How McDonald Company Capitalizes on Organization Theories - Case Study Example

MCDONALD COMPANY CAPITALIZES ON ORGANISATION THEORIES By Name Course Instructor Institution Location Date McDonald company capitalizes on the contingency and dynamic capability theories. Introduction The modern organizations operate in a more dynamic and competitive environment in comparison to the traditional organizations. Many organizations today have emulated global strategies as a result of severe expansion in their business scope as compared to old organizations that rarely crossed the borders of the parent countries. Otley (2016 pg. 40) agrees that the changes in geographical locations of organizations subsidiaries and the diverse staffing strategies, therefore, means a change in dominant practices that theoretically prevailed due to strong theoretical backing from scholars. Recently organizations according to Denrell& Powel (2016 pg. 35) have emulated new practices that give a competitive advantage to the ever-changing business environment. Traditional organizations entirely tied their practices and policies on theories that guided their operations as argued by McDonald & Vital (2016 pg. 67). Using the McDonald company as case organization, this paper will aim to show the changing nature of company's operations and related management issues using the contingency theory and the dynamic capability theory. Definition of the theories used. The organizational contingency theory claims that there is no best way to structure a corporation, lead the company and reach important decisions. Instead, the theory argues that the structure used by a company depends on certain situations that the company is facing the notion that is also agreed by Shirokova et al (2016 pg. 45). In the theory, the primary course of action is dependent on the external or internal scenarios. The contingent theory suggests that in certain circumstances the contingent leader i.e. the CEO has to derive his own way or leadership style to match the current situation (Gerdin & Linton 2016 pg. 50). The theory is majorly applicable in this company as a result of major decisions that have been employed by the management to secure high customer base and have a competitive edge to companies such as Starbucks and Chipotle companies that wage high competition in the food industry according to Shao et al (2016 pg. 48). The theory suits the case, McDonald company due to its present success in the food industry as a result of important strategies such as globalization and modern situational practices and policy formulation. On the other hand, Pisano (2016 pg. 90) affirms that the dynamic capability theory in the organizations is the capability and abilities of the company to strategically adapt the company’s resource base. The theory according Brodie et al (2016 pg. 52) analyzes the firm's ability to integrate, develop and establish both internal and external prowess to tackle the dynamic and rapid changing business environment. The theory suggests that the ability to react adequately to both internal and external changes needs integration of multiple options. The theory basically as postulated by Brodie et al (2016 pg. 32) assumes that a company's major competencies should be built on short-term competitive angles which later can be developed into a long-term competitive advantage. According to McDonald & Vital (2016 pg. 64) this theory is relevant to the case study as a result of its multinational nature and the global strategies it uses in practices such as remuneration and recruitment. Brief history of the case company McDonald is a beefing company with many subsidiaries in India, south Africa, and the US. The company was founded in 1940 as a barbecue restaurant and its operations were controlled by Richard and Maurice McDonald. The company's operations were reorganized as a hamburger stand in 1948. In 1955, the entrepreneur Ray Kroc purchased the chain from the McDonald brothers. Presently the company is headed by Andrew McKenna as the chairman and Steve Easterbrook as the president and CEO. McDonald company has a huge workforce worldwide which can be estimated to 380,000 permanent and casual employees and therefore a need to be well versed with the modern practices and policies. The product line for the company includes soft drinks, milkshakes, salads, coffee among others McDonald & Vital (2016 pg. 14). The company realized tremendous expansion in its operation in 2001 reaching many global markets in a market strategy to maximize profit by reaching a large customer base. The company has presently focused on the expansion of its outlets and in 2003 it expanded from 15 to 80 outlets. This prompted to the realization of huge profits approximately Rs 10 billion in the same year. The company has posted the highest achievement in terms of product delivery in the global market. It can, therefore, be argued that basing on this tremendous improvement, McDonald is presently one of the leading food companies in the world as argued by McDonald & Vital (2016 pg. 35). Description of how the chosen theories reveal insight into the organization practices. The contingency theory has been majorly employed by McDonald company management in reviewing and improving their remuneration strategies. The company had been in the limelight of controversy on the unfair pay to its employees. As discussed by Denrell& Powell (2016 pg. 40) the employees formed a class to sue the company because the company had realized an increase in the net income but had opted to pay its workers low wages. Basing on this contingent in July 2015 the company management decided to raise the pay of all its employees in all the subsidiaries and the headquarters to match with what the competitors paid its workers a strategy agreed on by Gerdin & Linton (2016 pg. 25). The company's remuneration strategy suits the two theories in that, the remuneration strategy is based on the situations in the market whereby the company's competitors such as Starbucks paid its employees comparatively higher than McDonald and this posed a risk of losing its competent employees to competitors and also looking at the dynamic capability theory it is be argued by Brodie et al (2016 pg. 23) that this is a short-term strategy that is geared towards long-term competitive advantage. McDonald company mostly uses the workforce from the host countries. The local strategy to recruitment has been tied to the situations prevailing in the host countries says Otley (2016 pg. 35). In south Africa, the employment laws regulate foreign companies from using expatriates but rather employ the local community in an attempt to gap unemployment. Shao et al (2016 pg. 14) agrees that such laws prevailing in the different business environment have been the major cornerstone in the formulation of employment