The main goal of organizations is to have a long-term presence in the competitive business environment. This goal makes them pursue both corporate level and business level strategies. In the context of operation of a business establishment, a strategy refers to “A plan of action or policy designed to achieve a substantial or overall aim” (D’Aveni, Ravenscraft & Anderson, 2004, p.365). Corporate level strategies deal with the entire organization. Corporate strategy investigates the role played by an organization coupled with control plans, for instance, determining the need for the company to expand into new places, build up particulate links with other competitor organizations, and or ditch certain merchandise lines to concentrate on the most lucrative ones.
In the derivation of such strategies, the views of the owners of an organization are incorporated. Business level strategies focus on the “organization as a business and its relationship with consumers and other businesses” (D’Aveni, Ravenscraft & Anderson, 2004, p.365). This paper discusses corporate levels and business level strategies from the context of how they apply at McDonald’s. The company trades publicly on New York stock exchange under the name MAC.
McDonald’s Business Level Strategies
Business level strategy is “an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting some core competencies in specific product markets” (D’Aveni, Ravenscraft & Anderson, 2004, p.368). At McDonald’s, business level strategy defines the target customers to serve, the needs deserved to be delivered to the customers, and the manner in which such needs will be satisfied. Based on these three concerns, McDonald’s places a high priority to customers as the source of organizational success. Therefore, customers form the fundamental foundation for derivation of business strategies that are successful. McDonald’s responds to the question of the best and appropriate business strategy from the context of three paradigms of success.
The first paradigm is the classification of its consumers based on age, tastes and preferences, and cultural affiliations among other demographic characteristics. On implementing this strategy, the second challenge is defining the needs of the people. From the perspective of tastes and preferences, McDonald’s offers delicious, quick, and non-expensive meals that are appropriate for each age group. According to Goldman, Santos, and Tully (2008), the company also offers a myriad of breakfast packages and lunch coupled with dinner meals, drinks, and snacks for both children and adults in different places across the globe (Para. 6).
In this extent, the bottom line for the success of McDonald’s is to “make and offer what the customers want and how they want is done” (Hitt, Duane & Hoskisson, 2010, p.4). This principle enables the company to build a gigantic brand loyalty across the globe. McDonald’s can choose from an array of business-level strategies to enhance its success. They include the broad target strategy, narrow target strategy, cost uniqueness strategy, competitive advantage strategy, competitive scope strategy, integrated cost leadership strategy, and cost leadership focused differentiation strategy among others. For McDonald’s, the best business level strategy is the one that not only enables the company to cut costs but also remain ahead of its competitors.
In my opinion, integrated cost leadership strategy is the business level strategy that has the capacity to be the most important to the long-term success of the firm. I judge this option as being a good choice. McDonald’s has the history of endeavoring to provide better services and low priced fast foods meals. With the concerns of nutritional value of fast foods becoming alarming, McDonald’s embarked on the provision of healthier foods with low calories levels. On matters such as price management, quality, and training of employees, McDonald’s remains well ahead of its competitors.
These strategic efforts of the company are enshrined within concerns of integrated cost leadership strategy. This strategy is particularly useful in enhancing the success of a company since it enables a company to “adapt environmental changes quickly besides learning new skills and technologies more effectively thus leveraging its core competencies while competing against its rivals” (D’Aveni, Ravenscraft & Anderson, 2004, p.369). This argument justifies my choice of integrated cost leadership strategy as the most influential business level strategy for long-term success of McDonald’s.
McDonald Corporate Level Strategies
A mention of fast food culture in Asia, America, and Europe, brings McDonald’s brand into perspective. McDonald’s sets long-term targets, which define where the company intends to be after some specified period in terms of growth and performance (Hitt, Duane & Hoskisson, 2010, p.3). To maintain a continuous growth of the organization in the long-term, McDonald’s has a variety of corporate-level strategies at its table. Among the alternatives, four strategies are outstanding. The first strategy is to concentrate on one business.
The strategy implies that McDonald’s would focus on staying on a single activity of industry with the central intention of creating a competitive position in relationship to its competitors. Since its establishment, McDonald’s has defined its industry to be fast foods. It does not intend to change its line of business. By focusing specifically on this industry, the organization has managed to establish a terrifically strong global brand image and loyalty. The main challenge in the long-term is how to maintain dominance in the fast foods industry.
The second corporate level strategy for McDonald’s encompasses the diversification of products. This strategy entails moving into new businesses that aim at providing new services and goods. In this strategy, McDonald’s can capitalize on two main areas. The first option involves ‘related diversification’ by competing in a similar industry and or engagement in similar activities to help in building business synergy (Bowen & Wiersema, 2005, p.1153). The second option is to engage in ‘unrelated diversification’, which would call for McDonald’s to enter a new industry in a bid to focus on building its portfolio. McDonald’s is the leading organization in the fast foods industry. Hence, the second option is invalid.
