Managing in the Global Economy: McDonalds - Research Paper Example

Managing in the Global Economy: McDonald’s INTRODUCTION Multinational companies must be aware of multiple dimensions in order to run a successful business model. In some countries, the economic or socio-cultural environment is radically different than in the home country, creating a need for new human resources policies or a stronger focus on promotion in order to gain trust from the local labor pool and build marketing awareness. The key skills and characteristics needed for a global firm to survive and build profitability are awareness of labor needs, a focused human resources management strategy, and an organizational structure that supports local or international needs. All of these characteristics are a part of the leadership model for McDonald’s, the multinational fast food company, that currently operates in over 100 countries worldwide. KEY SKILLS REQUIRED FOR GLOBAL OPERATIONS Businesses operating in multinational environments must consider the impact of the externalities that have potential to impact success in meeting profit goals. As part of an environmental analysis, the key assessment includes knowledge of local labor market needs and the impact of employment levels on recruitment goals. For example, the domestic country might have a strong economy and GDP that supports higher consumer income levels, however the foreign base of operations could be operating in a recessionary environment with considerably high unemployment rates. In the European markets, where McDonald’s has considerable brand presence, the global financial crisis has led to large increases in unemployment (Gennard, 451). For large multinationals with specialized job roles, unemployment increases represent a risk as it can increase recruitment costs in an effort to screen employees when the labor pool grows as the unemployed compete for quality work. Multi-national companies, such as McDonald’s, must maintain cost awareness in terms of hiring and training especially when local economic problems create negative issues related to human resources policies. There is also the need for businesses to ensure they are compliant with local regulations that often differ from home country operations. Most multinational companies have a definite need for accurate and timely financial reporting as they earn additional capital through shareholder confidence and investment. In India, a country where McDonald’s currently has operations, there is not currently acceptance of commonly-accepted and standardized financial reporting standards (Haribhakti, 273). This is just one example, however the regulatory environment provides certain demands related to finance and financial reporting that differs in each country of operations. Companies like McDonald’s must have management that is versed in localized financial mandates and ensure that the business is staffed appropriately to handle differences in accounting performance from the home country. This can sometimes impose higher costs in payroll. Globalization also puts pressure on human resource development policies and determines the local standards used when working with diverse employees. It is recognized that cultural sensitivity, innovation and knowledge of local employment practices are necessary to sustain a meaningful human resources model (Friedman, 158). McDonald’s is operating in environments across the world where social, spiritual, and cultural practices are significantly different than in the United States. The company has operations in Asia, Europe and Australia, therefore maintaining knowledge of these sociological trends are necessary to achieve profit and connect with local customers and employees. There are what is referred to as cultural dimensions that categorize the local labor markets across the world. In individualistic societies, people tend to look out for their own needs and believe that their own personal goals and ambitions supersede group needs (Blodgett, Bakir & Rose, 339). These are commonly-held cultural traits in countries such as the United States and throughout most of Europe. Individualists, when working in a multinational company, would demand to be rewarded based on their own accomplishments rather than through a team-working methodology. On the opposite spectrum, there are collectivists, who are those in society who value group welfare and tend to view themselves as being part of an extended family when working in organizations (Blodgett et al, 339). McDonald’s would need to understand the cultural dimensions of local cultures in order to build an effective retention model and establish the proper system of rewards. In the U.S., McDonald’s rewards based on individual performance and sets no ceiling by which the individual can achieve management or senior level growth. However, in China (as one example), collectivist values may promote a more team-focused reward system and have a need to put HR policies in place that adapt to group values and loyalty. In different cultures there are also cultural differences that determine how to structure the local business operations, even if it differs from home country standards. There is an element of culture referred to as uncertainty avoidance, which is the level to which an individual or group is willing to accept risk in lifestyle, profession or in generic decision-making. Belgium is a country where McDonald’s has presence and it is very high on the uncertainty avoidance index (Donnison, 17). In this type of environment, employees and various external business partners will demand detailed plans that carry contingencies (Donnison, 17). McDonald’s or any other multinational organization would need to recognize uncertainty avoidance levels in the local market and adapt their strategic focus or partnering philosophies to recognize these traits. Employees in Belgium would be more responsive to structured control systems that give their professional lives focus and direction. However, in the United Kingdom, uncertainty avoidance indices