McDonald’s (MCD) SWOT Analysis / TOWS Matrix / MBA Resources
Restaurants
Strategy / MBA Resources
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 – there is increasing trade war between United States & China, increasing transportation and logistics costs, talent flight as more people leaving formal jobs, cloud computing is disrupting traditional business models, increasing energy prices, increasing inequality as vast percentage of new income is going to the top 1%, technology disruption,
increasing commodity prices, customer relationship management is fast transforming because of increasing concerns over data privacy, etc
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 -
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.
High switching costs
– The high switching costs that McDonald’s has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Digital Transformation in Restaurants industry
- digital transformation varies from industry to industry. For McDonald’s digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. McDonald’s has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Strong track record of project management in the Restaurants industry
– McDonald’s is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
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.
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.
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.
Effective Research and Development (R&D)
– McDonald’s has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – McDonald’s staying ahead in the Restaurants industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Successful track record of launching new products
– McDonald’s has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. McDonald’s has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Learning organization
- 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.
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.
Analytics focus
– 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.
Weaknesses of McDonald’s | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of McDonald’s are -
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.
Products dominated business model
– Even though McDonald’s has some of the most successful models in the Restaurants industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. McDonald’s should strive to include more intangible value offerings along with its core products and services.
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.
Slow to strategic competitive environment developments
– As McDonald’s is one of the leading players in the Restaurants industry, it takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the Restaurants industry in last five years.
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.
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 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.
High dependence on McDonald’s ‘s star products
– The top 2 products and services of McDonald’s still accounts for major business revenue. This dependence on star products in Restaurants industry has resulted into insufficient focus on developing new products, even though McDonald’s has relatively successful track record of launching new products.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, McDonald’s is slow explore the new channels of communication. These new channels of communication can help McDonald’s to provide better information regarding Restaurants products and services. It can also build an online community to further reach out to potential customers.
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.
Capital Spending Reduction
– Even during the low interest decade, McDonald’s has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the Restaurants industry using digital technology.
McDonald’s Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of McDonald’s are -
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.
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.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help McDonald’s to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Manufacturing automation
– McDonald’s can use the latest technology developments to improve its manufacturing and designing process in Restaurants sector. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
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.
Using analytics as competitive advantage
– McDonald’s has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Restaurants sector. This continuous investment in analytics has enabled McDonald’s to build a competitive advantage using analytics. The analytics driven competitive advantage can help McDonald’s to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Low interest rates
– Even though inflation is raising its head in most developed economies, McDonald’s can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, McDonald’s can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help McDonald’s to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
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.
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.
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.
Threats McDonald’s External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of McDonald’s are -
Environmental challenges
– McDonald’s needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. McDonald’s can take advantage of this fund but it will also bring new competitors in the Restaurants industry.
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.
Aging population
– 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.
Consumer confidence and its impact on McDonald’s demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in Restaurants industry and other sectors.
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.
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.
Increasing wage structure of McDonald’s
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of McDonald’s.
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.
Shortening product life cycle
– it is one of the major threat that McDonald’s is facing in Restaurants sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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.
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.
New competition
– 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.
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.
