McDonald's has strong organizational capabilities that allow it to efficiently utilize its tangible and intangible resources. It emphasizes leadership skills at all levels of management to maintain consistent corporate culture and quality products. McDonald's continues to innovate its products and services to differentiate itself from competitors and satisfy changing customer demands in the fast food industry.

1. VIETNAM NATIONAL UNIVERSITY
INTERNATIONAL SCHOOL
CASE STUDY
McDonald’s
MEMBERS: DOAN QUYNH TRANG – ID: 436007
HOANG THI HAI YEN – ID: 435370
LE MAI ANH – ID: 435373
TRAN NGOC HUONG GIANG – ID: 435450
CLASS: VISK2010D

2. May 20, 2013
Contents
Contents......................................................................................................................................................2
1.External environment analysis..................................................................................................................3
A, A Porter 5-forces model of the fast food industry...............................................................................3
The threat of new entrants..................................................................................................................3
The bargaining power of buyers..........................................................................................................4
The bargaining power of suppliers.......................................................................................................4
The threat of substitute products and services...................................................................................5
The intensity of rivalry among competitors in an industry..................................................................5
B, Key factors in the general environment that have a significant impact on the fast food industry......6
Demographic.......................................................................................................................................6
Socio-cultural.......................................................................................................................................6
Economic.............................................................................................................................................7
Global issues........................................................................................................................................7
2.Internal environment analysis .................................................................................................................8
Tangible Resources..................................................................................................................................8
Financial...............................................................................................................................................8
Physical................................................................................................................................................8
Technological.......................................................................................................................................9
Organizational......................................................................................................................................9
Intangible Resources..............................................................................................................................10
Human...............................................................................................................................................10
Innovation..........................................................................................................................................11
Reputation.........................................................................................................................................11
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3. Organizational Capabilities....................................................................................................................12
Organizational capability of McDonald’s is to combine tangible and intangible resources to run business
efficiently. First, making use of time and capital and human resources combining with sustain leadership
skills, McDonalds can keep its value and satisfy customers’ needs. They put emphasize on leadership in
all level of management such as teamwork and have a clear requirement for their employees’ works.
They also give more concerns on the quality of leaders, and then educate and train them to improve
their missing skills. As a result, company can maintain a consistent corporate culture between managers
and employees, and provide the best quality products and services to their customers. McDonald’s can
gain and maintain their core competencies to compete with the intense of rivalry among competitions in
fast-food industry......................................................................................................................................12
3. Differentiation Strategy.........................................................................................................................13
References.................................................................................................................................................14
(2013, March 14). Retrieved May 15, 2013, from United States Census Bureau:
http://quickfacts.census.gov/qfd/index.html............................................................................................14
Joan, V.G. (2011, November 1). Human Resource Management in McDonald's. Retrieved May 16, 2013,
from: http://jpkc.szpt.edu.cn/english/article/Human%20Resource%20Management.htm......................14
Leadership Best Practices from Ronald McDonald. Retrieved May 15, 2013, from:
http://theleadershipprofessor.com/2011/11/leadership-best-practices-from-ronald-mcdonald........14
Pirzada, K. (n.d.). McDonald. Retrieved May 13, 2013, from Scribd:
http://www.scribd.com/doc/28290117/Mcdonalds-Mini-Report.............................................................14
1. External environment analysis
A, A Porter 5-forces model of the fast food industry
The threat of new entrants
The infant businesses which first enter into the fast food industry may have to face some
challenges regarding to economies of scale, brand loyalty, capital required and government
regulation. Nevertheless, these challenges do not pose a large threat to the existing companies.
Thus, the threat of new entrants within this industry to the existing companies is not high. In
terms of economies of scales, because of the high volume of production and the number of
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4. outlets, big business may easily achieve economies of scales; whereas, those small business get
difficulty in gaining economies of scales due to the low volume of production.
