BCG Matrix: According to BCG Matrix McDonalds is a star. The reason for this is its high mark et growth and high market share in the Pakistani market. On the other hand KFC a nd Pizza Hut are the cash cows because of their low growth rate and high market share. The growth share matrix was created in 1968 by BCG’s founder, Bruce Henderson. It was published in one of BCG’s short, provocative essays, called Perspectives. At the height of its success, the growth share matrix was used by about half of all Fortune 500 companies; today, it is still central in business school teachings on strategy. McDonald's is one of the world's largest fast food chains, founded in 1940 in San Bernardino, California, and incorporated in Des Plaines, Illinois, in 1955. Since then, McDonald's has become a household name in America, known for selling a variety of convenience food items at thousands of locations worldwide. Jul 18, 2018 If McDonald’s is able to successfully implement these strategies, they will be able to turn this segment into a star quadrant of the BCG matrix. Dog As this segment is composed of low sales and low market growth, it is a bad decision for McDonald’s to continue business operations in this segment, thus if any of its outlets fall in this. The BCG matrix should be used as part of strategic portfolio management to manage cashflow (McDonald, 1999). The matrix enables you to determine which assets could produce future revenues and make investment decisions that ensure funds are allocated to the right assets.
BCG Matrix
The BCG matrix is a strategic management tool that was created by the Boston Consulting Group, which helps in analysing the position of a strategic business unit and the potential it has to offer. The matrix consists of 4 classifications that are based on two dimensions. These first of these dimensions is the industry or market growth. The other of these dimensions is the relative market share of the strategic business unit. Strategic business units are placed in one of these 4 classifications. The BCG matrix for McDonalds will help decide on the strategies that can be implemented for its strategic business units.
Strategic business units with high market growth rate and high relative market share are called stars. Businesses should invest in their stars and can implement vertical integration, market penetration, product development, market development, and horizontal integration strategies. Strategic business units with high market growth rate and low relative market share are called question marks. These strategic business units require close considerations whether the business should continue with them or divest. Strategic business units with low market growth rate but with high relative market share are called cash cows. The business should invest in these to maintain their relative market share. Lastly, the strategic business units with low market growth rate and low relative market share are called dogs. The business should divest these strategic business units.
BCG Matrix of McDonalds
The BCG Matrix for McDonalds will help McDonalds in implementing the business level strategies for its business units. The analysis will first identify where the strategic business units of McDonalds fall within the BCG Matrix for McDonalds.
Stars
- The financial services strategic business unit is a star in the BCG matrix of McDonalds. It operates in a market that shows potential in the future. McDonalds earns a significant amount of its income from this SBU. McDonalds should vertically integrate by acquiring other firms in the supply chain. This will help it in earning more profits as this Strategic business unit has potential.
- The Number 1 brand Strategic business unit is a star in the BCG matrix of McDonalds, and this is also the product that generates the greatest sales amongst its product portfolio. The potential within this market is also high as consumers are demanding this and similar types of products. McDonalds should undergo a product development strategy for this SBU, where it develops innovative features on this product through research and development. This will help McDonalds by attracting more customers and increases its sales.
- The Number 2 brand Strategic business unit is a star in the BCG matrix of McDonalds as McDonalds has a 20% market share in this category. It also the market leader in this category. The overall category is expected to grow at 5% in the next 5 years, which shows that the market growth rate is expected to remain high. McDonalds should use its current products to penetrate the market. This could be done by improving its distributions that will help in reaching out to untapped areas. This will help increase the sales of McDonalds.
Cash Cows
- The supplier management service strategic business unit is a cash cow in the BCG matrix of McDonalds. This has been in operation for over decades and has earned McDonalds a significant amount in revenue. The market share for McDonalds is high, but the overall market is declining as companies manage their supplier themselves rather than outsourcing it. The recommended strategy for McDonalds is to stop further investment in this business and keep operating this strategic business unit as long as its profitable.
- The Number 3 brand strategic business unit is a cash cow in the BCG matrix of McDonalds. This is an innovative product that has a market share of 25% in its category. McDonalds is also the market leader in this category. The overall category has been declining slowly in the past few years. McDonalds has the power to influence the market as well in this category. It should, therefore, invest in research and development so that the brand could be innovated. This will help the category grow and will turn this cash cow into a star. The overall benefit would be an increase in sales of McDonalds.
- The international food strategic business unit is a cash cow in the BCG matrix for McDonalds. This business unit has a high market share of 30% within its category, but people are now inclined less towards international food. This change in trends has led to a decline in the growth rate of the market. The recommended strategy for McDonalds is to invest enough to keep this strategic business unit under operations. If it no longer remains profitable and turns into a dog, then McDonalds should divest this strategic business unit.
