40
McDonald’s bright spots around the world. Sales have increased in Australia when they have
fallen in the United States, Europe, and Asia. Making major changes to the McDonald’s menu
is challenging partly because of its scale and supply chain. It orders hundreds of millions
of pounds of chicken each year, so it will take a few years to fully implement the change to
antibiotic-free chicken. Changing vegetables in Happy Meals (e.g., adding baby carrots) and
implementing new wraps which require additional (new) vegetables (such as cucumbers) will
take time because they require obtaining large scale suppliers that can provide the necessary
quantity and quality at the right price and in the right location(s).
McDonald’s was once a leader, and now it is fighting from behind, trying to stem its
downturn. It has to respond quickly and effectively to its external environment, especially its
customers and competitors.
Sources: A. Gasparro, 2015, For McDonald’s, a minor menu change takes planning, MSN, http://www.msn.com/en-us/money,
March 5; A. Gasparro, 2015, McDonald’s new chief plots counter attack, Wall Street Journal, http://www.wsj.com, March 1;
M. Hefferman, 2015, It’s still a happy meal in Australia for McDonald’s, Sidney Times Herald, http://www.smh.com.au, March 10;
J. Kell, 2015, McDonald’s sales still down as a new CEO takes the helm, Fortune, http://www.Fortune.com, March 9; D. Shanker,
2015, Dear McDonald’s new CEO: Happy first day. Here’s some (unsolicited) advice, Fortune, http://www.Fortune.com, March 2;
S. Strom, 2015, McDonald’s seeks its fast-food soul, New York Times, http://www.nytimes.com, March 7; S. Strom, 2015,
McDonald’s tests custom burgers and other new concepts as sales drop, New York Times, http://www.nytimes.com, January 23;
B. Kowitt, 2014, Fallen Arches, Fortune, December, 106–116.A
s suggested in the Opening Case and by research, the external environment (which
includes the industry in which a firm competes as well as those against whom it com-
petes) affects the competitive actions and responses firms take to outperform competi-
tors and earn above-average returns.^1 For example, McDonald’s has been experiencing a
reduction in returns in recent times because of changing consumer tastes and enhanced
competition. McDonald’s is attempting to respond to the threats from its environment
by changing its menu and types of supplies purchased. The sociocultural segment of the
general environment (discussed in this chapter) is the source of some of the changing val-
ues in society placing a great emphasis on healthy food choices. The Opening Case also
describes some of the ways McDonald’s is responding to the specific concerns for health
by purchasing only chicken that has not received antibiotics.
As noted in Chapter 1, the characteristics of today’s external environment differ from
historical conditions. For example, technological changes and the continuing growth of
information gathering and processing capabilities increase the need for firms to develop
effective competitive actions and responses on a timely basis.^2 (We fully discuss compet-
itive actions and responses in Chapter 5.) Additionally, the rapid sociological changes
occurring in many countries affect labor practices and the nature of products that increas-
ingly diverse consumers demand. Governmental policies and laws also affect where and
how firms choose to compete.^3 And, changes to a number of nations’ financial regulatory
systems that have been enacted since 2010 are expected to increase the complexity of
organizations’ financial transactions.^4
Firms understand the external environment by acquiring information about compet-
itors, customers, and other stakeholders to build their own base of knowledge and capa-
bilities.^5 On the basis of the new information, firms take actions, such as building new
capabilities and core competencies, in hopes of buffering themselves from any negative
environmental effects and to pursue opportunities as the basis for better serving their
stakeholders’ needs.^6
In summary, a firm’s competitive actions and responses are influenced by the condi-
tions in the three parts (the general, industry, and competitor) of its external environment
(see Figure 2.1) and its understanding of those conditions. Next, we fully describe each
part of the firm’s external environment.