Strategic Analysis of McDonald’s

Risk can be defined as exposure or a probability of a loss occurring in an organisation. However, not all risks have an adverse effect. Threats tend to affect the success or failure of any business immensely. It is important to note that risks can never be avoided, but they can be controlled. The management process is done by applying effort in their eradication or reduction. Risk management requires a lot of time and effort, but its effect can be massive. Without any risk management strategies, a company’s chance of failing is high (SANTEN, 2015). Effective strategic risk management helps in reducing the weaknesses within an organisation which may cause damages. However, the implementation of risk management tools becomes difficult as the organisation continues to grow and operate in several locations. Risk management is known to focus on both the positive and negative aspects of risk. Risks provide opportunities for either benefits or threats to the success of a business.

The various transaction brings financial risk carried out through sales, purchases, loans, investments, and other business operations. Therefore, risk management comes in handy in reducing the danger the company or individuals may face. It is vital for companies to come up with strategies for risks as fast as possible. Several approaches to risk exist including acceptation of risk, risks exposure, eradication as insures risks, and plans to control and measure opportunities to risk. A systematic approach will make the risks clear, formally describe them, and make it easy to manage them. In other words, routine risk management can be defined as a management tool that needs practical experience and training in the implementation of different techniques. Appropriate reactions to risk should be prepared to manage all the dangers which could have significantly affected the returns of the organisation.

Background

McDonald is known to be the world’s largest chain of restaurants that offer quick service. The company serves over 10 million customers on a daily basis. The company has more than 37,000 restaurants in 120 countries. In McDonald’s annual report of 2009, it was recorded that the company’s revenue was more than $ 20 billion, $ 6.8 billion in income and over 390,000 employees. McDonald’s is known to operate based on four values which are service, quality, cost, and convenience. The organisation’s culture focuses on the quality of the variety of goods and services it provides in all of its branches. McDonald’s marketing strategy ensures that it has a good reputation and offers excellent service in all of its subsidiaries. The standards set by the company can easily be applied in all the branches worldwide. Also, the company allows each chapter to be innovative and creative by integrating culture into the food and service which in return increases their market share.

McDonald’s is trying to work on a cost leadership basis by giving low-priced goods which profit higher profit margins. One of the best strategies implemented by the organisation is associated with low costs. Because McDonald’s operates in 6 continents in the world, it gives varying food selections since different nations have different needs due to their diets, religion and the available resources. The company’s flexibility and knowledge enable it to achieve its global targets and remain competitive. It shows that the firm can predict the needs of its consumers.

The PESTEL analysis

The success of failure, growth or decline, and profit or loss of many companies relies on how they react to macro-political, social, regulatory, technological, and economic changes. The entire above are referred to as the external macro environment. The external factors can be divided into six sections which are the environment, social, economic, political, legal, and technology. The external factors are out of the control of the company and may sometimes pose a threat. The first step taken in the strategic analysis is usually the macro-environment analysis. The purpose of the study is to identify any possible opportunities and risks that are out of the industry’s control. The micro-environment deals with internal forces that affect service production of a company.

The PESTEL analysis will provide information on trends such as differences in the personal income due to the high living standards, increase or reduction in interest rates, inflation, and unemployment rates. McDonald’s is likely to suffer in nations where the economy has been significantly affected by inflation and exchange rates changes. Also, the political environment, changes in the government policies and legal environment experienced in the different nations jeopardise the company’s operations. McDonald’s management is expected to be aware of the various employment laws (SANTEN, 2015). The international operations are significantly affected by the new regulations on tax, product safety, labour supply, healthcare, and trade. Analysis of technology will identify any latest technologies in the field. The company has applied new inventions in the development of its websites as a marketing tool.

Improved technology will help the company in reducing costs, improve the quality of its products and result in innovation. Such developments will benefit both the consumer and the company. Through social and cultural environment analysis, McDonald’s has been able to identify different trends in beliefs, religion, values, standards, and behaviour. People’s taste and buying patterns may change with time, and thus the company should ensure that it keeps up with the market trends. The changes in the social environment might be slow, but its effect can never be stopped.

