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 – increasing household debt because of falling income levels, increasing government debt because of Covid-19 spendings, challanges to central banks by blockchain based private currencies, wage bills are increasing, technology disruption, talent flight as more people leaving formal jobs, geopolitical disruptions,
there is increasing trade war between United States & China, increasing commodity prices, 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 -
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.
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.
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.
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.
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.
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.
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.
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 Germany 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.
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.
Operational resilience
– 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.
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.
Weaknesses of McDonald’s | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of McDonald’s are -
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 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.
Interest costs
– Compare to the competition, McDonald’s has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Low market penetration in new markets
– Outside its home market of Germany, McDonald’s needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
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.
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.
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.
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.
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.
Increasing silos among functional specialists
– The organizational structure of McDonald’s is dominated by functional specialists. It is not different from other players in the Restaurants industry, but McDonald’s needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help McDonald’s to focus more on services in the Restaurants industry rather than just following the product oriented approach.
McDonald’s Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of McDonald’s are -
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.
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.
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.
Buying journey improvements
– McDonald’s can improve the customer journey of consumers in the Restaurants industry by using analytics and artificial intelligence. It can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Regulatory challenges
– McDonald’s needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Restaurants industry regulations.
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.
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.
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.
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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Restaurants industry are lowering. It can presents McDonald’s with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Restaurants sector.
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 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.
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.
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.
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.
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.
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.