Question Marks
- The local foods strategic business unit is a question mark in the BCG matrix for McDonalds. The recent trends within the market show that consumers are focusing more towards local foods. Therefore, this market is showing a high market growth rate. However, McDonalds has a low market share in this segment. The recommended strategy for McDonalds is to invest in research and development to come up with innovative features. This product development strategy will ensure that this strategic business unit turns into a cash cow and brings profits for the company in the future.
- The Number 4 brand strategic business unit is a question mark in the BCG matrix for McDonalds. This strategic business unit is a part of a market that is rapidly growing. However, this strategic business unit has been incurring losses in the past few years. It has also failed in the attempts made at innovation by research and development teams. The recommended strategy for McDonalds is to divest and prevent any future losses from occurring.
- The confectionery strategic business unit is a question mark in the BCG matrix for McDonalds. The confectionery market is an attractive market that is growing over the years. However, McDonalds has a low market share in this attractive market. The low sales are as a result of low reach and poor distribution of McDonalds in this segment. The recommended strategy for McDonalds is to undergo market penetration, where it pushes to make its product present on more outlets. This will ensure increased sales for McDonalds and convert this strategic business unit into a cash cow.
Dogs
- The plastic bags strategic business unit is a dog in the BCG matrix of McDonalds. This strategic business unit has been in the loss for the last 5 years. It also operates in a market that is declining due to greater environmental concerns. The recommended strategy for McDonalds is to divest this strategic business unit and minimise its losses.
- The Number 5 brand strategic business unit is a dog in the BCG matrix for McDonalds. This is operating in a market segment that is declining in the past 5 years. The company also has negative profits for this strategic business unit. However, it is expected that the market will grow in the future with environmental changes that are occurring. The recommended strategy for McDonalds is to invest in the business enough to convert into a cash cow. This will ensure profits for McDonalds if the market starts growing again in the future.
- The synthetic fibre products strategic business unit is a dog in the BCG matrix of McDonalds. The market for such products has been declining, and as a result of this decline, McDonalds has been facing a loss in the past 3 years. The market share for it is also less than 5%. The recommended strategy for McDonalds is to divest this strategic business unit to minimise any further losses.
- The artificially flavoured products strategic business unit is a dog in the BCG matrix for McDonalds. These products were launched recently, with the prediction that this segment would grow. However, with increasing health consciousness, people are now refraining from consumption of artificial flavours. The market is shrinking, and McDonalds has no significant market share. The recommended strategy for McDonalds is to call back this product.
Some of the strategic business units identified in the BCG matrix for McDonalds have the potential of changing from their current classification. For example, a dog changing to a cash cow. These have been identified in the BCG matrix of McDonalds and recommended strategies to ensure such change have also been made.
VRIO Framework
The VRIO Framework or VRIO analysis is a strategic management tool that is used to analyse a firm’s internal strengths and resources. It helps identify which one of its internal strengths and resources can be a source of sustained competitive advantage. The analysis is based on the idea that a firm’s internal resources are a source of sustained competitive advantage if they are valuable, rare, cannot be imitated by competition, and are organised to capture value for the organisation. The VRIO analysis requires looking at a firm's resources based on these 4 factors.
Based on the analysis, each resource can either provide a sustained competitive advantage, has a good competitive advantage, temporary competitive advantage, competitive parity or competitive disadvantage. A sustained competitive advantage exists when a resource is valuable, rare, non-imitable and organised. A good competitive advantage occurs if it is valuable, rare, and non-imitable. A temporary competitive advantage exists if it is valuable and rare. A competitive parity occurs if it is only valuable. Lastly, the resource is a competitive disadvantage if it is neither of the 4. The analysis takes place in this order by first assessing whether a resource is valuable, rare, imitable and organised.
References
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of management, 17(1), 99-120.
Barney, J. (2002). Gaining and Sustaining Competitive Advantage, 2nd ed. Prentice Hall, Upper Saddle River, NJ.
Cardeal, N., & Antonio, N. S. (2012). Valuable, rare, inimitable resources and organization (VRIO) resources or valuable, rare, inimitable resources (VRI) capabilities: What leads to competitive advantage?
Mcdonald's Bcg Matrix Price
Hambrick, D. C., MacMillan, I. C., & Day, D. L. (1982). Strategic attributes and performance in the BCG matrix—A PIMS-based analysis of industrial product businesses. Academy of Management Journal, 25(3), 510-531.
Jurevicius, O. (2013a). VRIO Framework. Retrieved from https://www.strategicmanagementinsight.com/tools/vrio.html
Jurevicius, O. (2013b). BCG growth-share matrix. Retrieved from https://www.strategicmanagementinsight.com/tools/bcg-matrix-growth-share.html
Knott, P. J. (2015). Does VRIO help managers evaluate a firm’s resources? Management Decision, 53(8), 1806-1822.
Seeger, J. A. (1984). Research note and communication. Reversing the images of BCG's growth/share matrix. Strategic Management Journal, 5(1), 93-97.