Furthermore, big organizations have gained a large base of loyal customers while new
entrants have to spend more time on building brand recognition and customer base. Additionally,
a start-up company may face a lack of capital, management and networking resources, so they
cannot compete with those existing companies. Last but not least, government may pose some
threats to infant companies by regulating strictly in some categories such as health, safety,
hygiene and facilities.
The bargaining power of buyers
As there are lots of substitute products within this industry, McDonald’s will have to pay
much attention to customers’ demands to gain new customers while maintaining a base of loyal
customers. Customers pay much concern about their health and the rise of obesity in the U.S.,
fast-food companies like McDonald’s will have to provide healthier food such as salads and
fruits and remove trans-fatty acids from the oils used to make foods. Additionally, fast-food
companies may face lawsuits from loyal consumers when their health is affected by these foods.
For instance, with a rising concern about the unhealthy food of McDonald and these concerns
has been emphasized by the release of Super Size Me, this made McDonald face some lawsuits
from loyal buyers. Thus, McDonald’s would have to provide nutrition information on food
packages to show the calories, fat, and sodium in each portion.
The bargaining power of suppliers
In the fast food industry, companies needs to have a stable and continuous raw material
supply to run the business to satisfy the high demand of the large number of customers. Thus,
building a strong relationship with suppliers is important to maintain good quality of raw
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5. materials. The source of fast food companies’ main products comes from bread, chicken,
potatoes, vegetables, and fruits. Thus, they need to build a strong connection with farmers who
supply these materials. Moreover, the relationship with key beverage companies such as Coca
Cola and Minutes Maids, and sauce supply companies like Heinz should be taken into their
considerations. Nevertheless, regarding to McDonald’s, they are their own suppliers for their
products, for example, potato, so McDonald’s does not rely mostly on suppliers.
The threat of substitute products and services
The threat of substitute products in the fast food industry is very high. Due to
globalization, many foreign food companies have made an entrance into local market and change
the taste of local buyers. In fast food industry, customers have a wide range of options to choose
for their meals. For instance, the chain is facing a rapidly fragmenting market, where changes in
the tastes of consumers have made foreign foods like sushi and burritos everyday options.
Additionally, they may face a threat from quick meals of all sorts that can be found in
supermarkets, convenience stores, vending machines and hotdog stands. Moreover, due to the
changing trend in lifestyle, the menus with more vegetable are much more favorable than the
ones with fat as McDonald’s. Therefore, these substitute products may threaten McDonald’s
food.
The intensity of rivalry among competitors in an industry
The intensity of rivalry among competitors within the fast food industry is the most
powerful factor among those five forces. The competition in this industry is very strong because
there are lots of brands competing in price and quality services such as KFC, Wendy’s, Burger
King and Pizza Hut. Therefore, the firms should provide an affordable price, improve quality of
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6. customer and delivery services, and build a strong brand awareness to survive in this strong
competitive industry.
B, Key factors in the general environment that have a significant impact on
the fast food industry.
Demographic
More than half of American population (78.1 percent in 2011) was white people whereas
black persons accounted for 13.1 percent and Asian people made up only 5 percent in 2011
(http://quickfacts.census.gov/qfd/states/00000.html). Therefore, fast-food companies should not
target on the majority but also the minority ethnics and offering foods and drinks that suit with
their tastes. In addition, according to the United States’ Census Bureau, the percentage of people
are less than 18 and over 65 years were 23.7 percent and 13.3 percent respectively in 2011 and
more than half of population was people in the age range from 18 to 65. Thus, fast-food
companies will have to focus their marketing on young adults, teenagers and working adults and
diversify their products to satisfy the need of different groups. For example, McDonald’s has
also been trying to include more fruits and vegetables in its well-known and popular Happy
Meals. In many locations, the firm is offering apple slices called Apple Dippers in place of
french fries in the children’s Happy Meal.
Socio-cultural
American people nowadays take greater concern for physical fitness and healthy diet.