are low and a more liberal, autonomous organizational structure would be preferred at the cultural level. A key skill in managing in the global environment is to conduct research and environmental analyses regarding cultural characteristics to avoid misconceptions or a poor labor relations model. Cultural characteristics also include what is referred to as power distance, or the level to which management and subordinates inter-connect their professional or personal lives. In some countries, such as Spain, it is uncommon for inter-mingling between senior management and the employee population as this country believes in the importance of status through social class. “High power distance raises the importance of the symbolic value of tasks and correspondent covert processes of self-leadership” (Alves, Lovelace, Manz & Matsypura, 338). What this essentially means is that high power distance cultures place significant value on cultural status symbols and it drives the heart of self-leadership versus ongoing team methodology in a decentralized organizational structure. McDonald’s would need to understand these practical cultural values and then decide whether to centralize decision-making or decentralize to give employees more visibility and control in day-to-day operations. It is a key skill to understand how to properly structure the organization and its leadership hierarchy to avoid conflict that can arise when high power distance cultures are forced to work regularly with lower-level employees. “Leaders aspiring to be effective in multicultural environments must develop an awareness of the different dimensions of culture that will be central to their customers” (Shribert & Kumari, 20). Businesses in the global environment must also understand the practical regulatory environment as it relates to labor and employment. In Spain, employment is much more regulated than in other developed countries and labor inspections are common (strongabogados.com, 1). It can be very costly to fire an employee in this country if certain rules have not been followed. McDonald’s has very strong and pre-established presence in Western countries that have driven their knowledge of employment policies for decades. When entering new markets, such as Spain in the highly controlled labor market, McDonald’s must redevelop its HR policies accordingly and maintain ongoing awareness of local laws as they develop. It is a key skill for business success to understand what drives regulatory compliance in relation to labor and have a management team with a relationship-management focus that can work successfully with government-sponsored regulatory inspectors and committees. DEVELOPMENT OF STRATEGY AND STRUCTURE Strategic leadership is a major consideration when operating in the global environment, as long-term policies and procedures must be developed that will ensure success in diverse market environments. Effective strategic leadership consists of determining vision or mission, exploiting core competencies, sustaining a positive organizational culture, developing human capital and establishing a control system (Phipps & Burbach, 139). The key attribute in strategic intention is the linkage between organizational culture, human capital, and the control systems needed to ensure productivity and job role performance. Many multinational companies realize this linkage and develop different appraisal or performance management systems that provide reward when employees have reached milestone accomplishments or excel in their job roles. A common control tool for this purpose is the 360 degree feedback system that takes into consideration the opinion of managers, customers and co-workers to determine whether an employee is high- or low-performing. Strategic leadership must come up with an adequate control system that satisfies the profit expectations as well as employees so that they are motivated to meet productivity guidelines set out by senior-level strategists. Developing a positive organizational culture, as part of strategy, also involves how the business is structured in terms of management and leadership. As already identified, decentralized businesses give employees more empowerment. In this structure, decisions are made faster and employees view more procedural fairness through this system (Carpenter, Bauer & Erdogan, 1). However, there is sometimes a need to centralize decision-making especially when local culture or language barriers (as only two examples) prevent autonomous and decentralized organizational culture. Businesses must set up the management structure in a way that provides the most value long-term. Decentralizing an organization simply to satisfy employee needs could lead to poor judgment in routine decision-making and impact strategy when customer needs are not fulfilled due to lack of control systems. McDonald’s must understand the practical realities of organizational structure as part of localized strategies to ensure maximum performance based on employee competency and the needs of the external customer markets. WHAT MAKES MCDONALD’S UNIQUE One of the key leadership concepts at McDonald’s involves it focus on diversity, providing equal opportunities and promoting a strong diversity education for employees through training and business network development (aboutmcdonalds.com, 1). This is a driving force in its Western human resources model that has carried forward into areas of direct foreign investment and achieved tremendous results. Diversity, at the practical business level, means recognizing human and social differences and creating a culture of inclusion so that foreign and domestic business managers and leaders can work together effectively without conflict or miscommunication. Diversity training at McDonald’s includes understanding of cultural differences as well as the improvement of communications internally and externally with business partners and employees. It is a key characteristic that makes the multinational McDonald’s business model succeed and lays the foundation for labor