The company’s strategies should take time to evaluate the effect of the social changes and how the people respond to it. The risk is caused by the changes in the social structure and human behaviour. The employees’ loyalty influences the success of the company. Furthermore, any changes in the culture provide more opportunities for McDonald’s. The environmental analysis focuses on natural disasters or global warming that may affect the operations of the company. McDonald’s came up with recycling standards as a response to the environmental analysis.

Microenvironment analysis

 On the other hand, microenvironment analysis focuses on the suppliers, competitors, stakeholders, customers, and business. The factors have a direct impact on the company’s strategic planning. Regarding customers, McDonald’s focuses on meeting the needs and wants of its clients. A business’ success relies on the organisation’s analysis of its customers. In this way, the company can provide the customers with the right products at a fair price, right location, and at the expected time. The major environmental factor for McDonald’s is the customers. The firm serves millions of customers every day, and most of them are of the young generation. With such information, the company can tailor its products to fit the customer’s needs.  The customers’ demands and choice affect its operations.

The restaurant industry is highly competitive. McDonald’s has been able to handle the competition because of its success. It is exploring every opportunity in its power to ensure that it attracts as many clients as possible. Some of the competitors who pose a significant threat to McDonald’s are Burger King and KFC. With high competition, the customers are at an advantage. For this reason, the company has ensured that it stays updated on the changing customers’ tastes and preferences. McDonald’s strategic plan involves the employment of the appropriate staff and keeping them motivated. The members of the team require proper training to ensure that the company gains a competitive advantage. The company is committed to its employees and providing them with the best training programs. The success of the organisation also depends on its relationship with its suppliers.

The supplies need to be consistent to meet the continuously increasing demands. In this way, the company will be able to produce quality and highly competitive products. The firm should review the warranties, costs, financial stability, quality, and the relationship that their suppliers have with their competitors. For instance, if the beef prices increase, the company’s strategy will be affected leading to an increase in the prices of their products. When the stakeholders support the company, it is bound to succeed. The stakeholders usually have some expectations from the company. The company needs to make decisions that satisfy and maximise the returns received by the shareholders. The stakeholders are the groups that are interested in the functioning of the company.

Risk management

The organisation is turning towards risk management strategies due to the global competition, search for competitive advantage and changes in technology. Companies require a competitive advantage due to the increasing economic activities at the global level. For this reason, McDonald’s is seeking new markets and expanding its operations. Competitive advantage can be explained as the strategies that enable successful firms to make profits in their field of economic activities. In attempts to create risk management strategies, the company is striving to improve its communication and improve the staff’s understanding of the risks which the company might face.

            The first step in risk management is risk identification. Risk identification is the base for accurate working in future based on the development and implementation of new programs for risk control. Risk management entails planning, directing, organising, and handling resources to attain the company’s objectives. The board of directors should analyse the principal risks and asses ways in which they have been identified, evaluated, and handled. Directors are responsible for every aspect of control and have a duty to maintain a robust system of risk management that is designed to identify and assess potential risks in the business activities.

    Types of risk

Financial risk entails operational risk, credit risk, and market risk. Market risk is a type of risk that deals with loses caused by movement in financial market prices. It included liquidity risk which is the risk of losses caused by the urge to liquidate positions to meet the required funding. Credit risk is a type of risk of damages caused by the unwillingness of counterparties to fulfil their contractual obligation. Operational risk is a type of risk involving failed internal systems or external events. A financial risk means that a company may not have the adequate cash flow to meet its financial needs (Sasidharan, 2017). Companies that give debt instruments are more likely to face financial risks compared to companies that are entirely financed by equity. Risk management processes are meant to identify and manage risks rather than avoid them. McDonald’s restaurants increase the global profits by 7% which makes the UK a critical financial market for the company’s shareholders. McDonald’s financial reporting and management accounting provide an excellent financial position for the firm both currently and in the future.

