Michael E. Porter devised theoretical frameworks for analysing both an Essay

Michael E. Porter devised theoretical frameworks for analysing both an organisation's external environment (the Five Forces Mo - Essay Example Moreover, they allow companies to understand the issues or challenges in the environment, supporting them in looking into appropriate solutions (Abuawad, 2013). For this paper, we will be analysing McDonalds through these models in order to understand how the two help in developing a successful strategy for the company. Five forces Model Five forces model of Michael Porter is based on the theory that every external environment for a business could be judged based on five primary forces or dimensions. These dimensions are Threat of competition/Rivalry among firms, Threat of new entrants, Threat of substitutes, Bargaining power of suppliers and Bargaining power of buyers. The company essentially need to understand the external environment surrounding them in each country, city or town they function. This is crucial for formulating a winning strategy given the McDonalds is a franchise being run worldwide (Abuawad, 2013). Rivalry among firms/Threat of competition Since McDonald's operate s in the fast food industry, therefore, it faces an intense competition worldwide. the Fast Food industry has experienced a massive growth in just a couple of years. Thus the industry is highly competitive and McDonalds faces the threat of competition. ... Major competitors are Burger King and the Yum Brand Inc. So, McDonalds experiences intense rivalry within the fast food industry (Aydrose, 2012). Threat of new entrants The fast food industry has no particular regulatory limit of the number of firms to be allowed to enter and is in fact quite a profitable industry. The startup costs for this industry are low, thus making it simpler for new entrants to start up fast food restaurants. Although, the industry has well-known market leaders who possess majority of the market share. These market giants are McDonalds, Burger King and Wendy's which using their power could hinder the new entrants from introducing their business in this industry. This makes the threat of new firms entering the industry to be moderate (Abuawad, 2013; Aydrose, 2012). Threat of substitutes Numerous substitutes exist of McDonalds' product offerings. For breakfast menu, the substitutes include the cheaper diners providing breakfast, or coffee houses like Gloria Jean s. Moreover, for meals like burgers, substitutes include the burgers of Wendy's, KFC, Burger King and small diners or restaurants. For beverages like coffee and milkshakes, again diners, coffee houses and beverage companies provide substitutes for McDonald's beverages. So the threat from substitutes is quite high for the company (Aydrose, 2012). Bargaining power of suppliers Since McDonald's is globally the largest fast food chain operating in terms of sales, therefore, it has bargaining power over its suppliers. The suppliers bargaining power thus is low, leading to lower costs and ability to charge competitive prices. So McDonald's do not face the threat of being forced to buy costly raw material since