policies by the company. Basing on this, I can argue that the contingency theory is used by the companies in the business markets. The policy on the short-term can also represent a dynamic capability theory because employing local workforce is a long-term strategy to getting a large customer base and acceptance in the local environment as recommended by Pisano et al (2016 pg. 112). The Fred Fiedler's contingency theory is also evident in the decision by McDonald company to globalize its operations as postulated by Hassano & Lowry (2016 pg. 65). Globalization of a company aids in reaching many customers across the borders. This can also represent the dynamic capability theory in that by going global the company would, later on, enjoy long-term profits. The competition in the parent country setting posed by food industries like chipotles and Starbucks meant that company capitalize on the situation and establish its subsidiaries in other countries where it will easily become the market leader. The company's need to embrace an international face in food products was aimed towards building a brand that is not easy to be copied by competing firms. It can also be connected to the large resource base as argued by the dynamic theorists. In different subsidiaries, the company applies different pricing strategies. The company uses a high pricing strategy in its headquarters in the US and a low pricing strategy in countries such as India and south African. The decisions on the prices of commodities majorly are contingent upon the country's economic and financial situations as discussed by Otley (2016 pg. 91). The US, with a stronger currency it's easy to apply the high pricing strategy whereas a low pricing strategy in India is relevant because of the weaker currency and the willingness of customers to purchase goods from cheaply selling entities. The decision by the company is hence a clear reflection of the theory of contingency. Critique of the theory of contingency and the dynamic capability theory. Both the theory of contingency and the dynamic capability theory places a heavy weight on the organization making entrepreneurial moves based on the internal and external circumstances, therefore, shadowing the role of strategic management in the attainment of organizations success as argued by Shao et al (2016 pg. 65). It can be argued that the theories purport that the management and leaders in the organization should wait until a serious problem emerges before making a strategic move like for the case unfair remuneration pleas by the McDonald company employees. The theory of contingency fails to explore options for the organization in the case a contingent managers or leaders move fails to suit the present situation in the business environment. Possible differences associated with the perceptions of theories by stakeholders. Although the move by the McDonald company to raise the salaries paid off, it was the right decisions in the eyes of stakeholders. The company had to strain its budget beyond the planned margins just to combat the situational issue. It can also be argued that the contingent pricing strategies by the customers i.e. low pricing strategy in India can perceive to be associated with the low-quality products. The strategy if well analyzed by competitors, they can manage to tarnish the company's products on the basis of low quality (Brodie et al (2016 pg. 43). Recommendations McDonald company should aim towards ensuring the highest level of product quality even in the regions where the company uses low pricing strategies. The low pricing strategy should not be accompanied by low quality because the competitors can use the approach to attain a competitive advantage by convincing consumers that the company products attracts low prices because of their low quality. The company should always review its remuneration strategy to reflect the current economic conditions in different regions. The company should not for the outcry of its employees before adjusting its pay scale. I can argue that contingent approach critical organizational issues will sometime cost the firm the most experienced and talented workforce who move to seek greener pastures elsewhere. I can also argue that the use local country recruitment strategy can be a dangerous strategy given that the expatriates would have been the best people to work in the company's subsidiaries since they are well versed with the company's objectives and goals hence the ease of implementing the strategies that opt to reach the company's core objectives. Conclusion The theory of contingency and the dynamic capability theory aids in the understanding how both the external and internal factors propel for change in the company as recommended by Hassana & Lowry (2016 pg. 44). In addition, the lens of contingency theory provides a critical understanding on how the management deals with the external forces such as competition by establishing of strategies to be able to scan and transform the companies in the competitive business market. The dynamic capability theory aims to present the firms with the external and internal prowess by formulation and implementation of strategies that give the company a competitive advantage. List of references Brodie, R.J., Benson-Rea, M. and Medlin, C.J., 2016. Branding as a dynamic capability: Strategic advantage from integrating meanings with identification. Marketing Theory, p.1470593116679871. Denrell, J. and Powell, T., 2016. Dynamic Capability as a Theory of Competitive Advantage: Contributions and Scope Conditions Gerdin, J. and Linton, G., 2016. Contingency fit (s) in entrepreneurship research: uses and usability. Hassana, G. and Lowry, P.B., 2016. Big Data Capability, Customer Agility, and Organization Performance: A Dynamic Capability Perspective. McDonald, J. and Vital, V., 2016. Pentacon Pty Ltd strives to create positive and constructive community interaction. The Company promotes strong ties with local bodies including indigenous groups, and encourages respect and support from communities. Pentacon strives to. policy. Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014. Management accounting research, 31, pp.45-62. Pisano, G.P., 2016. Towards a Prescriptive Theory of Dynamic Capabilities: Connecting Strategic Choice, Learning, and Competition. Shirokova, G., Bogatyreva, K., Beliaeva, T. and Puffer, S., 2016. Entrepreneurial orientation and firm performance in different environmental settings: Contingency and configurational approaches. Journal of Small Business and Enterprise Development, 23(3), pp.703-727. Shao, Z., Feng, Y. and Hu, Q., 2016. Effectiveness of top management support in enterprise systems success: a contingency perspective of fit between leadership style and system life-cycle. European Journal of Information Systems, 25(2), pp.131-153. Read More