Market risk can be defined as any risk to a firm that is caused by movements in market prices especially the foreign exchange rates, equity, product prices, and changes in interest rates. The market risk strategy should evaluate the level of market risk that the company foresees. The standard should be set based on the amount of market risk capital that has been reserved. McDonald’s should come up with strategies that balance its market risk appetite with its business objectives. Currency exchange rate risk International companies are trying to reduce foreign exchange risks. It is due to the uncertainty about future changes in exchange rates and enhanced visibility of foreign exchange losses and gains. Once a company is part of the international trade, it exposes itself to foreign exchange risk. The changes in exchange rates have been increased due to globalisation.

SWOT analysis

McDonald’s SWOT analysis shows how the company makes use of its competitive advantage to continue dominating the restaurant industry. It identifies the company’s strengths, weaknesses, opportunities, and threats (Hsu, 2011). The company’s power is that it is among the largest restaurant companies that are operating in over 120 countries. The fact that McDonald can share a fixed cost for its products in different locations has made it one of the cheapest outlets to eat at.

Moreover, the company has a wide audience. One of McDonald’s main weaknesses is that its products are unhealthy. Also, the company has a high employee turnover. Some of the opportunities include the chance to upgrade its menu and to expand its plans. The company is facing a threat of competition from companies like Starbucks, Subway, and KFC. Another danger is that they could lose customers since more people are trying to eat healthier.

Task 2: Risk Assessment of a vocational area (Auto Mechanics)

The risk assessment involved the garage manager, and ten mechanics as well as two apprentices. The garage manager went through looking for information from online platforms such as the help and safety toolbox which explains ways of controlling risks at the workplace. Other sites he visited were on health and safety in the auto mechanic industry and essential sheets in auto mechanics workshop. The garage manager also read the manufacturer’s instructions on the equipment and chemicals. The next step was to identify the hazards in the garage. The identification was made by moving around the garage and noting objects that may cause harm to the workers (SANTEN, 2015). He also talked to the employees to listen to their concern and opinions concerning health and safety problems. He was able to confirm the kind of training the mechanics received and their views on the requirements the apprentices may need. The garage manager called the licensed disposal contractor to make arrangements on waste disposal.

Furthermore, he went through the accident book to learn the causes of the previous accidents. While identifying the hazards, the manager took note of who could be harmed and in which way. He realised that he had already put in measures to control the risks and considered whether he should add more (Schwing, 2013). The manager took record of any actions that could be implemented. He went on to set out the activities that needed to be done in putting the risk management into practice. He assigned who to carry out the activities and at what time. The manager placed a copy of the risk assessment where all workers could access it. The supervisors and the mechanics discussed the findings of the risk management. The manager decided to go through the risk assessment each time there was a change like new workers, work equipment, or operations at the workplace.

One of the hazards discovered was contact with harmful substances like engine oil during servicing. Skin contact with the engine oil for a long time is likely to cause skin cancer and severe dermatitis (Theaker, 2017). The company provides the mechanics with nitrile gloves, garage overalls, contracts for the cleaning of their totals frequently, and the workers are instructed to thoroughly wash their hand and use skin creams that are provided at the garage in case of any contact with the dangerous substances. The supervisors need to regularly check to ensure that the mechanics use the gloves they are given. The workers should be provided with a proper explanation of the risk caused by skin cancer and dermatitis (Hsu, 2011). Another hazard is toxic exhaust fumes like carbon monoxide. The fumes could cause eye irritation and respiratory issues. The business ensures that car exhausts have been attached to the extractor systems every time the engines are left running. The extractor systems are usually managed to ensure that they are in the best conditions and do not leak.

Other hazards are petrol and LPG fires. In cases where the employees and customers are trapped in the garage, they may suffer fatal injuries caused by burns and the smoke that they have inhaled. The business ensures that the fire alarms are functional. The installer is the one responsible for testing the functionality of the signals (Pritchard, 2014). The garage is provided with extinguishers which are inspected under assigned contracts. The garage does not require fire exists since the workplace has direct access to the outside. The fuel tanks of vehicles are emptied outside using fuel retrievers. Any spillage is cleaned instantly. The business implements component cleaning in the recirculation of paraffin systems. Any LPG fueled cars are packed in safe areas.