practices across the globe. McDonald’s has also been reliant in most markets on its promotional abilities in areas of marketing. In the U.S., promotion is constant and includes direct mailing literature, television, and radio advertising. McDonald’s has used this promotional expertise to create new relationships with the labor pool in Europe. Using the Internet as a tool, McDonald’s launched a European ad campaign that promoted the flexible working hours, health benefits and promotion possibilities in its recruitment campaign. The goal was to eliminate the growing misconception of what is referred to as the European McJob (aboutmcdonalds.com, 1). Outside of traditional advertising and promotional offers in marketing, McDonald’s uses employment marketing to help in the screening process, thus saving costs in the human resources budget. McDonald’s works in an international environment where low-level service jobs are often considered to be non-competitive with other service industries. However, McDonald’s removes the ceiling and gives every employee opportunities to grow in the company, thus it is using marketing to promote McDonald’s as a career position rather than just the McJob. This is a psychological tactic, along with an effective recruitment model, that assists in gaining committed employees and those with a long-term focus to avoid costs associated with high turnover and training of new employees. It is a key skill, marketing, to be successful in diverse multinational environments. McDonald’s marketing, especially promotion, is worthy of benchmarking by other organizations across the world. The company has been so successful with its marketing mix, which includes focusing on product, service, quality and pricing, to establish a name and image that is recognized by consumers across the world just by sight. In fact, results of a survey indicated that 100% of all five-year-olds involved in a study recalled the brand name of McDonald’s simply by looking at the corporate logo (Valkenburg, 29). This is something that many companies in foods services and retail have not been able to accomplish. McDonald’s does this by providing quality promotions and catering local menus to the needs of diverse demographics. In Europe, McDonald’s also spends more on operational improvements than in other developed countries since the demand for innovation is higher at the consumer level. In 2009, McDonald’s upgraded restaurants to include new McCafes and improve ambiance (www1.mcdonalds.com, 23). Even though these represent costs for renovation and modernization, McDonald’s recognized that its sales success was dependent on positive customer sentiment and it was therefore necessary to change the restaurant concept and image to a more contemporary one to fit buyer needs. McDonald’s has a flexible operational model, as a key characteristic, that makes it highly competitive in saturated markets with much fast food competition. By diversifying menu and remaining innovative and fresh, it outperforms most other multinational foods service restaurants globally. CONCLUSION It has been determined that the key skills for managing in the global economy are an advanced focus on improvement in human resources competencies and policies along with understanding what drives local and international cultural preferences. McDonald’s, just as much as any other multinational, must maintain knowledge of socio-cultural issues that could impact areas of recruitment and retention. It is necessary to identify with local needs and adapt operational policy and service policy to fit these demands, at least as much as is allowable by budget and regulatory powers in the local region. The key is to remain focused on building a meaningful long-term strategy that improves profit by satisfying internal employees as well as customers in diverse market environments. A multinational business must remain flexible, especially one like McDonald’s that is reliant on positive consumer perceptions of quality and service. In highly competitive markets, marketing and promotion are significant contributors to whether or not the business is successful in meeting its profitability goals. At the same time, there is a definite need for diversity not only in employment and organizational culture, but in the product provisions offered to customers in multicultural sales environments. In the case of McDonald’s, the business has been successful by decentralizing decision-making and giving employees more autonomy and visibility as valued members of the company culture. In order to survive and compete in difficult markets, McDonald’s relies mostly on well-developed human capital and human resources as the primary success factors. It is these factors that have made the business so well-known internationally. WORKS CITED Aboutmcdonalds.com. “Diversity at McDonalds – A culture of inclusion and diversity”. Viewed November 26, 2010 at http://www.aboutmcdonalds.com/mcd/students/mcdonalds_does_good/diversity_at_mcdonalds.html Aboutmcdonalds.com. “Updating a Definition – McDonald’s UK redefines the McJob”. Viewed November 25, 2010 at http://www.aboutmcdonalds.com/mcd/students/amazing_stories/mcjob.html. Alves, J., Lovelance, K., Manz, C. & Matsypura, D. “A cross-cultural perspective of self-leadership”, Journal of Managerial Psychology. Vol. 21, Iss. 4 (2006). Blodgett, J., Bakir, A. & Rose, G. “A Test of the Validity of Hofstede’s Cultural Framework”, The Journal of Consumer Marketing. Vol. 25, Iss. 6 (2008). 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Strongabogados.com. “Payroll and Hiring Employees in Spain”, Strong Abogados – Business and legal solutions in Spain. Viewed November 25, 2010 at http://www.strongabogados.com/employees.php Valkenburg, Patti M. Children’s Responses to the Screen: A Media Psychological Approach. LEA Communication Series. Mahwah: NJ Lawrence Erlbaum Associates Inc (2004). www1.mcdonalds.com. “McDonald’s Annual Report” (2008). Viewed November 24, 2010 at http://www1.mcdonalds.com/annualreport/pdfs/full2008annualreport.pdf Read More