The History of McDonald's - Research Paper Example

MCDONALD’S Corp Contents Introduction 3 1 History Development and Growth 3 2 Strategic analysis 5 2 Mission, vision and values 5 2.2 SWOT Analysis 6 2.3 Porter’s five force model 7 2.4 Organisational structure 10 2.5 Span of control 11 2.6 Franchising and subsidiary 11 2.7 Change in company’s strategy 12 3 Conclusion and recommendation 12 Reference 13 16 1 Introduction The present era of globalization has rendered a situation in which business organizations are essentially trying out new business strategies to create efficiencies in their business and create a competitive advantage. The present report would analyse the business strategies of McDonald’s and suggest a set of plausible recommendations for the organization to maintain sustainability. 1.1 History Development and Growth McDonalds is one of the most renowned brands of the world with the brand being ranked as 10th in the list of most admired brands and the best in its product and service category in the Fortune’s list of top 100 most admired brands (CNN Money, 2011). McDonalds was established in the year 1955 by Ray Croc in USA as a retailer of snack foods like burgers. The company since then has grown by leaps and bounds with the company presently having its dedicated presence in about 118 diverse nations across the globe and an attractive product offering that includes famous products like Big Mac, Mc Nuggets, Quarter Pounders etc. McDonalds has about 33000 restaurants across the globe that provides the best experience at largely affordable price to the customers. McDonalds serves its customers through a dedicated employee base of over 1.7 million active employees who are determined to provide the best experience to the customers with a touch of excellence to satisfy the needs of the customers (McDonalds, 2011). The mission statement of the company is “be our customers favourite place and way to eat”. The company believes in creating a marketing mix that is essentially in line with the mission statement of the organization. McDonalds prepares a menu that is in tune with the market demands in an innovative manner that tends to satisfy the demands of the target market audience (McDonalds-b, 2011). The history of McDonalds began in the year 190 when the founder of the organization opened up a Bar-B-Que restaurant in California. This was essentially a drive in restaurants that provided snack items for individuals on the drive. However after a few years this restaurant was closed off an official McDonald’s restaurant brand was launched in 1955. The restaurant met with good success and eventually sold 100 million burgers by the end of the third year into the business. By the year 1963 there were about 500 restaurants operating under the McDonalds brand name. Subsequently the company went public in the year 1965 with IPO of 22.5 US dollars as the price of a share. After three years the company went about to launch the product Big Mac that is one of the most popular burgers made by the company. The year 1981 marked the entry of the company in the international markets with the company making a foray in Spain, Denmark and Philippines. The company regularly launches new innovative products in its category to attract and retain customers (McDonalds-a, 2011). The business strategy of McDonalds involves a franchisee system under which the company expands through a network of franchisees located across the globe. These franchisees sell products under the banner of McDonalds. The franchisee model of the company is essentially in line with the firm’s strategy of thinking globally and acting locally. The franchisee is essentially a local partner and has considerable knowledge about the local market and consumer behaviour. This helps the company to add local tastes and flavours in the products as well as in the branding and marketing communications strategy. Under its franchising strategy McDonalds invests in aspects like real estate and the local partner is involved in store maintenance. In return the franchisee provides a fee to the company for using its brand name as a percentage of the total sales. It also offers rewarding and motivating career opportunities to its employees that ensure motivation of the employees as the company largely recognises the fact that employees are the most valuable assets of any organization and the success of the company largely depends upon the efficacy and motivation levels of the employees in the organization. McDonalds has different welfare packages for its employees that helps in ensuring job satisfaction and motivation among the workforce and also enables it to draw the best talents from the market to meet the highly demanding needs of the market. McDonalds apart from pursuing effective business strategies also ensures its fulfilments to the society at large. In this regard the company has a different corporate social responsibility strategy that tries to address the needs of the society at large and fulfil its commitments to the general society at large. 