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NOTE - ADDITIONAL EXERCISES, VIDEO VIEWING:
One interesting way to evaluate the competitiveness in the industry is to look at comparative
financial performance from the perspective of an investor. Since McDonald’s (MCD) is a
publicly traded firm, take a look at http://finance.yahoo.com/q/co?s=MCD to see how it
compares with its peers. Regarding
MCD’s performance over the last nine years, see the following:
This commentary from November 2004, after James Cantalupo charted the “Plan to Win”
strategy, argued that McDonald’s stock was potentially a good investment:
http://www.fool.com/news/commentary/2004/commentary04111103.htm. In April of 2007,
McDonald’s had made some changes, and still came out on top
In October of 2007 McDonald’s increased its focus on diversifying its menu offerings by
confirming that it would compete with Starbucks for the specialty coffee market by 2008
http://www.fool.com/investing/general/2007/10/03/mcdonalds-head-of-steam.aspx?
terms=mcdonalds&vstest=search_042607_linkdefault, and in December 2007, it had
outperformed its direct competitors and looked poised to weather the forecasted economic
downturn in 2008 in good shape, thanks in part to its overseas expansion plans:
As MDC announced details of its coffee roll out in 2008, some wondered if this was the right
time to do such an expansion, especially because Starbucks was seeing a decline in business as
more consumers brewed coffee at home, and it would cost the franchisees an average of
$100,000 per location to do the needed remodeling:
Information from McDonald’s history, and interviews with its franchisees, details MCD’s
turnaround strategy in this article: http://www.nytimes.com/2009/01/11/business/11burger.html?
_r=1. Especially noteworthy was MCD’s performance outside the U.S. (See
http://www.nytimes.com/imagepages/2009/01/10/business/20090111_BURGER_GRAPHIC.htm
In 2011 analysts recommended McDonald’s as “a solid defensive stock. It's a lean, mean
competitive machine, focusing entirely on its core strengths.”
http://www.fool.com/investing/general/2011/01/24/mcdonalds-gets-defensive.aspx?
source=isesitlnk0000001&mrr=0.33
And in 2013, after MCD announced disappointing quarterly results, in the wake of aggressive
competition from Wendy’s and Burger King and the continued economic troubles in Europe, one
analyst pointed out another “challenge for McDonald's is the growing number of chains that offer
Based on the information provided there, and from other analysts, would you be willing to invest
in McDonald’s stock today? Why or why not?
McDonald’s was criticized in some quarters for providing unhealthy food that contributes to an
obesity epidemic in the United States, most notably in the documentary film “Super Size Me”
and in the book and movie Fast Food Nation. Watch the video trailers here:
See McDonald’s nutritional information from their website
http://www.mcdonalds.com/usa/eat/nutrition_info.html and commentary from 2009 on eating
healthy fast food at http://www.mainstreet.com/article/lifestyle/food-drink/healthy-meal-
mcdonalds-can-it-be-done?page=1 and http://lifehacker.com/5283442/best-and-worst-fast-food-
mcdonalds-edition. What is McDonald’s core position about the role of its food in a healthy diet?
Do you agree or disagree with the company’s view?
Another sociocultural trend worldwide, touched on in Fast Food Nation, is focused on the
treatment of animals used for food. The Humane Society of the U.S. has challenged McDonald’s
to get its eggs from free-range chickens rather than cage-bound layers. In Britain, the company
already does this, but it has been slow to make the switch in the U.S. MCD uses upwards of 3
billion eggs a year. See the strategy here:
1. What source of competitive advantage does McDonald’s have, and is that position
supported by its value chain and other internal resources? What steps could
Easterbrook take to fix the problems McDonald’s faced?
Referencing Chapter 5: Formulating Business-Level Strategies
In order to achieve a sustainable competitive advantage, McDonald’s has to assess its ability to
contend with other fast-food restaurants. The question of how to compete in a given business to
attain competitive advantage requires an assessment of the types of competitive strategies,
including the three generic strategies that are used to overcome the five forces and achieve a
competitive advantage:
●Overall cost leadership
oLow-cost-position relative to a firm’s peers
●Differentiation
oCreate products and/or services that are unique and valued
●Focus strategy
oNarrow product lines, buyer segments, or targeted geographic markets
Ask the students which strategy they think McDonald’s should pursue, and why. Their answers
may include some of the following points:
Cost leadership has been the traditional strategy for the fast-food industry, but McDonald’s kept
costs under control in order to achieve parity with competitors. McDonald’s tried to develop a
Referencing Chapter 3: Analyzing the Internal Environment
To answer the question of whether McDonald’s differentiation strategy is adequately supported
by its value chain and other internal resources, McDonald’s must assess the relationships
between the elements in its value chain. Every activity should add value. Take a look at Chapter
3, Exhibit 3.1 to see the value chain activities. Here is what an assessment of this might look like
for McDonald’s:
Value chain activity How does McDonald’s create value for the “customer”?
What challenges does McDonald’s have in its value chain?
Primary:
Inbound logistics (food &
supply deliveries)
Assumed adequate.
Operations (efficient
Strived for consistency across the chain, with differing
Outbound logistics
(distribution to customers)
Assumed adequate.
Marketing and Sales
Many product innovations failed, $1 menu didn’t go well
promotion)
Service (ability to solicit
feedback & respond to
customer issues)
Assumed adequate.
