McDonald’s (MCD) SWOT Analysis / TOWS Matrix / MBA Resources
Restaurants
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for McDonald’s (Germany)
Based on various researches at Oak Spring University , McDonald’s is operating in a macro-environment that has been destablized by – there is backlash against globalization, technology disruption, central banks are concerned over increasing inflation, competitive advantages are harder to sustain because of technology dispersion, banking and financial system is disrupted by Bitcoin and other crypto currencies, talent flight as more people leaving formal jobs, cloud computing is disrupting traditional business models,
increasing government debt because of Covid-19 spendings, 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 Germany
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 -
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.
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.
Organizational Resilience of McDonald’s
– The covid-19 pandemic has put organizational resilience at the centre of everthing McDonald’s does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
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.
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.
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.
Highly skilled collaborators
– McDonald’s has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Restaurants industry. Secondly the value chain collaborators of McDonald’s have helped the firm to develop new products and bring them quickly to the marketplace.
Innovation driven organization
– McDonald’s is one of the most innovative firm in Restaurants sector.
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.
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.
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.
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.
Weaknesses of McDonald’s | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of McDonald’s are -
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.
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.
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.
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.
High cash cycle compare to competitors
McDonald’s has a high cash cycle compare to other players in the Restaurants industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
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 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.
Employees’ less understanding of McDonald’s strategy
– From the outside it seems that the employees of McDonald’s don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
High bargaining power of channel partners in Restaurants industry
– because of the regulatory requirements in Germany, 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.
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.
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.
McDonald’s Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of McDonald’s are -
Lowering marketing communication costs
– 5G expansion will open new opportunities for McDonald’s in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Restaurants industry, and it will provide faster access to the consumers.
Leveraging digital technologies
– McDonald’s can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
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.
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.
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.
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.
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.
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.
Learning at scale
– Online learning technologies has now opened space for McDonald’s to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
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.
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.
Loyalty marketing
– 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.
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 -
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.