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Neu 1 Christopher Neu Professor Walter Jermakowicz MNGT 452 Policy Formulation Administration 31 March 2010 Case 10:

: McDonalds and its Critics Founded by Ray Kroc in the 1950s, McDonalds began as a carhop in San Berdino, California, and evolved into an American business fast-food restaurant icon. Over the past 50 years, McDonalds

leadership has changed numerous times and, as with any company, has faced challenges. The analysis which follows will be reviewed

chronologically as the organization evolved from inception to the first decade of the 21st century, including the criticisms which have plagued the company.

STRATEGIC ANALYSIS Ray Kroc Years: Ray Kroc founded McDonalds Corporation. In doing so, he put forth some of their strongest competencies. He believed in the brothers concept of a limited menu and easy food preparation. end result: The

cutting the price of a hamburger from 30 cents to 15

cents (McDonalds C147). Kroc dipped into his service background and proved that the key to successful franchising was uniformity. From the outset, the hallmark of Krocs franchise system was commitment to quality, service, and cleanliness (QSC) (McDonalds C147). Krocs

Corporate-level strategy can be defined as centralized. All decisions are made at top-level management and pushed to the franchises. This can be viewed both as a weakness and strength. When it comes to innovation, the Big Mac was created at a franchise. The leadership there knew they had a winnerinnovation at

Neu 2 its best. However, top level management, not wanting to change the menu, resistedinnovation stifled. In the end, management allowed

the franchise to test the Big Mac menu change. It proved to become one of the greatest additions to the original menu. McDonalds

Corporation put the new item into nationwide distribution in 1968, and within less than a year, the Big Mac accounted for nearly 20% of all McDonalds sales. Over time, the Big Mac became it most recognizable item (McDonalds c148). Fred Turner Years. franchise manager. Fred started his tenure with McDonalds as a He quickly showed his ability in overseeing

restaurant operations, and Kroc asked him to train new franchises. In doing so, Turner laid the foundation for a successful franchise system that has lasted well into the 21st century (McDonalds c148). He

introduced ground breaking measures unheard of in the food industry. These measures would become the foundation of McDonalds core competences. Kroc leveraged Turners standard operating procedures to further develop uniformitya key success factor for McDonalds. He sent him to the franchise as a field auditor. ultimately restaurants. Turner took over leadership in 1968. It was at that time the It was Turners belief determined whether the franchise A franchises score could open more

corporate strategy shifted to decentralization.

that the closer decision making is to the stores and the marketplace, the better the decision that managers make (McDonalds c149). In

Turners first five years, annual sales per restaurant almost doubled, and the total number of McDonalds outlets tripled (McDonalds c149). Turner decisively dealt with several threats during his reign. He stifled an uprising by franchise owners when he created The National

Neu 3 Operators Advisory Board to deal with policy issues. When McDonalds was threaten by a union, he used flying squads, closing down restaurants threatened by union organizing, and hiring anti-union labor lawyerto remain union free for the next three decades (McDonalds c150). One of Turners greatest accomplishments came in the form of advertisingthe birth of Ronald McDonald. McDonalds capitalized on the opportunities introduced by this campaign. Suddenly, Ronald was singing happy birthday to children. He has since become loved by

children all over the world. A 1996 survey of American schoolchildren found that fully 96% of all children could identify Ronald McDonald; the only fictional character more recognizable to American children was Santa Claus (McDonalds c149). It is safe to say that Ronald has

become one of McDonalds greatest strengths. Michael Quinlan Years: Quinlan worked his way up to the corporate Armed with an MBA an

level of McDonalds via the mailroom.

educated executive Quinlan continued the decentralized strategy of Turner which made him popular with his employees. With his firm belief that the customer is right, he implemented a program that empowered employees to do whatever it takes to satisfy customers request (McDonalds c150). Cost cutting initiatives will be remembered as part of Quinlan legacy. He worked to lower McDonalds new restaurant

construction cost; as a result, the average restaurants construction cost fell by 27% (McDonalds c150). By giving franchises the flexibility in choosing from a menu of insurance plans, Quinlan saved about $50 million annually across 9,300 United States outlets in the mid-1990s $4,000 per restaurant (McDonalds c149). Quinlan recognized opportunities when they presented

themselves. He realized there was a new market just waiting to be

Neu 4 discovered. He single handedly took McDonalds and transformed

them into a global empire, extending the chains reach to more than 100 national markets (McDonalds c150). However, Quinlan failed to pay attention to his domestic market. After all, it was here that

McDonalds was born. A key decision was made to change the basic menua core competency was abandoned. Several product

introductions failed and were ultimately pulled.

