Q1. Read the provided article on “Bed Wars” and answer to the following question.

You’re the
CEO of an international hotel chain, which competes with companies like Westin, Hilton, Sheraton,
Hyatt, Marriott, and Ritz-Carlton. Seeing the development of Bed Wars, you decided to introduce
luxury bedding for your hotel chain’s guest rooms.

What is the definition of “strategy” in AB3601? Based on this definition of strategy, evaluate if this
decision was a good strategic decision.

A strategy is an integrated and coordinated set of commitments and actions designed to exploit core
competencies and gain a sustainable competitive advantage (Hitt et al., 2020). Firms achieve strategic
competitiveness by formulating and implementing a value-creating strategy. When choosing a strategy,
firms make choices among competing alternatives as the pathway for deciding how they will pursue
strategic competitiveness. In this sense, the chosen strategy indicates what the firm will do as well as what
the firm will not do.

In my view, the decision to introduce luxury bedding on the hotel chain’s guest rooms was not a good
strategy. The other competitors namely Westin, Hilton, Sheraton, Hyatt, Marriott and Ritz-Carlton are
seeking to outflank each other through competition of the standard of luxury of the bedding. They achieve
this by sourcing for the mattress with the greatest number of individual coils and thread count. For
example, Sheraton Hotels & Resorts last year launched its own brand of bed--the Sheraton Sweet Sleeper
Bed. The company committed more than $75 million to put 110,000 beds in 200 North American hotels.

This approach fails to achieve the definition of what a good strategy is all about. By adopting the same
approach for introducing luxury bedding for the hotel chain’s guest rooms. There is no competitive
advantage as the approach taken is no different than what the other competitors in the hotel industry are
doing. Worse still, it may result in higher costs on the part of the hotel since they must redirect resources
in other to acquire these bedding. Suppliers are less likely to offer competitive pricing since they know
that the players in the hotel industry are seeking to leverage on the new trend of the “Bed Wars.” In the
long run, the hotel has to continue hiking up costs in order to compete in this realm which is going to be
futile as it is extremely difficult to be competitively advantageous by only focusing on the quality of the
beds.
Q2. Based on your understanding of Porter (1996), evaluate McDonald’s decision to launch
McWrap. Is this a good decision? Why or why not?

Porter in his 1996 piece posits that the motive of operational effectiveness is when a company can
outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to
customers or create comparative value at a lower cost, or do both. The arithmetic of superior profitability
then follows: delivering greater value allows a company to charge higher average unit prices; greater
efficiency results in lower average unit costs.

(Operational efficiency is not a strategy. Consistency and reinforcement of integrated activities to create
sustainable advantage. Are they consistent with previous strategies? Evaluate whether strategies are
consistent with one another.)

I believe that the decision on the part of McDonald’s to launch McWrap is not effective. I will explain this
in a few ways. The reasons for justifying my stance includes a convoluted strategy going forward from its
existing cost strategy, increased lead time for the kitchen with the introduction of McWrap and no signs
which implies that McDonald is able to reach out to the younger demographic with McWrap on its menu.

First, McDonald’s adopts a cost leadership strategy as opposed to a differentiation strategy on the part of
their competitor offering healthier alternatives such as Five Guys, Chipotle (CMG) and Subway. In the
past, many people encouraged McDonald’s to sell salads, yet in the past decade they have accounted for
no more than 3 percent of sales. At $3.99, the McWrap is four times the cost of a McChicken. This price
range has not been nearly as effective for McDonald’s historically as its dollar menu. In addition, the
McWrap uses cucumbers which is a new vegetable for McDonald’s. Hence, not only would McDonald’s
have to contend with competing with higher operating costs from having to acquire new ingredients that
was not previously in their inventory, but also it will cause the company to lose synergy in terms of their
current lineup of food choices. The latter problem was alluded to by Richard Adams who used to own
several McDonald’s in San Diego and is now a consultant to franchisees. He said that, “It’s supposed to
be an assembly-line business. They are giving people too much variety and selection,” he says.
“Customers are already frustrated by how long they must wait. Sales growth will stagnate because of the
complexity.” He points out that some of the competition, such as Five Guys and Chipotle, keep their
menus simple. McDonald’s has about 145 items on its menu, six of them different kinds of McWraps.

Second, there are signs that the new product lineup, McWrap, will reduce efficiency in the kitchen.
McDonald’s employees are supposed to be able to make a wrap in 60 seconds or less. Some have pointed
out that their first try took more than 90. They were quoted for saying, “A minute is a long time at
McDonald’s, but that’s the point. It’s supposed to be food made by humans.” Richard Adams corroborates
this difficulty by saying that, “Customers are already frustrated by how long they have to wait. Sales
growth will stagnate because of the complexity.” Hence, the longer lead time will result in loss in
efficiency and are likely to anger customers since one of their strong points is the swift service upon point
of order. In terms of Porter’s Productivity Frontier Curve, McDonald’s is moving further away from it.

Third, there is no sign that the McWrap appeals to their target demographic. The issues of McDonald’s
appeal to the youths are shown through a memo shared In late March. Just days before the introduction of
the McWrap, Advertising Age obtained an internal McDonald’s memo discussing the chain’s struggle to
attract customers between the ages of 18 and 32. McDonald’s didn’t even rank in the millennial
generation’s top 10 favorite restaurant chains. In an interview on CNBC in late April, Chief Executive
Officer Don Thompson said this when asked about millennials’ preferences: “We’re as vulnerable today
as we always have been. Tastes have been changing, and it’s just that we as McDonald’s have continued
to evolve.” As for the McWrap, he said that “millennials are really the target. They love the fusion of
tastes.” However, there are no signs or hard evidence which shows that the young are enticed with the
new launch of the McWrap. If the McWrap is not able to create greater value for the young demographic
that McDonald’s is trying to capture, it could mean that they are not able to shake off the impression that
they are known for a less healthy lineup which includes the Big Mac and fries.

All in all, at least in the short run and assuming that McDonald’s does not increase the lineup of healthier
alternatives on top of the existing McWrap, we can expect that this new launch will be a flop through the
reasons of the loss of synergy by moving away from cost leadership strategy, reduced kitchen efficiency
and no signs of improvement for McDonald’s weak appeal among the young.
 References:

Michael A. Hitt, Duane Ireland & Robert E. Hoskisson. (2020). Strategic Management: Competitiveness
and Globalisation: Concepts and Cases (13th Edition). South-Western Cengage Learning.

Porter, Michael E. Harvard Business Review. Nov/Dec96, Vol. 74 Issue 6, p61-78. 18p.