A Successful Business of McDonalds Company - Case Study Example

Index Index………………………………...........................................................................,2 Introduction……………………………….................................................................3 History of McDonald’s………………………………................................................3 Leadership Within McDonald’s………………………………..................................4 Franchising as an Organizational Structure……………………………….................5 Motivational Strategies………………………………...............................................6 Market Ratios and the Future of the Company………………………………...........7 Communications and Improvements……………………………….........................9 Conclusion……………………………….................................................................10 McDonald’s: A Story of Successful Business Introduction The McDonald’s corporation has had a successful history, and the onset of the recession does not seem to be affecting the company. The corporation was begun by a committed and energetic entrepreneur who, until his death, led the corporation with principles that are adhered to in the creation of this franchised structured organization. By recognizing the impute of its operators and utilizing corporate sponsored activities, the employees remain engaged in their loyalty and focused on the mutual goals. The market has shown favorably for McDonald’s and exhibits a recession proof future. This fast food chain will survive, according to past records, consistent management, and investment in its employees and operators which has shown long term rewards in success. History of McDonald’s McDonald’s was begun because of a milkshake making machine. Ray Kroc sold milkshake makers and heard of a restaurant in California that was running eight of the machines at the same time, creating a quick response to its patron’s requests for the ice cream concoctions. Dick and Mac McDonald were running the machines in their McDonald’s restaurant, and when Kroc saw the efficiency of the system, he proposed that they open more stores, with the interest of selling the machines to those operations eight at a time. When they asked him who would want to open those stores, he suggested himself [McDonald’s, 2009]. When Ray met the brothers, he was 52 years old. He opened his store in Des Plaines Illinois, where that store still stands, but as a museum to McDonald’s history. Ronald McDonald was launched as the character face of McDonald’s which created a connection to children in their marketing. In 1965, McDonald’s took its stock public on the stock exchange, which sold at $2,250.00 per one hundred shares, which at this time would equal 74,360 shares, which would be worth $3.3 million dollars in the year 2006 [McDonald’s, 2009]. Leadership within McDonald’s Ray Kroc, the founder of McDonald’s said that “The quality of a leader is reflected in the standards they set for themselves”.[Leadership, 2006] McDonald’s has created a worldwide operation that has set standards within the industry of the fast food industry. McDonalds changed the way restaurant operation was viewed by people as they searched out food. According to the preface written by Paul D. Paganucci, Associate Dean and Professor of Business Administration at Dartmouth College, in the 1987 autobiography of Ray Kroc, Kroc organized a business that would revolutionize the industry, creating a mindset amongst consumers that the pace at which food was delivered should be faster, that food should be low priced, that the French fries should not be soggy, and that the restaurant should set a certain standard of cleanliness. According to Paganucci, the achievments of Ray Kroc set a standard for entrepreneurial effort and proved that the spirit of business was not beneath the creative efforts of the right person. The leadership style that has been adopted by McDonald’s is based on the original theories that Kroc opened his business under. According to John Baldoni in an article titled, Leadership Case Studies; A Salesman’s Leader, he lists nine guiding principles in leadership that Kroc used in developing his business. Vision - to see what could be; Conviction - to commit to the vision; Flexibility - never to lower standards, but to be open to new ideas (the Big Mac and the Egg McMuffin were ideas that came from operators); Cooperation - this was a big concept for Kroc; Enthusiasm - Kroc approached his business with a love for it; Toleration of dissent - he believed that diversification of opinion would create a stronger business; Mentoring - he believed in leaders passing their ideas to new people; Giving - Kroc created a foundation for his desire to give charitably; and his strongest belief was in having Optimism as the foundation of his business. He believed in what he was doing, so therefore he could sell others on his vision. Franchising as an Organizational Structure The franchising system is the model in which the company