Members of the staff are provided with training on the adverse effects of LPG. The business has ensured that fire risk assessment has been carried out and the appropriate measures have been put in place. The manager should try to arrange for training for all the workers where they will be taught how to use the extinguishers. The businesses should consider conducting annual fire drills. The workers need to be briefed on safe ways of handling petrol. Also, workers should be informed on how to handle LPG. Another cause of hazard is battery charging. Workers may get burnt if they have contact with the battery acid when charging. It happens mainly when the battery is left to overcharge or when it explodes (Schwing, 2013). Some businesses have implemented proprietary chargers which have been installed by qualified electricians and handle following the instructions. The workers have en provided with acid resistant gloves and goggles.

Electrical equipment such as portable appliances causes another hazard. It is possible for employees to be electrocuted or burnt by faulty electrical equipment. Also, fires may result from electrical faults. Most businesses in this sector ensure that the workers use low voltage 24V lamps (Pritchard, 2014). The current residential device is put in the main switchboard. The companies make use of a few 240 Volts equipment which has industrial plugs and leads. All the portable tools are tested, and the mechanics are trained on how to conduct a pre-use visual check and report any broken tools. Another cause of hazard is mechanical equipment. The workers may suffer from injuries caused by free moving parts of machinery. The sharp edges may cut them or burn themselves on hot surfaces.

The businesses ensure that all mechanical equipment is tested and any faults are reported. No material should be left unattended. The workers are also provided with ear defenders and safety goggles which they are expected to wear at work. Trained personnel are the ones who change any grinding wheels. Another hazard entails falling objects especially when car lifts or car jacks fail. When the equipment fails, it may lead to severe injuries to the mechanic. Such car lifts and jacks need to be serviced every six months. The studs need to be used only when the ground is stable and levelled. The safe working loads should not be exceeded. Explosions of equipment tire us another hazard. It may lead to blast injuries. As a result, the workers may have to nurse damaged internal organs. The workers should be trained in safe working processes.

TASK 3: Risk management

3. When communicating risks, it is vital to understand the needs and preferences of stakeholders. It is difficult to manage the expectations without identifying the individuals or groups that might affect the implementation of the project. It is vital to ensure that you analyse the risks and fully understand them before passing the information to the shareholders (Larson, 2015). The communication should be simple and straightforward. Ensure that both the top risks and steps are taken to manage the risks are highlighted. Adequate information should be provided at the right time to the right audience.

4. Structured interviewees can be used to gather information about risk. The interviewees may be asked several questions where they are given a chance to provide their own opinion and hence identify risks. Such interviews are conducted during consultations with stakeholders when coming up with risk management strategies. The researcher can also rainstorm with their colleagues to come up with potential risks, their causes, methods for making decisions, and possible solutions. Checklists are a good way of collecting information on lists of hazards or control fails that have developed due to a previous risk assessment.

5. The employees can be made aware of the risk management processes in the company by being provided with the information when they are being recruited. Risk management can be made a key selection criterion (Theaker, 2017). Another way is to create a safety committee that goes through the complaints, injuries, accidents, and other incidences experienced by the employees at the workplace. The company can conduct risk audits that involve almost every staff member. The management can also conduct workshops on risk management with the help of an expert. A training video can be used to pass the information to the employees. Posters that advocate for safety and risk management can be displayed on the company’s premises.

6. The arrangements can be maintained through induction and training. One of the strategies is to show the employees that their issues are being listened to. Once an issue is identified, the management should act accordingly. The employees need to witness a visible address of the risk. As soon as the employees are sure that their issues have been addressed they will be more willing to engage and participate with their representative. The information can be made available to the employees through the use of posters and internal memos.

7. The representatives should provide a report of how they handled specific issues raised by employees. To back up this information, there should be a statement for the affected individuals stating that they have been assisted. The management should task a specific individual with the duty of keeping track of all the issues that have been raised by the employees. The officer will be in charge representatives and have to oversee their activities. He or she will be expected to update the management on whether the issues have been resolved.