Another corporate level strategy available for McDonald’s is to focus on vertical integration. Vertical integration aids in cutting costs by providing an organization’s own methodologies for forward integration, establishment of channels of distribution, inputs and selling of outputs. The last option is to focus on international expansion as a mechanism for enhancing sustained growth of a company in terms of performance. By expanding internationally, McDonald’s would “compete in more than one market to serve the needs of other markets and or countries” (Bowen & Wiersema, 2005, p.1155). In America, many organizations such as Starbucks and YUM Foods have been established to produce products that may substitute McDonald’s products. Focusing on internal expansion would also pose problems to McDonald’s within the US since the market is saturated and that getting strategic locations for McDonald’s stores is problematic.
Arguably, in my own opinion, the most viable corporate level strategy option for McDonald’s is to focus on international expansion to enhance its long-term profitability. Exploitation of this strategy would open McDonald’s to valid cultural influences on the consumption of the company’s products. Therefore, international expansion would also call for diversification of McDonald’s products to meet the cultural needs of differing people. Nevertheless, I think international expansion as a corporate-level strategy is a viable option for enhancing long-term profitability of the organization because, since the establishment of McDonald’s in China and India, the organization has been successful following the introduction of chicken burgers as opposed to beef buggers.
This diversification is meant to counter cultural influences in the new international market since Chinese and Indians prefer chicken to beef. Evaluation of preferences of other probable international markets would also reveal a different cultural preference. Hence, McDonald’s would come up with appropriate products to meet specific needs of the new markets through its well-endowed creativity and innovative team of products designers thus enabling it to establish a strong brand image and brand loyalty in the international markets.
Competition Environment for McDonald’s
McDonald’s has captured a large market share in the fast foods industry. This outcome is attributed to the fact that McDonald’s has one of the largest number of franchises and company-owned outlets in the United States, which make the company outshine its competitors in the industry while coupled with offering products of high quality. In the attempt to secure its market share, competitors such as YUM Foods continuously increase their operation through local and foreign joint ventures. Local investors place pressures on McDonald’s through the provision of low cost products. This issue gives them an opportunity to attract a large number of consumers. The aftermath is increased competition in the fast food industry with the repercussion of making business difficult. As the competitors continue to grow larger, they will go on to gain economies of scale.
However, even though all the competitors continue to compete on offering low cost products in the dynamic operational environment, McDonald’s has its operations running smoothly. McDonald’s opened its first store in 1940. Therefore, it managed to grow in an environment that had minimal competition (Goldman, Santos & Tully, 2008, Para. 5). This situation made it possible for it to grow into a large company early enough in relation to its competitors such as YUM Foods (who own Pizza Hut, KFC, Taco bell, A&W, and Long John Silver’s amongst others), Subway, Arby’s group, Starbucks, and Burger King Corporation.
Competition among inter-organizations can be either low or high depending on the nature of the industry. In the case of fast food industry, the degree of rivalry between organizations operating in the industry determines the nature of competition. The competition is not head-to-head as it is normally in other industries because no organizations operating in the fast foods industry have equal market shares, which when combined with the advantages of large economies of scale, expose large organizations in the fast food industry to lesser competition. Companies that have been expanding rapidly through foreign and local joint ventures would eventually become large enough in the future to take more advantages of economies of scale in comparison to McDonald’s. A good example for this case is YUM Foods. Hence, YUM Foods is likely to become successful in the long-term. The justification for this choice is that, by forming joint ventures, the resulting advantages of economies of scale would make YUM Foods able to offer even cheaper prices in relation to McDonald’s. Hence, it would attract a rapid growth in the clientele levels.
The Impact of Slow-cycles and Fast-cycle Markets on Corporate Level Strategies
The choice of YUM Foods as the company likely to be the most successful in the future does not mean that it would sail successfully during the slow-cycle and fast-cycle markets. During slow-cycle markets, capabilities and resources of an organization are difficult to imitate. This challenge makes products and services offered to reflect strongly shielded resource positions. The overall impact is that competitive pressures fail to dig deep into an organization’s profitability and strategic competitiveness sources. Under the slow market cycles, YUM Foods would maintain unique product attributes coupled with complex product designs. This attempt would make its products and services well defined and easily identified by its consumers.
During the fast-cycle markets, an attempt by YUM Foods to maintain its competitive advantage based on the single set of competencies that saw it sail through the slow-cycle markets would lead to competitive inertia. The impact would be the overrunning of the YUM Foods by competitors who would have enacted new strategies for gaining global competitiveness. Arguably, to make YUM Foods’ future successful in sailing through the fast-cycle markets, an effort should be made to initiate small steps for launching counterattacks before sources of its competitive advantage would be eroded.
Business operation environment for an organization keeps on changing. The focus of an organization is to change appropriately in response to the changing business environment to ensure sustained operation of the organization in the short-run and long run. This claim reveals why McDonald’s developed both business-level and corporate-level strategies discussed in the paper.
Bowen, H., & Wiersema, M. (2005). Foreign–based competition and corporate diversification strategy. Strategic Management Journal, 26(12), 1153-1171.
D’Aveni, R., Ravenscraft, D., & Anderson, P. (2004). From corporate strategy to business–level advantage: relatedness as resource congruence. Managerial & Decision Economics, 25(7), 365-381.
Goldman, E., Santos, T., & Tully, S. (2008). Observation of leadership and organizational behavior at McDonald’s. Web.
Hitt, M., Duane, I., & Hoskisson, R. (2010). Strategic management: competiveness and globalizations concepts. New York: NY, Cengage Learning.