Mcdonalds Case Study
Length: 1950 words (5.6 double-spaced pages)
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Our research indicated more viable strengths than weaknesses. Strengths such as brand recognition, steady growth in global markets, and strong leadership. McDonald's has become part of America's culture and now the same can be said for the global arena based on the demonstration of growth and continued dominance over competitors. Business Week Magazine even ranked McDonald's as "one of the ten most recognized brands in the world", a position that creates significant opportunities for the company. An important strength that continues to have the most dramatic impact on McDonalds is their top level management. Even though this is classified an as internal strength, McDonald's has capitalized on a management style that helps to infuse a strong culture. A dynamic aspect of the McDonald's culture is the willingness to innovate and adapt, thus making necessary changes when the need arises.
Top level management includes Jim Skinner, the concepts of the late Charles Bell, and the late James Cantalupo. James Cantalupo was a former vice-chairman who had overseen McDonald's successful international expansion in the 1980's and 1990's. He came out of retirement and took over as CEO in hopes of quashing the potential downfall McDonald's was facing. He was instrumental in developing a strategic plan called "Plan to Win" which was the starting point for the turnaround at the beginning of 2003. This Plan contains aggressive goals and measures for success based on the critical drivers of customer experience or the 5 P's: People, Products, Price, Place and Promotion. (Chief Executive, Salad Days) Today sales are strong in domestic markets and even higher in the global markets. The plan focuses on existing customers and by changing their image to promote healtheir
menu items. This was the long term goal set by Cantalupo, followed by Bell and now Skinner.
With strength ultimately comes weakness and McDonald's has its fair share, especially in the last few years. Many weaknesses are due to the external environment which includes market saturation, increased price competition, and food and labor costs. These weaknesses affect many firms in the fast food industry so McDonald's is trying to effectively combat these forces using a differentiation strategy. Developing new products such
as the new gourmet, premium coffees, fruit salads, and premium chicken strips have given McDonald's the ability to compete in an industry that has reached the maturity stage in the life cycle while still fighting off new entrants such as Chik-fil-A and Quizno's. This change in strategy has allowed McDonald's to continue to focus on their core competency which has always been their burgers. But new products have increased overall sales worldwide. New strategies have been introduced to increase the efficiency in the drive through
process. Research has shows that McDonalds ranked last out of 25 fast-food chains in a recent study of drive-through
order accuracy, down from 20th in 2004. (Wall Street Journal). When it comes to drive-through speed, McDonald's went from being the fourth-fastest chain to the sixth. This shows an inconsistency of McDonald's short term objectives vs. its long term objectives. McDonald's goal is for customers behind the wheel to wait no longer than 90 seconds.
2005 2004 GOAL
Average Drive Thru Wait Time (Seconds)
In fast food, time literally is money. And with sales growth slowing at McDonald's, shaving off seconds at the drive-through is more important than ever. McDonalds was rumored to start using call centers for order taking, though there has been some experimentation in this area, McDonald's has no plans to expand the use of call centers for order-taking, Instead, McDonald's is trying to improve drive-through
speed by offering cashless payment options, adding lanes and automating beverage service. (Chicago Business Press)
Opportunities involve changing trends and the long term international growth. Many trends are a result of changing customer tastes in the general environment. Increased health concerns such as obesity in children, has sparked interest in McDonald's customers and non-customers alike. McDonald's has responded quickly to these needs and continues to make changes such as offering healtheir
alternatives to the traditional burger, fries and soft drink.
McDonald's faces a variety of threats. Some of these are in regard to franchising. As one of the world's largest and best recognized franchise systems, McDonald's must endeavour to successfully deal with matters of internal communication between the interests of its franchisees and that of the franchisor. At the same time, its global reach and broadly standard product line and level of service have led to McDonald's becoming the target of anti-globalization protests, and as the highest-profile fast food company, it is often blamed for obesity and excessive packaging waste (USA Today). McDonalds strives to protect their
reputation and trademarks to their customers and the general public.
McDonald's brand is in 119 countries around the world. 30,000 locations serve nearly 50 million customers each day. More than 70% of McDonald's restaurants around the world are owned and operated by independent local businesspersons (Data Monitor). The following map on the next pages shows the date of the first McDonalds in each continent in small inset map at bottom. Countries where McDonalds were formerly located are shown in dark grey (Barbados, Bolivia, Jamaica).
As the world's largest restaurant chain, McDonald's also finds itself a target for external criticism. Even though its foreign franchise locations are usually owned and used locally- produced foods, the company is seen as a symbol of American domination of economic resources. Urban legends about the company and its food are plentiful and it is often the target of cost lawsuits. McDonald's has been the target of criticism for allegations of exploitation of entry-level workers, use of sweatshop labor to produce "happy meal toys, industrial processing of its products, selling unhealthy food, production of packaging waste, and exploitive advertising targeted at children, minorities, and low-income families. McDonald's historic tendency towards promoting high-calorie foods such as French fries has earned it the nickname "The Starchy Arches" (McSpotlight Press).