Thus, most fast-food customers start to change their taste to food that is much healthier and
better tasting. Hence, the fast-food companies like McDonald’s should introduce more products
that are nutritious but less fat. For instance, they need to introduce more kinds of salads with
premium quality. They should also remove the artery-clogging trans-fatty acids from the oil that
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7. is used to make french fries. Additionally, all of the nutrition information should be provided on
the package of their products to make people aware of the calories that they take every day.
Economic
The economy has a great effect on every industry from firms that supply raw materials to
those that manufactures finished goods and services and that is, fast-food industry is certainly no
exception. Since the economy is slowing down and facing a high unemployment rate, the
Americans have to cut down their spending. Hence, the slow-down economy put a strong threat
on profit creation of fast-food companies. Thus, companies should base on the growth of
economy to change their strategy effectively and flexibly.
Global issues
Thanks to globalization, it helps companies have an approach to larger potential markets
and valuable production factors such as cheap labor, better source of raw materials and skilled
managers from other countries. Furthermore, fast-food companies can take advantage of
globalization to enter into many different countries all over the world. Nevertheless, it poses
some threats to fast-food industry. For instance, foreign foods such as sushi and burrito will have
opportunities to enter into the U.S. local market and threaten fast-food companies. Customers
will tend to change their tastes to these foods and neglect fast food because of its unhealthy
ingredient. Thus, fast-food companies need to change the ingredients of their food to make it
appeal to customers. Additionally, since companies tend to seek for a cheap labor force in
countries such as China and Vietnam, the United States will have to cope with a high
unemployment rate and that is a risk for the growth of economy. Due to high unemployment rate,
it will also have an effect on profit creation of fast-food industry since people will try to cut
down their spending and they will choose to have meals at home rather than eating out.
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8. 2. Internal environment analysis
Tangible Resources
Financial
Firm’s cash and cash equivalents during the period of 2006 and 2008 decreased slightly
from 2,136,400 to 2,063,400 thousand dollars. Thanks to Skinner’s effort, McDonald’s sales
have increased sharply from 21,586,400 to 23,522,400 thousand dollars between 2006 and 2008.
Although during this period the economy was slowing down and people were trying to cut down
their spending, McDonald’s sales still grew because of its “Plan to Win” strategy which
emphasized on increasing sales at exiting locations by improving the menu, refurbishing the
outlets and extending hours. Moreover, Skinner tried to control the price and keep it at an
affordable price without hurting the profit margins. Despite of an increase in cost, McDonald’s
has maintained the pricing on its Dollar Menu, which generates almost 15 percent of total sales.
Therefore, with the healthy finance situation of McDonald’s, they can have capacity to raise
equity and make profits.
Physical
The total number of McDonalds’ outlets increased slightly from 30,946 in 2004 to 31,967
in 2008. However, the number of outlets owned by McDonalds decrease steadily from 8,179 to
6,502 while the number of franchised outlets rose sharply from 22,317 to 25,465 between 2004
and 2008. More than 75 percent of its outlets are owned by franchisees and other affiliates. This
will help McDonald’s build their brand recognition in all over the world while saving money for
establishing new business but still earn lots of money from franchising.
Moreover, in order not to be left behind by its competitors, McDonald’s tried to refurbish
its outlets all around the world to make it more attractive to customers. The interiors feature
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9. armchairs and sofas, modern lighting, large television screens, and even wireless Internet access.
The firm also provides features for its drive-through customers and that include music aimed at
queuing vehicles and a wall of windows on the drive-through side of the restaurant, allowing
customers to see meals bring prepared from their cars.