Secondary (or support):
Procurement (relationships
with suppliers for
procurement of raw
materials and supplies)
Assumed adequate.
Technology development
& software)
Adoption of expensive cooking processes failed to generate
Human resource
recruitment, incentive &
retention mechanisms)
Lower standards for hiring, less time for training led to
General Administration
operating capital, effective
top mgmt communication,
relationships with diverse
stakeholders)
Top-down decision making, lack of involvement in changes
CEO Skinner realized that basic changes in McDonald’s’ value chain needed to be made to get
the company back on track. Menu changes and franchisee relationships were key factors that he
To further answer the question of how to support a competitive strategy, it’s important to
consider the concept of the resource-based view of the firm, and the three key types of resources:
tangible resources, intangible resources, and organizational capabilities. Determining whether the
internal resources are valuable, rare, difficult to imitate, or difficult to substitute (VRIN) can help
a firm sustain a competitive advantage. See Chapter 3, Exhibit 3.6. McDonald’s profile might
look like this:
Tangible Resources:
Financial - McDonald’s appears to have managed its finances well, currently has adequate cash
Physical - has significant physical assets in the restaurants.
Intangible Resources:
Organizational - franchise model is a weakness unless strong quality controls are in place
Human - training of staff is critical, could be a problem.
Innovation - this is a current strength, but needs to be managed in the right direction - choice of
Reputation - McDonald’s brand is its most significant strength - this should be protected at all
Organizational Capabilities: Easterbrook’s leadership and willingness to extend Cantalupo’s and
Applying the VRIN analysis, McDonald’s doesn’t appear to have any resources that are clearly
valuable, rare, in-imitable, or non-substitutable. This indicates that McDonald’s may have a
Referencing Chapter 4: Assessing Intellectual Capital
Consider the concepts of intellectual capital and human capital, both of which are intangible
assets that a company such as McDonald’s needs to have in order to compete successfully.
Intellectual capital is a measure of the value of a firm’s intangible assets, its reputation, employee
loyalty and commitment, customer relationships, company values, brand names, and the
experience and skills of employees. Human capital involves the individual capabilities,
Regarding the steps Easterbrook could take to fix the problems McDonald’s faced, McDonald’s
should review the components of the strategic management process.
Remember our previous discussion. See Chapter 1, Exhibit 1.3 for a depiction of the strategic
management process. During strategic analysis, the leader does “advance work” to anticipate
unforeseen environmental developments, identify unanticipated resource constraints, assess
In strategy implementation, depending on the type of organization structure, the leader might
include key individuals in a discussion around selecting which strategies might be best to
implement at which level within the organization. The leader must ensure proper strategic
Once again, the basic question strategic management tries to answer is: How can we create a
sustainable competitive advantage in the marketplace that is not only unique and valuable but
also difficult for competitors to copy or substitute?
McDonald’s CEO Skinner continued the tough “up or out” grading system for franchisees that
identified underperforming units. He introduced new products such as McGriddles breakfast
sandwich; added healthier items; created a new promotion, “I’m loving it”; refurbished
McDonalds’s had already experienced a comeback the likes of which were pretty unprecedented,
but were things different now? The prevailing belief was that when restaurants started to slide, it
really took a lot to turn them around. Would McDonald’s be the exception? Will new CEO
Easterbrook guide McDonald’s to be able to successfully compete against all of its rivals? Who’s
willing to bet yes?
2. OPTIONAL QUESTION: What other strategies did McDonald’s formulate to achieve
a competitive advantage?
NOTE: There are no PowerPoint slides to accompany the following.
Referencing Chapter 6: Formulating Corporate-Level Strategies
Corporate strategy focuses discussion on the questions of what businesses a corporation should
compete in, and how the businesses should be managed so they can create “synergy” – creating
Diversification is the process of firms expanding their operations by entering new businesses. In
related diversification, a firm enters a different business in which it can benefit from leveraging
core competencies, sharing activities, or building market power. Some possibilities include:
●Mergers and acquisitions
●Strategic alliances
Whatever the choice, it should create value for all stakeholders – employees, suppliers,
distributors, and the organization’s owners themselves. The choice of diversification strategy
should create synergy so that all parties gain something they would not have had on their own.
When achieving synergy through diversification, a firm has two choices: related diversification
through horizontal relationships with related businesses, sharing tangible and intangible
resources, and leveraging core competencies; and unrelated diversification though hierarchical
relationships with unrelated business. In this case, value creation derives from the corporate
office by leveraging support activities.
McDonald’s has pursued related diversification through its relationships with franchisees.
Acquisition is the incorporation of one firm into another through purchase. It can be a means of
obtaining valuable resources that can help an organization expand its product offerings and
McDonald’s tried acquisition of Chipotle Mexican Grill and Boston Market. Cantalupo divested
these acquisitions - they did not add enough value to McDonald’s portfolio - were not related
Referencing Chapter 7: International Strategy: Creating Value in Global Markets
International expansion is a viable diversification strategy; however, before pursuing this, a firm
needs to determine why an industry in a given country is more (or less) successful than the same
industry in another country. When choosing a country to expand into, firms must assess the
McDonald’s has now had enough experience internationally to learn what works and what
doesn’t. Asia Pacific and Europe appeared to be growing. Growth was slower in the Americas.
