How Skinner Flipped McDonalds - Case Study Example

Student’s Name Introduction All businesses ought to adopt strategies regardless of the services or products offered. Through strategic operations, companies are able to incorporate new and efficient means of running their businesses. These returns result in increased profits or sales, greater levels of customer loyalty and a stable market position. As a result, certain business strategies are been developed and applied in the fast foods industry in order to achieve similar effects in order to achieve similar effects. This report analyzes the impact of certain business strategies on an actual business. The prime goal of this report is to determine the business strategy of McDonald’s, a leading fast foods restaurant, and how it has successfully sustained its competitive advantage in the global market. In addition, the report also discusses the problems that have been encountered by the company such as been considered as a company offering unhealthy foods (Gray & Adamy, 2005). Despite the problems, McDonald’s has still evolved to be a success in the British fast foods market. Company Overview McDonald’s was put to the spotlight by Ray Kroc. Its rich history dates back to 1954. Over the years, marketing ideas and strategies have been continually poured in and have made the company one of the most successful fast food brands globally. Its initial trademark design came with a happy clown character called Ronald MacDonald (McDonald, 2008). The mascot was one of the company’s most successful advertising projects. Among the company’s most innovative products are the Egg Muffin and the Big Mac. The company has also developed the happy meal approach which is aimed at enticing children to eat at the restaurant due to the toys they can get. The restaurant offers a sustainably uniform menu that is common in usual fast food restaurants. The menu contains hamburgers, chicken sandwiches, cheeseburgers, milkshakes, French fries, salads and desserts. McDonald’s also offers other innovative products which have turned out to be its top sellers, such as the Quarter Pounder with Cheese and the Filet-O-Fish (McDonald’s, 2008). The company recently added a number of nutritional products such as Salads Plus products. Uniformity continues in restaurants operating in UK, US and other international markets open during breakfast hours and offering a full or limited breakfast menu. McDonald’s also tests new and innovative products on an ongoing basis and sells a wide range of products in limited time promotions. The main target customers of McDonald’s restaurants are the children and the young people. McDonald’s has also ventured in the children’s wear market with the McKids wear products that consist of toys, footwear, videos and casual clothes (McDonald’s, 2008). The company is also undertaking measures to redefine its image due to the increased concerns regarding the obesity levels of amongst its consumers. McDonald’s Strategies This section identifies the strategies put in place by each CEO of McDonald’s during his period. Ray Kroc (1955-1973) Uniformity Ray Kroc opened the first McDonald’s restaurant in 1955, in Des Plaines, Illinois. Under his leadership, McDonald’s grew from 14 to 38 restaurants in 1958. In 1959, the restaurants grew to 100 and by 1968, they had grown to 1000. McDonald’s went public in 1965 and in 1985; it joined 30 other companies which made up the Dow Jones Industrial Average (McDonald’s, 2008). According to Kroc’s Sales background, his main successful franchise was uniformity. In the 1950’s uniformity was a radical concept in the dynamic food industry. During this time, franchisers paid little attention to setting quality standards, training franchises and supervising purchasing. However, Kroc sought to develop the operating standards, train licensees in order to meet them and ensured that franchisees followed these standards by monitoring the restaurants. Fred Turner (1973–1987) Management Science Ray Kroc hired Fred Turner to manage one of his restaurants one year after the first restaurant was opened in Illinois. Turner laid the foundation of a successful franchise system that has lasted into the 21st century. After joining McDonald’s, Turner drafted a training manual that, 2 years later, was expended from 15 to 75 pages, and then to 360 pages by 1974 (McDonald’s, 2008). The manual converted the knowledge gained by the corporation of its franchises into a management science. The manual partly defined the restaurant’s operating techniques in minute details by instructing operators on how to carry out various tasks such as grilling hamburgers and preparing milk shakes. The manual also established quality control measures which were unknown in the food industry at that time. In addition, Turner’s manual showed operators how to prepare financial reports, work schedules and sales projections. This information was vital in helping franchisees track down inventories, detect quality problems, control costs and forecast demand. The operations manual was the major text used in classes at the McDonald’s training centre, set up under Turner’s supervision. The centre turned out over 150 graduates every year and offered several classes simultaneously. The classes were taught in three areas; food, equipment and management techniques. By 1983, the centre was the only institution in the fast foods industry that was accredited by the American Council of Education. After becoming president in 1968, Turner began decentralizing McDonald’s organizational structure. He began by increasing the number of regional offices from 5 in 1967 to 12 in 1975. McDonald’s growth decisions were narrowly tailored to suit local conditions and this resulted in rapid expansion. During his first 5 years as president, the restaurants’ annual sales almost doubled while the number of outlets almost tripled. Advertising In the early 1960s, McDonald’s launched the Ronald McDonald advertising project using a clown character (McDonald’s, 2008). The ad project was hugely successful especially in the children’s market and it gave the company a vital advantage over its competitors. Most of the company’s advertising budget fees were spent on promoting Ronald McDonald on TV and spending on its promotion increased precipitously. McDonald’s appeal to children remained powerful even long after Turner had stepped down. In 1992, McDonald’s had a market share of 33% and delivered 40% of the food sold to children less than seven years old. Michael Quinlan (1987–1998) He succeeded Fred Turner as president in 1982 and CEO in 1987. He was the first CEO of McDonald’s to hold a MBA degree. He extended McDonald’s chain reach to over 100 national markets (McDonald’s, 2008). Customer Service Quinlan launched this initiative which was aimed at ensuring that the employees at all levels undertook all the necessary measures to ensure that customers’ requests are satisfied. The company even