Technological
The biggest innovation of McDonald’s came from their drive through section with a touch-
activated screen that made it easier for customers when ordering. When ordering foods,
customers only need to punch in their orders without queuing. They also provide features include
music aimed at queuing vehicles and a wall of windows on the drive-through side of the
restaurant to allow customers to have a look at their meals being prepared right from their cars’
windows. Moreover, inside of their outlet, they also provide free wireless internet access so that
their customers can easily browse internet while eating. Additionally, thanks to the presence of
an online website mcdonalds.com, customers are provided information about menu, nutrition
facts, promotion, and store locations, and they can order foods right on this website. Besides, it is
a channel for potential employees to get information about company and recruitment campaigns.
Organizational
In terms of functional structure, McDonald’s has a multi-level organizational structure,
which is headed by CEO and the boards of directions in each region such as Greece, Asia and
Pacific. CEO’ is in charge of managing the overall business of the company as well as
employees, finance and customers. They are also responsible for managing business asset and
company resources to make profits and have a tight control of the firm. Moreover, the CEO leads
a group of junior managers who are responsible for different fields of McDonald’s namely,
marketing and human resources.
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10. The total number of outlets of McDonald’s around the world is more than 30,000 stores
and serving around 52 million customers in over 100 countries per day, and most of these outlets
are operated by franchising. Each outlet has one business manager, first assistant and shift
manager such as breakfast shift managers, daytime shift managers, closing shift managers and
over-night shift managers. McDonald’s has over 1.5 million people and divided by many groups
of crew members. The organization structure of McDonald’s is consistent in all stages to ensure
business to run 24 hours. Employees are delegated to suitable tasks in different shifts by shift
managers to complete jobs smoothly in a fast manner. In our opinion, managers should enhance
atmosphere of corporation and teamwork to foster employees’ performance.
Intangible Resources
Human
McDonald’s has provided thousands of jobs for American population. Employees of
McDonald's divided into three groups including restaurant workers, corporate staff, and franchise
owners. McDonald's usually hires between 50 and 65 people in each local restaurant and most of
these positions are part-time workers. Nevertheless, the chain ran into more problems because of
the tighter labor market. McDonalds began to cut back on training as it struggled hard to find
new recruits, a policy that led to a dramatic falloff in the skills of its employees. Therefore,
McDonald’s should invest more money on training employees to provide necessary skills for
employees. For example, they need to have a training room in each outlet and instruction video
to help staff understand how to satisfy customers’ needs.
Furthermore, workers in McDonald’s often are paid low, so the morale of employees is not
high. The manager’s salary is slightly higher than the crew member’s one. Employees are not
paid extra money even when they work longer hours. As a result, they feel unsatisfied with their
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11. low wage and lack of commitment to the company because their pays do not deserve their
scarification and contribution. That is, this leads to high staff turnover rate. It is recommended
that McDonald’s should concern thoroughly about employees with frequently motivational
support to retain skillful and expert staffs who are willing to move to other competitor
companies. Moreover, it also helps reduce recruitment and training expenses.
Innovation
The innovation of products is the priority concern of McDonald’s to increase the revenues
and maintain a base of loyal customers. For instance, they remove the trans-fatty acids in the oil
that is used to make french fries and salt content of its products that without changing the taste of
their food. Moreover, they also introduce the McGriddles breakfast sandwich, offering a couple
of syrup-drenched pancakes and a sandwich filled with eggs, cheese, sausage, and bacon in three
different combinations. It is suggested this change may help McDonald’s attract more customers
and satisfy the demands of different consumers. Additionally, in order not to be left behind by its
rival, McDonald’s applies innovative technology in doing business. For instance, a touch-
activated screen is provided in drive-through area, permitting customers to punch in orders
without queuing. This renovation will bring interests to customers, especially children as well as
save time in ordering food.
Reputation
McDonald’s is famous for selling hamburgers and cheeseburgers under the traditional
symbol of a golden arch. Since it was established, the number of McDonald’s outlets has risen
significantly, from a single outlet in a nondescript Chicago suburb to one of the largest chain of
outlets spread around the globe.