At the same time,

Quinlan introduced a domestic franchise expansion which resulted in many stores opening close to each other and in wrong locations. The end result: stores competed (cannibalized) against each other and lost revenue. Upon Quinlans resignation, McDonalds had lost market

share, profits were down, and they were entering a phase of pure crisis. Jack Greenberg Years: This was the first time the board of directors had hired outside of the company. Once hired, Greenberg contacted the

stakeholders and personally assured them he was a different person; he would turn things around. Immediately going to work, the core

competencies were again abandoned. The menu was expanded, and the food preparation system was changedresulting in a $25,000 bill to each restaurant with a kitchen change. He went with the just in time principal of product customization. The made to order feel ultimately cost him one of McDonalds basic principlesthe ability to turn the food out quickly. Customers were standing in line. For a reason unexplained in the case, he felt he could re-invent through acquisitions; however, he was not able to recognize the opportunities presentedall acquired companies were eventually divested. Greenberg was not aware of the external threats against the corporation either. The company was being attacked, and he did

nothing to counter. A major Campaign against child obesity singled out

Neu 5 McDonalds as the principal culprit, generating unfavorable publicity and damaging McDonalds reputation (McDonalds c153). In 2002,

McDonalds stock price was trading at a seven-year low, and during seven of the eight quarters ending summer 2002, McDonalds earning declined (McDonalds c154). Under Greenbergs failed leadership,

McDonalds continued to fail thrive. At the pinnacle of a financial lull the stock price at a seven-year low and seven of the past eight quarters posting declined earningsQuinlan resigned. Jim Skinner Years. As a senior executive, Skinner assumed the

companies leadership position in November 2004. McDonalds was in the middle of the worse crisis in its history. He quickly got back to

basics. He promptly addressed the issues surfaced during Quinlan and Greenburgs tenures. Instead of investing in new restaurants, current ones were renovated. He returned to a basic menu. Building on a

previously missed opportunity, he introduce a line of premium coffee drinkscompeting head to head with Starbucks. By 2007, 800

McDonalds United States restaurants were serving espresso drinks. McDonalds installed 5,700 additional McCafes in the United States restaurants in 2008 all while Starbucks was struggling, closing stores, and laying off employees for the first time in history (McDonalds c155). Corporate-level Strategy. Consistency and uniformity are what I feel

best illustrate McDonalds strategy, at least at the onset of the company the Ray Kroc era. Obviously, given that this was a fast-food service, the ability to fill orders (correctly, the first time) is almost a given for this business; however, the manner in which labor was divided set McDonalds apart from the competition. Turner continued Krocs strategy for the most part. Attention was

Neu 6 given to further documenting processes to ensure consistency, a la McDonalds now-famous Operations Manual, along with decentralization of supervision (more pushed out regionally). Managers coming up

through the ranks continued through Quinlans tenure, including the staunch adherence to McDonalds as a stand-alone brand. A high

degree of consistency was also key to the organizations strategy, at least until what appears to be mid-way through Quinlans tenure. What are now clearly regarded as wrong turns taken during Quinlans leadership and continued (arguably worsened) during Greensburgs, were examples of what not to do; hence, Im not going to include them in what I view to be the effective components of McDonalds corporatelevel strategy. RECOMMENDATIONS The following are in no particular order:

Skinner is re-adopting the cord values established by Kroc and Turner, and this adherence to those values needs to be paramount and consistent. During Kroc and Turners era, McDonalds. Now, under Skinner, it is once again thriving. During Quinlan and Greensburgs leadership, things were not going well; both of those leaders chose to abandon the key core values which differentiate McDonalds. Clearly, by now, the lesson should be understood re-learning it again is not necessary.


A healthy options strategy will be needed in the foreseeable future. I think Skinner sees this, and it will remain, hopefully expanded. This should help counter the criticism that McDonalds is responsible for the obese customers, especially Americans. While I have my doubts that much (if any) profit will

Neu 7 be made by selling these items, having these exist on the menu is, in my opinion, 80% of the solution. With them, Skinner, et al, can clearly state that McDonalds supports and embraces a healthy lifestyle in addition to the standard offerings, an array of better options is present.

Expanding organically instead of through acquisitions. I think the strategy of purchasing other companies was a complete failure. Instead, I believe the expansion of new products such as the McCafe coffee line is a sound, proven approach for McDonalds. It was started slowly and then, after initial testing proved favorable, it was expanded more broadly. This embodies the means McDonalds has used for decades in analyzing and deploying new products. Using the proven test market approach using beginning in geographic testing regions such as Evansville, IN has served them well in the past.

Neu 8 Works Cited Hill, Charles. Cases in Strategic Management: An Integrated Approach. 9th Edition. 30 March 2010.

Neu 9 APPENDIX: SWOT Analysis. Strengths (internal):

1. Simple menu (early strength). 2. Consistency food taste suppliers and food preparation (McDonalds Operation Manual i.e., toss out food after 10 minutes). 3. Full-time field auditors to ensure franchisee adherence. 4. Decentralized decision making model Turners approach to giving more power to franchise owners resulted in nearly doubled sales and McDonalds heavy growth in U.S.

Weaknesses (internal):
1. Bureaucracy which stifled innovation (Pittsburgh restaurant Big Mac idea of which much Corporate red tape existed). decision under

2. Leadership Greensburg.

3. Expanding globally while ignoring the North American market. 4. Expanding outlets too close to each other cannibalism. NOTE:
Locally, this existed in Evansville for years: Eastland Mall adjoining clothing stores & Eastland Place.

Opportunities (environmental/external):
1. Acquisitions of food services which could have resulted in new markets Aroma Caf and Boston Market. 2. More healthy menu there appears a strong current for this (more than just salads). 3.

Threats (environmental):
1. Criticism throughout existence alleged as responsible for obsess Americans for which motion pictures have been made; McDonalds is targeted. 2. Unionization threats (later threat) 3. Lost market share (later threat)