Our analysis brought us to the conclusion that McDonald's implements a differentiation business level strategy and related corporate diversification strategy. Along with these strategies are some reasons why they may succeed and why they may not.
Corporate level utilizes internal monitoring. This works from the lower level (McDonald's team members at a location) to management and all the way up to the corporate executives and the board of directors. Today McDonald's is well on the way to installing a new information system that uses PCs and Web technologies to tally sales at all its restaurants in real time. For example, as soon as you order two Happy Meals, a McDonald's marketing manager will know. Rather than superficial or anecdotal data, the marketer will have hard, factual data for tracking trends (Fortune Magazine). On the other hand costs are difficult to keep down due to the upkeep of this expensive technology.
The sharing of resources such as raw materials, research and development information and marketing information among franchises is employed to ensure a smooth and even process throughout all McDonald's restaurants. However, not all franchises comply with McDonald's standards so they must step in to rectify any adverse situations. Franchisors then feel alienated and drop their affiliation leaving the company to pick up the costs of a surrendered franchise.
McDonald's is run neither by one man nor by executive committee. It is an alliance of hundreds of independent entrepreneurs franchisees, suppliers and managers and united by a complex web of partnerships and creativity. Ideally, everyone is involved in multiple sections of the company, but realistically too much involvement from one group to another could be detrimental to that groups ability to accomplish their goals.
Behavioral performance indicators such as rewards and incentives offer employees the motivation needed to succeed. But a strong culture is needed in order to be effective. McDonald's has a culture that encourages creativity, fun and innovation. The lack of strict regulations though, will set McDonald's further back rather than forward. This was proven when corporate wasn't taking the proper measures in maintaining proper speed, cleanliness, and service records in its franchised locations.
The corporation's infrastructure adds value by use of expert management and implementation of the best strategies. Obtaining talent management is an important focus with the company. Succession planning was an extremely crucial element when Cantalupo passed away suddenly. His Plan to Win strategy was discussed thoroughly and goals were laid out so that Charles Bell knew where to start, as well as Jim Skinner when Bell's health declined and Skinner assumed the position of CEO. The focus on obtaining talent management could possibly strain the equally important task of satisfying the current employees.
McDonald's business-level strategy success consists of several basic as well as unique concepts. Beginning with McDonald's turnaround in 2002 we saw many improvements and potential areas for future success.
First of all McDonald's adapted to the customer tastes by offering healtheir
choices. Books like "Fast Food Nation" and the documentary "Super Size Me" casts a black cloud over the fast food industry in general, but placed McDonald's in the hot seat more then the competitors (McSpotlight Press). The truth is healtheir
eating could be considered a trend and trends can literally change overnight. The focus could suddenly move from healthy and quality alternatives back to the quick and cheap. Plus too much attention on what's new takes away from their core, which is their burgers.
Succession planning stems from hiring experienced higher level managers to cultivating new employees to the McDonald's environment. More than 50,000 students from all over the world have graduated with "Bachelor of Hamburgerology" degrees from "Hamburger University," McDonald's international management training facility located at its home office in Oak Brook, Illinois, USA. Similar training facilities offering McDonald's "Advanced Operations Course" are located in London, Munich, Tokyo and Sydney. CEO's Cantalupo, Bell and Skinner are all examples of people that started as a regular crew member at a young age. Though it seems unlikely a paradigm shift is risky because it affects everyone in the organization. Plus there is a risk of competency trap because some employees can mistake succession planning for guaranteed stability.
The willingness to change and innovate keeps McDonald's ahead of their competition. An example of this is the Chicken McNuggets, at the time when the McNuggets were introduced; people were not keen on the idea of eating their poultry with their hands. McDonald's then added the bar-b-que sauce for dipping and then the McNuggets took off. But of course, failure of these new products can have a profoundly negative affect on the company's image.
McDonald's boasts established brand recognition, not only in the market, but worldwide. Even though this a top goal for most organizations it has its disadvantages in that higher expectations leads to more scrutiny. Since McDonald's is known as number one everyone expects it to be number one in every area possible.
Effective marketing campaigns and extensive scanning of the environment is why McDonald's is so successful in responding to competition and trends. But again by putting much emphasis one group over another, they run the risk of alienating another population, a prime example is how the current focus on the Hispanic market could mean less attention on the Asian population.
The vast increases in the European markets indicated international strategies are effective as well. As long as McDonald's continues their differentiation business level strategy and related corporate diversification and avoid any of the downfalls associated with these strategies then McDonald's will continue to be number one in the fast food industry.
2006 2005 2006 2005
UNITED STATES EUROPE
Same Store Sales in February for the U.S & Europe