8. Point of a decision since it of the most obvious point of intervention. For this reason, it is targeted regularly. It is used to put pressure on the decision makers. It is definite that the management will seek its solutions to identified risks. Unfortunately, these strategies may not be successful, and thus there will be a need to seek assistance from expert risk management advisors. The advisors often have better solutions which may work. Such advice can be acquired from professional advisors.

16. One of the political factors affecting Starbucks I son sourcing the raw materials. It has received a lot of attention from politicians in the West. As a result, the company is making an effort to follow the social and environmental norms. Another impact is the need for Starbucks to adhere to the laws and regulations of the nations from which it gets its raw materials. The economic factor affecting Starbucks is the global economic recession (Decò, 2011). The factor above dented Starbuck’s profits. Most of the company’s customers decided to shift to cheaper options. Also, there are increasing costs of labour and operation. The taxation levels and currency exchange rates affect the operations of the firm. The socio-cultural factor affecting Starbucks is the need to try and reduce the cost of its products. If Starbucks is to provide cheap products, it will be forced to sacrifice the quality. The technical factor affecting Starbucks is the emerging mobile wave.

17. Starbucks’ strength includes having a superior financial performance due to its strong growth and efficient operations. The company is growing in China. Also, it has a premium menu and a variety of coffees, and quality customer service which ensures that it provides its customers with the best experience. Some of the weaknesses faced by Starbucks include high price points, imitability of goods, and the fact that the standards for many products are generalised. The high price points have increased the profits margins but made the products less affordable.

18. Risks may lead to financial losses from consumer sales and strict credit requirements. Business owners may be forced to sell inventories to consumers at low prices as a way of making money to cater for other business operations. Difficult business situations may be created through sales on account (Larson, 2015). Risks may lead to deterioration of the production process. When there is insufficient equipment or broken tools, the business operations will be negatively affected.  Appropriate methods for treatment of risks can be identified through assessing the chances of the risk associated with the hazard resulting in an injury or illness. The level of harm should be investigated. The relevant staff should be questioned on their knowledge about the risk and ways of eradicating it.

19. The main objective in risk management is to identify, evaluate, and control the risks. Identification entails detecting the threats and vulnerabilities that may affect the company. Evaluation involves gathering and calculation of data concerning risk exposure. The company is expected to make appropriate decisions and manage the risks. Control involves coming up with decisions after evaluating the surrounding to ensure that all the threats and vulnerabilities are addressed.

20. Credit risk is an example of a financial risk. The best way of managing this risk is by knowing a business’s customers. For an operation to be successful, it should be carried out under accurate and timely information. A good relationship with customers is essential for the growth of the business. Another way is to analyse non-financial risks. Another good practice is to understand the numbers. 

References

SANTEN, C., & OY, S. (2015). Risk Management Plan.

Larson, E. W., & Gray, C. F. (2015). A Guide to the Project Management Body of Knowledge: PMBOK (®) Guide. Project Management Institute.

Pritchard, C. L., & PMP, P. R. (2014). Risk management: concepts and guidance. Auerbach Publications.

Hsu, W. K., Huang, P. C., Chang, C. C., Chen, C. W., Hung, D. M., & Chiang, W. L. (2011). An integrated flood risk assessment model for property insurance industry in Taiwan. Natural Hazards, 58(3), 1295-1309.

Schwing, R. C., & Albers, W. A. (2013). Societal Risk Assessment: how safe is safe enough?. Springer.

Decò, A., & Frangopol, D. M. (2011). Risk assessment of highway bridges under multiple hazards. Journal of Risk Research, 14(9), 1057-1089.

Theaker, A. (2017). What is public relations?. In The Public Relations Strategic Toolkit (pp. 17-27). Routledge.

Sasidharan, M., Burrow, M. P. N., Ghataora, G. S., & Torbaghan, M. E. (2017). A review of risk management applications for railways. Railway Engineering.