Return on Equity Ratio
McDonald’s has held a high return on equity for the last four years. They reached a high of 38.24 percent for the year of 2011 while the industry fell below at only 15.40 percent. This demonstrates their ability to generate cash internally. Although the company decreased its Return on equity for the year of 2012 to 35.73 percent, it seems as though the industry increased their Return on Equity to 16.70 percent. Like their ROA, McDonald’s ROE started a deteriorating trend from 2011 to 2012 and from 2012 to 2013. And the Industry ROE is showing a steadily increasing trend. There is a substantial difference because of the amount of net income McDonald’s have. The ...view middle of the document...
This determination and impetus to succeed is what drives the company’s attractiveness and profitability. Hill and Jones also explain how franchises benefit in financial savings from not having to invest too much in their advertising when the host company is covering the costs, setting them apart from its competitors and allowing it to be a cost leader (Hill & Jones, 2013).
McDonald’s also displays the company’s commitment to an integrated business model by leveraging its global franchises to help foster new ideas. For instance, in France, where restaurants were confronting slow sales, managers decided to change the look and feel of the menu, layout and theme. In turn, they brought in a fancier design to make it look higher end and were met with an increase in sales. This example and others like it represent how the company is able to gain competitive advantage through its subsidiaries by having more markets willing to adopt and implement new and exciting changes. However, it is up to management to make careful deliberations over what changes can be rolled out in a greater scale and which are only beneficial to the local market.
Driving down organizational costs is always an important concern for any management team, but at McDonald’s it is top priority. Lowering costs and reducing waste means extending those savings to the consumer in order to deliver a tasty, convenient and highly affordable meal. On the other hand, McDonald’s is not necessarily determined to charge more for a product, but it is interested in differentiating itself in other ways. Though it’s corporate level strategy of vertical integration, McDonald’s is able to replicate its U.S. supply chain nearly everywhere it operates. In some places, this means acquiring the land and cattle for its beef, constructing its own bakery for the production of buns, and even importing the seeds necessary for its produce outputs (Gutterman, 2011).
McDonald’s distinct competencies create the strength through which they can pursue an integrated business model strategy. However, they have some weaknesses that also pose a concern for the management team. For starters, the company’s standardized process can be imitated by its competitors and since it only operates in the fast food industry, a volatile change in consumer’s tastes and perceptions can be devastating for the company. Such was the case when the company experience backlash over claims that it was adversely affecting obesity rates in the country. In addition, an integrated differentiated strategy opens the company up to certain disadvantages. For instance, since the company’s human resource component is a serious weakness; it will have difficulty maintain premium prices if more of the costs will go towards employee wages and to cover the proposed increase in the overtime threshold for managers. McDonald’s has a very broad audience and it offers its consumers low cost meals. With global expansion, McDonald’s has used integrated strategy...