2 Strategic analysis 2.1 Mission, vision and values Every company has a vision and mission statement. All the strategic action taken by the management are focused on the achievement of the vision and mission statements. Therefore to analyse the strategies taken by the management of McDonalds it is very important to identify the mission and vision of the company. Vision can be described as the picture of the future of the organisation that is what the company want to be in future (Kazmi, 2008, p.35). Mission on the hand signifies the reason for the organisation’s existence. It describes the purpose of the organisation, the work in which it is involved and the customers it has to serve. It other words mission statement shows that how the vision can be achieved (Kazmi, 2008, p.37). Vision: The vision of McDonald is to provide the best restaurant experience to its customers and to be a customer driven organisation (McDonald’s Restaurants Limited, 2007, p.5). Mission: The mission of McDonalds is to satisfy the customers and to become the most favourite eatery of the customers in form of service, quality food and taste (McDonald’s-c, 2011). Values: The value of the company is to ensure sustainable development and protecting the environment and animals (McDonald’s-d, 2011). . 2.2 SWOT Analysis Strategic analysis cannot be completed with the absence of the knowledge of the internal and the external factors affecting or which may affect the organisation. The internal factors are analysed with the help of the strength and weakness of the organisation and the external factors are assessed through the analysis of the opportunities and the threats the company is facing or might face in the future. In this regard the SWOT analysis has been done to analyse those internal and external factors. SWOT is an acronym of Strength, Weakness, Opportunities and Threats. The following is the SWOT analysis of McDonald’s:- Strength: McDonald’s is a company which has global presence all over the world. McDonald’s has a large number of food chain all over the globe. Through franchising it has extended its reach to vast market area. Apart from United States it operates in one hundred and eighteen countries all over the world (McDonald’s-f, 2011). The strong network and market reach is one of the major strength of McDonald’s. The strategy of think global and act local is also one of the major strength of McDonald’s. Like in India McDonald’s operates through the joint venture with two Indian business men and offers food items as per the taste and preference of the local people (McDonald’s India, 2010). In short the strength of McDonald can be described as its large network and global presence, brand name and the marketing strategies. Weakness: The major weakness of McDonald’s is its product itself. The products of McDonald’s are considered as junk foods which are considered as unhealthy food option for every person. Junk food are considered to have no or minimal nutritional value. Opportunities: People are continuously shifting from junk food to more nutritional food items. Therefore there is a vast opportunity to expand its menu into nutritional fast food items. By doing this the company will also be able to change its image from junk food provider to nutritional fast food provider (Deng, 2009, p.38). More over as per the case study the success of In And Out burger food chain proves that there is a need of fast food among the consumers. Threats: The biggest threat that the company is facing is the change in taste of the customers. More and more customers are switching over to other food item because of change in taste. More over many people are switching over to healthier food over fast food items. The US government is also seeking a ban on the junk food items (Reuters, 2010). 2.3 Porter’s five force model Porter’s five force model is generally used to analyse and assess the competitive advantage of the company. The analysis of the competitive factors helps the company to identify and assess the present and future opportunities of the company as well as the threats of the company. Porters five force model helps to identify the competitive sources and also helps in assessing them. This model comprises of five competitive forces they are bargaining power of the buyers or the customers, bargaining power of the suppliers, intensity and the extent of rivalry among the companies operating in that particular sector, the threat of being substitute by the products of the other company and the threats of new entrants in the industry. The customers or the buyers are the ultimate consumers of the products. Therefore analysis of their behaviour is very important. Bargaining power of the buyers signifies the negotiating power of the buyers in lowering the price of the product charged by the company. It is considered as a potential threat as the lowering of the prices will result in lower profits. Therefore the lesser is the bargaining power of the customer the better is the company. The bargaining power of the suppliers signifies how much the company could negotiate with the suppliers in lowering the prices of the products. The more the bargaining powers of the suppliers the lesser will be the cost of production which will in turn increase the profits. The threat of substitutes is a major threat which the company may faces with the change in the market conditions and new entrants. If the company’s products are replaced by the products of the other company then the company will loose its market share. With the entry of new companies in the industry the competition will increase (Jones and Hills, 2009, p.42). Figure 1: Porter’s five force model (Source: Recklies, 2001, p.2) In this section the competitive