Learning Exercise Guidlines

PART IV

ASSURANCE OF LEARNING EXERCISES

CHAPTER 1: The Nature of Strategic Management

ASSURANCE OF LEARNING EXERCISE 1A: GATHERING STRATEGY INFORMATION

PURPOSE:

The purpose of this exercise is to get you familiar with strategy terms introduced and defined in Chapter 1. Let's apply these terms to McDonald's Corporation (stock symbol = MCD).

INSTRUCTIONS:

1. Go to www.mcdonalds.com, which is McDonald's Web site. Click on the word Search. Then type the words Annual Report. Then print the 2009 McDonald's Annual Report. This document may be 100 pages, so you may want to copy the document electronically or order the report directly from McDonald's as indicated on the Web site. The Annual Report contains excellent information for developing a list of internal strengths and weaknesses for MCD.

2. Go to your college library and make a copy of Standard & Poor's Industry Surveys for the restaurant industry. This document will contain excellent information for developing a list of external opportunities and threats facing MCD.

3. Go to the www.finance.yahoo.com Web site. Enter MCD. Note the wealth of information on McDonald's that may be obtained by clicking any item along the left column. Click on Competitors down the left column. Then print out the resultant tables and information. Note that McDonalds's two major competitors are Yum! Brands, Inc. and Burger King Holdings.

4. Using the Cohesion Case, the www.finance.yahoo information, the 2009 Annual Report, and the Industry Survey document, on a separate sheet of paper list what you consider to be MCD's three major strengths, three major weaknesses, three major opportunities, and three major threats. Each factor listed for this exercise must include a %, #, $, or ratio to reveal some quantified fact or trend. These factors provide the underlying basis for a strategic plan because a firm strives to take advantage of strengths, improve weaknesses, avoid threats, and capitalize on opportunities.

5. Through class discussion, compare your lists of external and internal factors to those developed by other students and add to your lists of factors. Keep this information for use in later exercises at the end of other chapters.

6. Be mindful that whatever case company is assigned to your and/or your team of students this semester, you can start to update the information on your company by following the steps just listed for any publicly held firm.

TEACHING NOTES:

The following are possible external opportunities/threats and internal strengths/weaknesses for the McDonald's Cohesion Case. The instructions request three for each category but possibilities are listed below. Remind students to keep this information for use in later exercises.

Strengths:

S1: Highly successful and recognized advertising. (I'm loving it)

S2: Strong employee training and promotion mostly from within.

S3: Strong Investor Reputation.

S4: Strongest Brand Image as the number-1 fast-food company by sales, with more than 32,000 restaurants in 118 countries.

S5: Recognized as a community oriented, socially responsible company.

S6: Strong Global Presence and an ability to weather local economic fluctuations.

S7: Use pure ingredients and take food safety very seriously.

S8: Consistently solid financial performance.

* Gross margins (36.7%) and net profit margins (18.2%) above industry averages.

* Sales revenue up 3.3% in 2008, global comparable sales up 6.9%.

* Net income up 80% in 2008.

S9: Strong innovation and product development.

S10: Large real estate portfolio.

S11: Economies of Scale - Nearest competitor in U.S. is half McDonald's size.

Weaknesses:

W1: Lowest Customer satisfaction rating in the industry (69), even below IRS.

W2: High employee turnover.

W3: Assembly line approach makes it difficult and costly to adapt to changing trends.

W4: Core product line out of sync with trends toward healthier lifestyles for adults and children.

W5: Sales demonstrates seasonal effects.

W6: 80% of restaurants are franchise owned, placing image and reputation in other's hands.

W7: Over-saturation of real estate in the US.

W8: Struggles with fluctuations in operating and net profits:

* Operating profits $4,433M (2006), $3,879M (2007), $6443M (2008).

* Net profits $3,544M (2006), $2,395M (2007), $4,313M (2008).

W9: 70% of operating revenues and 45% of debt are in foreign currency.

Opportunities:

O1: Anticipated 4% growth rate in Quick Service Restaurant industry.

O2: Low fat, low calorie, healthy hamburger - Could be first on market.

O3: Many restaurants (60% in U.S.) have outdated appearance. Remodeling can yield cozier, upscale setting, and upgrade the image.

O4: Respond to social changes by innovation within healthier lifestyle foods.

O5: Increased beverage options (Gourmet coffees) have been shown to increase customer visits in Europe (+7.2%) and takes advantage of faltering Starbuck's.

O6: Breakfast not available at 25% of locations - can increase return on assets and equity.

O7: Joint ventures with retailers (Walmart, etc.) can place new locations in high traffic areas at lower capital cost.

O8: Continued focus on corporate social responsibility, reducing the impact on the environment and community