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Management
ASSIGNMENT ON
External Environmental
Factors, Scanning and
Appraisal
A case study for
McDonalds
Assignment Submitted By:
Abhishek Maurya
Roll No. 10001116001
Santosh Kumar
Roll No. 10001116043
Submitted To:
Mrs. Swati Raman
national environment
The concentration of firms within the fast food industry is low due to
the established presence of McDonalds, Burger King and KFC. However, in
certain markets, McDonalds will face competition from established domestic
fast-food outlets.
2.9.2 Threat of new/potential entrants
The barriers to entry are quite high for new entrants, as the size of
McDonalds means they have achieved economies of scale and have
preferential access to raw materials and distribution channels. New entrants
may find that a high cost of investment is required in securing plant and
machinery.
2.9.3 Threat of substitutes
desired effect, producing the intended result) and efficient doing the right
thing (able to work well and without wasting time or resources).
4 Figure 2 Strategy tactics grid (for colours see online version)
5 The firm has to consider more than the industry structure, it also has to
take an appropriate position within the industry. This positioning will
determine the competitive advantage a firm can have, namely low cost or
differentiation against competitive scope at the broad or narrow market (see
Figure 3).
Figure 3 Porters generic strategy grid (for colours see online version)
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Products or services and their respective strategies fall into one of four
quadrants of the BCG matrix. The typical starting point for a new business is
as a question mark. If the product is new it has no market share but the
predicted growth rate is good. What typically happens in an organisation is
that management is faced with a number of these types of products but with
too few resources to develop them all. Thus, the strategic decision-maker
must determine which of the products to attempt to develop into
commercially viable products and which ones to drop from consideration.
Question marks are cash users in the organisation. Early in their life, they
contribute no revenues and require expenditures for market research, test
marketing and advertising to build consumer awareness.
If the correct decision is made and the product selected achieves a
high market share, it becomes a BCG matrix star. Stars have high market
share in high-growth markets. Stars generate large cash flows for the
business but also require large infusions of money to sustain their growth.
Stars are often the targets of large expenditures for advertising and research
and development to improve the product and to enable it to establish a
dominant position in the industry.
Cash cows are business units that have high market share in a lowgrowth market. These are often products in the maturity stage of the product
life cycle. They are usually well-established products with wide consumer
acceptance, so sales revenues are usually high. The strategy for such
products is to invest little money into maintaining the product and divert the
large profits generated into products with more long-term earnings potential,
i.e. question marks and stars.
Dogs are businesses with low market share in low-growth markets. These are
often cash cows that have lost their market share or question marks the
company has elected not to develop. The recommended strategy for these
businesses is to dispose of them for whatever revenue they will generate and
reinvest the money in more attractive businesses (question marks or stars).
Having used the Boston Consulting Group matrix above, it should also
be noted that the BCG matrix suffers from limited variables on which to base
resource allocation decisions among the businesses making up the corporate
portfolio. Notice that the only two variables composing the matrix are
relative market share and rate of market growth.
Now consider how many other factors contribute to business success
or failure. Management talent, employee commitment, industry forces such
as buyer and supplier power, environmental sensitive practices, corporate
governance, corporate social responsibility and the introduction of
strategically-equivalent substitute products or services, changes in consumer
preferences and a host of others determine ultimate business viability.
The BCG matrix is best used, then, as a beginning point but certainly
not as the final determination for resource allocation decisions as it was
perhaps originally intended. In other words, just analysing the coordinates of
a product into the dogs category would not necessarily mean that it should
be singled out for termination. The technological, production and market
synergies (with reference to a perceived total offering) to customers should
also be parts of any elimination of dogs.
Further, if we consider McDonalds position as market leader within the
restaurant based fast food market (this is as opposed to frozen home made
fast food items) and the relative profits derived from this market, then it
becomes clear that they are positioned in the protect position quadrant of
the Mckinsey matrix (Figure 6). This means that the company should
concentrate efforts on maintaining its existing strength by investing to grow
at maximum digestible rate.
Figure 6 The McDonalds companys position in the Mckinsey matrix (for
colours see online version)
looks in . . . inside the organisation, indeed, inside the head of the collective
strategist . . . but it also looks up to the grand vision of the enterprise.
Mintzberg provides an illustration to demonstrate the concept. This has
been adapted and shown in Figure 7.
The use of this model serves as an aid to managers for analysing the
conditions of the perspective host country with regard to being favorable for
the transferability of tried and tested practices. If all three conditions are not
favorable then management would at least be in a position to know where to
focus attention or where new strategies and tactics would need to be
customized to suit the new environment.
3. Conclusions