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12. To improve the reputation with customers, McDonald’s should improve the quality of food
and introduce healthier foods to satisfy the demands of customers. The website of the company is
a channel for consumers to give feedbacks or comments on their services and delivery systems
and this is the fastest way to receive feedbacks from consumers. Moreover, they need to put
emphasize on the hygiene and safety of food to bring the best quality to customers and enhance
their images. Besides, they also do some charity works for community such as Ronald McDonald
Charity program because McDonald’s want to bring positive impacts on children, so they
donated “$400 million” dollars for children all over the world. The company also makes an
annual global fundraising on World Children’s Day and they participate in some children
fundraisings such as the Ronald McDonald House Charities. By doing community projects, they
can build nice image in customers’ eyes.
Organizational Capabilities
Organizational capability of McDonald’s is to combine tangible and intangible resources to
run business efficiently. First, making use of time and capital and human resources combining
with sustain leadership skills, McDonalds can keep its value and satisfy customers’ needs. They
put emphasize on leadership in all level of management such as teamwork and have a clear
requirement for their employees’ works. They also give more concerns on the quality of leaders,
and then educate and train them to improve their missing skills. As a result, company can
maintain a consistent corporate culture between managers and employees, and provide the best
quality products and services to their customers. McDonald’s can gain and maintain their core
competencies to compete with the intense of rivalry among competitions in fast-food industry.
Additionally, because of fast changing in technology, demographic and globalization, to
achieve their goals, McDonald’s must adapt to those changes. Thanks to large network of outlets
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13. all over the world, McDonald’s can make different teams in different locations to investigate in
the tastes and preferences of local people. Thus, they can change their menu and create special
ingredients to suit with the interest of various consumers.
3. Differentiation Strategy
It is recommended that McDonalds should apply differentiation strategy by providing
stand-out services. It will protect McDonald’s against rivalry from its competitors in a very
strong competitive industry such as KFC, Wendy’s, and Pizza Hut. First, McDonald’s will have
to make their products differentiate from their competitors by offering new healthier foods and
beverages for consumers. For example, they can offer new kind of foods that their competitors
have not done yet such as milkshake, fresh breads and cookies in their McCafes. They can offer
new menu to new targeted customers such as customers who are vegetarians or those who likes
eating low-carb. They also need to improve the delivery and customer service to become the best
in delivery and customer service. The faster delivery speed is, the higher customer loyalty is.
Moreover, McDonald’s can promote sales by giving discounts and coupons for customers in
special occasions. As a result, the brand name of McDonald’s will be enhanced in customers’
minds.
To summarize, when McDonalds’ apply differentiation strategy, it will help them build a
strong base of customer and win back customers from its competitors. Plus, it will create a
higher barrier for the new entrants and make them get more difficulty to compete with
McDonald’s.
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14. References
(2013, March 14). Retrieved May 15, 2013, from United States Census Bureau:
http://quickfacts.census.gov/qfd/index.html
Five forces analysis of the fast food industry. Retrieved May 15, 2013, from Scribd:
http://www.scribd.com/doc/30964168/8/Five-forces-analysis-of-the-fast-food-industry
Joan, V.G. (2011, November 1). Human Resource Management in McDonald's. Retrieved
May 16, 2013, from: http://jpkc.szpt.edu.cn/english/article/Human%20Resource
%20Management.htm
Leadership Best Practices from Ronald McDonald. Retrieved May 15, 2013, from:
http://theleadershipprofessor.com/2011/11/leadership-best-practices-from-ronald-
mcdonald
Pirzada, K. (n.d.). McDonald. Retrieved May 13, 2013, from Scribd:
http://www.scribd.com/doc/28290117/Mcdonalds-Mini-Report
Resources and Capabilities of McDonald. (2010, February 2). Retrieved May 14, 2013, from:
http://ivythesis.typepad.com/term_paper_topics/2010/02/resources-and-capabilities-of-
mcdonald.html
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