants industry
– McDonald’s has clearly differentiated products in the market place. This has enabled McDonald’s to fetch slight price premium compare to the competitors in the Restaurants industry. The sustainable margins have also helped McDonald’s to invest into research and development (R&D) and innovation.
- McDonald’s is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at McDonald’s is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at McDonald’s emphasize – knowledge, initiative, and innovation.
Superior customer experience
– The customer experience strategy of McDonald’s in Restaurants industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
High brand equity
– McDonald’s has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled McDonald’s to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
– McDonald’s is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the Restaurants industry. The technology infrastructure of United States is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Low bargaining power of suppliers
– Suppliers of McDonald’s in the Services sector have low bargaining power. McDonald’s has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps McDonald’s to manage not only supply disruptions but also source products at highly competitive prices.
Cross disciplinary teams
– Horizontal connected teams at the McDonald’s are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Ability to recruit top talent
– McDonald’s is one of the leading players in the Restaurants industry in United States. It is in a position to attract the best talent available in United States. The firm has a robust talent identification program that helps in identifying the brightest.
Diverse revenue streams
– McDonald’s is present in almost all the verticals within the Restaurants industry. This has provided McDonald’s a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
– The operational resilience strategy of McDonald’s comprises – understanding the underlying the factors in the Restaurants industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Training and development
– McDonald’s has one of the best training and development program in Services industry. The effectiveness of the training programs can be measured in – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Ability to lead change in Restaurants
– McDonald’s is one of the leading players in the Restaurants industry in United States. Over the years it has not only transformed the business landscape in the Restaurants industry in United States but also across the existing markets. The ability to lead change has enabled McDonald’s in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Weaknesses of McDonald’s | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of McDonald’s are -
Ability to respond to the competition
– As the decision making is very deliberative at McDonald’s, in the dynamic environment of Restaurants industry it has struggled to respond to the nimble upstart competition. McDonald’s has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
High bargaining power of channel partners in Restaurants industry
– because of the regulatory requirements in United States, McDonald’s is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the Restaurants industry.
Skills based hiring in Restaurants industry
– The stress on hiring functional specialists at McDonald’s has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
High operating costs
– Compare to the competitors, McDonald’s has high operating costs in the Restaurants industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract McDonald’s lucrative customers.
Workers concerns about automation
– As automation is fast increasing in the Restaurants industry, McDonald’s needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Low market penetration in new markets
– Outside its home market of United States, McDonald’s needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Lack of clear differentiation of McDonald’s products
– To increase the profitability and margins on the products, McDonald’s needs to provide more differentiated products than what it is currently offering in the marketplace.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of McDonald’s supply chain. Even after few cautionary changes, McDonald’s is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left McDonald’s vulnerable to further global disruptions in South East Asia.
Need for greater diversity
– McDonald’s has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Slow decision making process
– As mentioned earlier in the report, McDonald’s has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Restaurants industry over the last five years. McDonald’s even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
No frontier risks strategy
– From the 10K / annual statement of McDonald’s, it seems that company is thinking out the frontier risks that can impact Restaurants industry. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
McDonald’s Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of McDonald’s are -
– McDonald’s has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for McDonald’s to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for McDonald’s to hire the very best people irrespective of their geographical location.
Better consumer reach
– The expansion of the 5G network will help McDonald’s to increase its market reach. McDonald’s will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Redefining models of collaboration and team work
– As explained in the weaknesses section, McDonald’s is facing challenges because of the dominance of functional experts in the organization. McDonald’s can utilize new technology in the field of Restaurants industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, McDonald’s can use these opportunities to build new business models that can help the communities that McDonald’s operates in. Secondly it can use opportunities from government spending in Restaurants sector.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Restaurants industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. McDonald’s can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. McDonald’s can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Restaurants industry, but it has also influenced the consumer preferences. McDonald’s can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Building a culture of innovation
– managers at McDonald’s can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Restaurants industry.
Use of Bitcoin and other crypto currencies for transactions in Restaurants industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for McDonald’s in the Restaurants industry. Now McDonald’s can target international markets with far fewer capital restrictions requirements than the existing system.
Developing new processes and practices
– McDonald’s can develop new processes and procedures in Restaurants industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. McDonald’s can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects McDonald’s can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Creating value in data economy
– The success of analytics program of McDonald’s has opened avenues for new revenue streams for the organization in Restaurants industry. This can help McDonald’s to build a more holistic ecosystem for McDonald’s products in the Restaurants industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Threats McDonald’s External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of McDonald’s are -
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, McDonald’s may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Restaurants sector.
High dependence on third party suppliers
– McDonald’s high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, McDonald’s can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate McDonald’s prominent markets.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of McDonald’s business can come under increasing regulations regarding data privacy, data security, etc.
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for McDonald’s in the Restaurants sector and impact the bottomline of the organization.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of McDonald’s.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. McDonald’s needs to understand the core reasons impacting the Restaurants industry. This will help it in building a better workplace.
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Stagnating economy with rate increase
– McDonald’s can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the Restaurants industry.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. McDonald’s will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Technology acceleration in Forth Industrial Revolution
– McDonald’s has witnessed rapid integration of technology during Covid-19 in the Restaurants industry. As one of the leading players in the industry, McDonald’s needs to keep up with the evolution of technology in the Restaurants sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for McDonald’s in Restaurants industry. The Restaurants industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Weighted SWOT Analysis of McDonald’s Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at McDonald’s needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of McDonald’s is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of McDonald’s is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of McDonald’s to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that McDonald’s needs to make to build a sustainable competitive advantage.