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McDonald’s is a multinational company operating in more than 117 countries with more than 32,000 McDonald’s restaurants. Most of the McDonald’s restaurant are owned by independent owners worldwide (Miranda, 2017). The history of McDonald’s is that it initially started as being a small hamburger stand in Bernardino California, which was owned by Dick and Mac McDonald. Later on they had a determination to develop their business, so they decided to close their business for 3 months and later on re-opened it on 1948 as a self-service drive in restaurant serving only 9 items (Miranda, 2018). Later then in 1954, a salesman known as Ray Kroc signed a franchise agreement with Dick and Mac McDonald opening his first McDonald’s, it is then when McDonald’s starting growing its successful fast food restaurant. (Meyer, 2018).
BCG – Matrix
According to Smart Insights (2018), there are mainly 4 types of quadrants in a BCG growth matrix which are the Dogs; which are the products with low growth and market share, Question marks; these are the products with low market share but high market growth, Stars; segments which compete and operate in high sales growth industry and have high market share. Cash cows; these are the products with low market growth but high market shares.
According to Kasi (2018), McDonalds has the highest market share in the fast food industry compared to its core competitor, the Yum brands, which owns KFC, Pizza Hut, and Taco bell. McDonald’s has segmented its operations into 4 geographical areas which is America, Europe, APMEA (Asia Pacific, Middle East, Africa geographical region) and other.
Application of BCG Matrix on McDonald’s
Stars: Kasi (2018) mentioned that McDonald’s Europe segment will come into the category of stars because in 2015 and 2016, Europe has generated the highest revenue for McDonald’s, and it requires effective market development and strategies for market penetration to evolve this segment into cash cow for financial stability in the long run.
Cash Cow: He also mentioned that the American segment of McDonald’s reported 31% share of revenue in their annual sales. But on the other hand, Kasi (2018) also mentioned that the American segment has a very tough competitive environment, where customers can replace McDonald’s with substitute restaurants. And there is also the risk of high entrants, as fast food businesses requires less start-up cost with a unique product for differentiation which can attract customers to try out new menu’s instead of dinning in the same restaurant throughout, or new firms entering the market can try to imitate McDonald’s key selling product which is the beef burger and be able to sell their products with a lower price by cutting down on their costs in other to drag customers towards them. McDonald’s should focus on including new products into their menu, target more market segments, identify their needs of cuisines and satisfy them accordingly.
Question Mark
The APMEA geographical segment can be considered in this segment of McDonald’s, The core competitor of McDonald, Yum brands has been establishing new franchise every day in this region, even though McDonald’s is huge sales growth in this region, they are unable to take advantage of this opportunity because McDonald’s was not unable to compete with its competitors. It order to overcome this situation in this region, McDonald’s should focus on market development of its products, and come up with product development strategy and they should also increase their franchisees outlet in this region according to the need of its customers like how they tailored their menu in India by introducing the Veggie burgers in order to capture the market. If McDonald’s is able to successfully implement these strategies, they will be able to turn this segment into a star quadrant of the BCG matrix.
Dog
As this segment is composed of low sales and low market growth, it is a bad decision for McDonald’s to continue business operations in this segment, thus if any of its outlets fall in this region, they tend to close it down in order to save their brand image. Thus, none of McDonald’s segment falls in this category.
References
Kasi, K. (2018). BCG matrix of McDonald’s. [online] BCG Matrix Analysis. Available at: http://bcgmatrixanalysis.com/bcg-matrix-of-mcdonalds/ [Accessed 16 Jun. 2018].
Bcg Matrix Definition
McDonald Steel. (2016). Mission, Vision and Values – McDonald Steel. [online] Available at: http://mcdonaldsteel.com/mission-vision-values/ [Accessed 16 Jun. 2018].
Meyer, P. (2018). McDonald’s Vision Statement & Mission Statement Analysis – Panmore Institute. [online] Panmore Institute. Available at: http://panmore.com/mcdonalds-vision-statement-mission-statement-analysis [Accessed 16 Jun. 2018].
Miranda, B. (2017). [online] Available at: http://mcdonaldsteam3.blogspot.com/2010/05/mcdonalds-introduction.htmlhttp://mcdonaldsteam3.blogspot.com/2010/05/mcdonalds-introduction.html [Accessed 16 Jun. 2018].
Mcdonald 27s Bcg Matrix Test
Miranda, B. (2018). McDonald’s Introduction/History/CEO. [online] Mcdonaldsteam3.blogspot.com. Available at: http://mcdonaldsteam3.blogspot.com/2010/05/mcdonalds-introduction.html [Accessed 16 Jun. Obrazac za rastavu braka pdf free printable. 2018].
Smart Insights. (2018). How to use the BCG Matrix – Smart Insights Digital Marketing. [online] Available at: https://www.smartinsights.com/marketing-planning/marketing-models/use-bcg-matrix/ [Accessed 16 Jun. 2018].