conducted face – to – face orientation programs to all employees which were aimed at improving customer service. Employees were encouraged to solve any problems with the customers on the spot and those with exemplary customer care services were rewarded (Quinlan, 1991). Cost Cutting Quinlan also introduced this initiative whereby the restaurants’ construction costs were reduced by three means. These were: redesigning restaurant buildings, substituting expensive construction materials with cheaper alternatives and by use of more effective construction methods. This move reduced the company’s construction costs by 27% between 1990 and 1993. Through Quinlan’s initiative, the company also reduced its insurance costs and this resulted in cost savings of about 50 million dollars. Moreover, McDonald’s introduced the newly designed mini McDonald’s which occupied half the floor space of the normal restaurants but was capable of accommodating an equal sales volume. Its construction was 30 % cheaper than construction of full sized restaurants. The company also opened restaurants in petrol stations, hospitals and shopping malls. This helped in its expansion while at the same time lowered its operation cost (Quinlan, 1991). International expansion During Quinlan’s first five years as CEO, the company’s international sales almost tripled from $3 to 8.6 billion while its oversees shares grew from 27 to 40 %. In 1992, McDonald’s operated in over 65 countries with Japan leading the foreign markets with 865 outlets. The company later set up outlets in Russian and Chinese markets. Two years later, the first restaurant was opened in Beijing and it drew over 40,000 customers daily. Between 1994 and 1998, the restaurant opened 5800 new outlets abroad. This figure was even more than the total number of outlets for 5 of its largest competitors combined. This gave the company a significant and added advantage in the fast foods market. In Quinlan’s era, foreign sales were growing at a rate of 18.2% and the company even replaced Coca Cola as the world’s best recognized brand (McDonald’s, 2008). Jack Greenberg (1998-2003) After Quinlan stepped down in 1998, Greenberg was selected to lead the company (Zuber, 2000). He launched his strategy which was aimed at ‘recasting McDonald’s image from a stodgy consumer products company to a dynamic global brand’. Unlike Kroc, Greenberg hired executives from other firms. Secondly, he did not follow Kroc’s model of an unchanging menu but instead changed the menu. Thirdly, he sought growth through mergers violating Kroc’s rule of focusing on only the McDonald’s brand. New Menu Greenberg developed and implemented the new menu project in 1998 after been promoted to CEO. He also came up with a new food preparation system and a variety of new items to accommodate the preferences of customers (Zuber, 2000). Greenberg also implemented the ‘Made for You’ project which had been fully installed in 12, 500 restaurants by 2000. However, the cost of implementing this system was high and many franchisees were reluctant to covering this cost. Acquisitions McDonald’s made its first acquisition in 1998, purchasing the Chipotle Mexican Grill Chain. Greenberg then made several other acquisitions such as the Aroma Café and the Midwestern chain Donatos Pizza. In 2000, he completed his largest acquisition by buying the Boston Market. In addition, Greenberg bought a 33% stake in Pret A Manger (Zuber, 2000). In 2001, the public interest groups launched a worldwide campaign against the fast foods industry. This was due to the increased cases of child obesity. McDonald’s was the principal culprit and this greatly damaged the company’s reputation. Various other campaigns were later launched and they all had a negative effect on the company’s reputation. Under the leadership of Greenberg, McDonald’s financial performance remained a lackluster. The expanded new menus failed to increase sales, the global public attacks on the company’s image turned customers away and the new acquisitions produced unsatisfactory results. Greenberg’s new system was very labor intensive and resulted in an increased implementation and service cost. The decline of McDonald’s performance under Greenberg’s directive was evident across various key financial indices. This made Greenberg announce his resignation in December 2002 (Zuber, 2000). Jim Skinner (2004 to date) Skinner was appointed CEO by the McDonald’s board of directors in 2004. His initiatives involved investing in existing stores instead of adding new ones and improving the customer service levels that had greatly deteriorated during Greenberg’s last two years in office. Existing stores were redecorated and others remodeled. Internet access was also added at selected outlets. Skinner also extended the working hours while some stores, such as those in the US were open for 24 hours (Adamy, 2007). Diversification Skinner also diversified into premium coffee drinks. He began this by installing coffee bars at certain outlets, competing head to head with Starbucks Corporation. To respond to the nutritional critics, Skinner discontinued the super size menu and replaced it with healthier food choices. Fruit and milk were added as substitutes for sodas and French flies in kids’ meals while water and a pedometer was offered to adult customers (Gray & Adamy, 2005). In 2005, Skinner launched a balanced lifestyle and fitness program and focused its main strategy on exercising. The promotion of healthier food choices was later extended to Europe as well as in other international outlets. Skinner also led McDonald’s into shifting from beef to chicken products (Gray & Adamy, 2005). Nutritionists even recognized McDonald’s as more responsive to critics than its competitors. Skinner’s turnaround efforts led to a resounding success. McDonald’s posted its best financial results ever during Skinner’s first five years in charge of the company. Conclusion McDonald’s has successfully operated in the fast foods industry through using efficient strategies and quality standards that have enabled it to gain a competitive advantage. Its international market growth is evidence of how it has efficiently gained entry into other challenging markets like Britain. The company has been successful due to the value given to its customers. As a result, despite the various controversies that have targeted it, it has managed to adapt to the cultural needs of the people. References Adamy, J 2007. Boss Talk: How Skinner Flipped McDonald’s. Wall Street Journal, January, pp. 1-6. Gray, S & Adamy, J 2005. McDonald’s gets Healthier. Wall Street Journal, February, pp. 2-8. McDonald’s Corporation (2008). About McDonald’s History (online). Available at: Viewed October 9, 2012. Quinlan, M 1991. How does Service Drive the Service Company? Harvard Business Review, November, pp.141. Zuber, A 2000. Jack Greenberg: Bringing New Luster to golden Arches, National Restaurant News, January, pp. 23-32. Read More