basis its expansion. According to Baldoni, Kroc believed that it was important that everyone involved within the organization feel that their needs were met. He believed that “everyone would profit or no one would” [Baldoni, 2008]. He made sure that his operators profited before the larger corporation. By ensuring that the operators would see their profits first, he built loyalty within the system. The idea that right is better than greed also infiltrated the philanthropic ideal that has been a part of the organization of the leadership as instilled by Kroc. According to Baldoni, “For leaders, giving helps create a culture where everyone in the organization becomes more outwardly focused in ways large and small that help benefit others. Kroc understood this principle and the organizations he built are a testament to it” [Baldoni, 2008]. As an owner of a McDonald’s restaurant, one is required to pay a monthly fee based upon the restaurant’s sales performance (currently a service fee of 4.0% of monthly sales, and monthly base rent or percentage rent that is a percentage of monthly sales) [Purchasing, 2008]. This would indicate that the basic principles that Kroc left the corporation under are still in place. The costs in running the business are based on the amount of sales done by the franchise. Under this type of fair method of participation, one can see why McDonald’s restaurants pop up on every corner and rarely disappear from the neighborhood. The other advantage to the ownership of this type of business is that it is considered recession proof because the prices of the food, combined with the enormity of the volume in which goods for the restaurants are purchased, providing deep discounts, ensures that when the economy is down, food will be purchased because of the low cost. Motivational Strategies The company has several motivational strategies that it uses for its operators and for its employees. As has already been mentioned, the company is very interested in the impute that comes from owners and operators of its restaurant franchises. As an example, the Big Mac was developed from a suggestion from an operator of a franchise named Jim Delligatti and was introduced throughout all of the restaurants in 1968. Delligati owned one of the earlier franchises and by the late 1960’s had a dozen stores in Pittsburgh [McDonald’s, 2009]. According to Susan Clark McBride, a senior director, system communications at McDonald’s Corp., in a speech for a forum on motivational strategies, that commitment surveys regarding employee and manager communication and interaction are distributed in order to create a better work environment. She says that ‘the strategic approach also focuses on internal audiences and Web-based communications to ensure that the company’s messages are aligned” [People]. As well, the use of programs that have a fun spin are used to engage employees and motivate them in their continued loyalty. Two programs that have been implemented in recent years revolved around the Olympics, and another around American Idol music talent contest. By using these fun programs, the employees can find interesting and fun ways in which to continue their participation in their employment. Market Ratios and the Future of the Company In looking at the market ratios for McDonald’s, the company appears to be a solid investment. Because of its low cost appeal, the company continues to thrive under recession conditions. The current P/E ratio for McDonald’s, retrieved on 31 January, 2009 (as all of these ratios were retrieved), is at 15.46. The PEG ratio is 1.55 with the EPS(ttm) standing at 3.77. The P/B ratio is at 4.95, and the short interest ratio is at 1.07. Currently the stock quoted at 58.02, which is down by .12. It is a good time to buy into McDonald’s, as it is currently sitting somewhat low. However, in looking at the figures, especially at the PEG ratio, one can see that it is a good investment. The stock is a bit overvalued at the moment, so it might be good to hold off just a bit, but it is a wise stock to be watching at this time. This stock, according to the EPS (ttm) has been profitable this year, and with a declining economy forcing choices on the American public that should result in lower spending habits, McDonald’s will continue to be successful and hold well in the coming months. [McDonald’s Corp, 31 January 2009)] In addition to these figures, growth was seen in the last year by the McDonald’s corporation. The EPS reflects an increase of 16% over the previous year and a return of 5.8 billion was made to shareholders through shares repurchased and divdends paid, which included a 33% increase in the quarterly cash dividend to $.50 per share in the fourth quarter, which adjusted the current annual dividend to $2.00 per share. According to the corporation, operating income increased by 8% in the U.S., by 23% in Europe, and by 33% across Asia/Pacific, the Middle East and Africa [McDonald‘s 26 January 2009]. In addition, there are plans for more stores to be opened in the coming year and it is projected that the company will remain solid despite the predicted economic recession. With these plans and predictions, and with the new marketing emphasis on healthier alternatives available, the corporation will continue to be successful in the coming year. Not only has McDonald’s done well in the United States, but it has created a solid worldwide market. According to What Recession? McDonald's Continues Its Global Growth, McDonald’s flourishes on a global level for a variety of reasons. McDonald’s is considered a novelty in some countries and it promotes interest. As well, the food is inexpensive and affordable in many countries. The branding has a considerable impact, both abroad and in the U.S. The final, and one of the more important factors is that the company places stores in well seated spots, focusing on tourist locations and busy market areas. The way in which McDonald’s has packaged convenience with smart and assured branding has made the franchise a leading fast food restaurant for many years, and it has no sign of slowing down. Communications and Improvements Currently, there is a system in place that provides free access to Company managers by Directors and management employees are free to make presentations at Board meeting so that the Board can have a clear picture of how the organization is conducting its business. Management is responsible for informing the Board of all information that is requested by the Board. The Chairman is responsible for the information that is released by the management and also in giving information about public comments that might be made by management, to the Board. A means of communcation is provided to shareholders and employees to communicate with the Board which is provided in the company annual proxy statement [Communications, 2009]. While the McDonald’s website is very interactive and provides a lot of information, it is definitely a tool that should be utilized to its deepest possible usage. Interactive communications between the public and the corporation would allow an even deeper field of developmental possibilities. However, McDonald’s is considered one of the most technologically developed companies and has received numerous awards as one of the best places to work. With a corporation that has taken an attitude of using the best, providing consistency, and listening to its associates, communications are well developed within this corporation. Conclusion Despite problems with concerns over the health of the food available in the restaurants, McDonald’s continues to be a presence in the financial world as it has maintained its position as a profitable investment. With a solid foundation in the market, it is a corporation to be considered when looking at stock purchases. As a corporation that is interested in philanthropy, environmental considerations, and putting what is right over what is profitable, McDonald’s holds a solid position as one of the better corporate entities. With the interest that it appears to take in its employees and in providing good benefits and competitive pay, the working foundation of the corporation has a dependable place of employment. Overall, the future looks bright for McDonald’s. Bibliography BALDONI, JOHN (27 October 2008). Leadership case studies; A salesman’s leader. “Business Leadership Advice” [Online] Available at http://www.businessle adershipadvice.com/ Communications. (2009). “McDonald’s Corporation”. [Online] Available at http://w ww.mcdonalds.com/corp/invest/gov/govprinciples/communications.html KROC, R., & ANDERSON, R. (1987). Grinding it out: the making of McDonald's. [New York], St. Martin's Paperbacks. Leadership Styles. (2006) “Coaching-Business-to-Success.com”. [Online] Available at http://www.coaching-businesses-to-success.com/leadership_styles.html McDonald’s Corp. (31 January 2009). “Updown: Beat the Market, Earn Real Money, No Risk”. [Online]. Available at http://www.updown.com/MCD The McDonald’s History. (2009). “McDonald’s Corporation”. [Online] Available at http://www.mcdonalds.com/corp/about/mcd_history_pg1/mcd_history_pg5.html McDonald’s Press Release. (26 January 2009). “McDonald’s Corporation”. [Online] Available at http://www.mcdonalds.com/corp/news/fnpr/2009/fpr_012609.html People Performance Takes Center Stage. “Motivation Strategies: Business solutions that engage people”. [Online]. Available at http://www.motivationstrategies.c om/People_Performance_Takes_Center_Stage.691.0.html Purchasing your franchise. (2008). “McDonald’s Corporation”. [Online] Available at http://www.mcdonalds.com/corp/franchise/purchasingYourFranchise.html What Recession? McDonald's Continues Its Global Growth. (28 January 2009). “Seeking Alpha” [Online]. Available at http://seekingalpha.com/article/116480- what-recession-mcdonald-s-continues-its-global-growth?source=feed Read More