sources of McDonald’s have been analysed with the help of Porter’s five force model. Bargaining power of the customers: The restaurant sector is a very competitive sector. There are number of companies operating in the eatery sector like star bucks, Cosi, Quisno etc. Therefore the customers have a number of options of eatery. As the buyers have a number of choices therefore the bargaining power of the customers is greater in this sector. Bargaining power of the suppliers: The firms operating in the restaurant sector has to be very conscious about the quality of the product they are buying for their use in the products. Therefore they have to settle for the best in terms of suppliers of materials and can’t afford o negotiate with the suppliers in terms of lowering of the prices. Threats of new entrants in the market: the fast food sector and the restaurant sector is a very attractive sector in terms of revenue earned and investments made in this sector. The success of big food chains like the McDonald’s, Star bucks etc has also attracted many companies to enter into the field of restaurant and eatery. Threats of substitutes: McDonald’s operates in the felid of eatery and restaurant. The products offered by the restaurants can be easily substituted by the products of the other firms. Rivalry among the competitors: As discussed earlier that the restaurant sector is a very competitive sector. In order to gain competitive advantage over other firms the rival companies many times follow different strategies. 2.4 Organisational structure Organisational structures define the allocation of task, coordination of the different activities of the organisation, level of supervision and process or the flow of the activities. The organisational structures lay down the chain of command in the organisation. It specifies that who will make the decisions and the flow of the decision making and implementation of the same within the organisation. The organisational structures specify authority distribution that is which personnel is authorised to do which work. It specifies the different functions that the company performs and also the various departments involved in the operation of the company. Therefore the organisational structure can be defined as the structure which defines the allocation of the various tasks to be performed by the company, the groups in which they are divided and the coordination between them. Is specifies the work specialisation, chain of command, departmentalisation etc (Robbins, Judge and Sanghi, 2010, p.228). The organisational structure of McDonalds is that of the functional organisational structure. This means that the task allocation of the organisation has been done on the basis of the different functions of the organisations. The main control is centralised and the different activity of the organisation is divided as per the functions of the organisations. 2.5 Span of control The span of control defines the authority responsibility relationship in the organisation. A well defined span of control helps the employees to have an idea to whom they have to report. A well defined span of control also helps the organisation to avoid any type of confusion in term of reporting or delegation of authority within the organisation. The span of control simply defines as how many persons are reporting to particular personnel. The span of control is formed keeping in view the task specification, the nature and the extent of coordination, the similarity of the task, the need of authority and the extent of the involvement of the manager or the supervisor in a particular task (Griffen and Moorhead, 2010, p.447). 2.6 Franchising and subsidiary Franchising can be defined as the marketing system which is based on a legal agreement according to which the franchisee the franchisee does the business as per the terms and conditions laid down by the franchisor. The franchisor is the person lays down the rules and the regulations as per which the other person in the agreement has to perform the business activities. The other person is the franchisee (Longenecker, et al, 2009, p.94). McDonalds has a vast geographical presence all over the world. The outlets of McDonalds’ can be found almost in every corner of the globe. McDonalds mostly operates through franchising and subsidiary. Many times McDonald’s has been listed among the top 10 franchisee by the entrepreneur magazine. McDonalds has also being listed among the top 50 franchisee for the minority by the US Today (McDonald’s-e, 2011). McDonalds through its franchisee system provided a large number of jobs to the society. The franchising system of McDonalds also has received a number of accolades for its work but of late the relation of the McDonald’s with its franchisee are not the same like it was before. To uplift and restructure the organisation many franchisees have to be bought back by the company who were not performing well. As per the case study the franchisee were also worried of the growth of their business as the customers were now switching over to the more healthier and fresh food. More over the management of McDonalds tried to get back the market share with price cutting which in turn resulted in lowering of Franchisor’s profit. 2.7 Change in company’s strategy The biggest change in the company’s strategy is its pricing strategy. This strategy was adopted by the management in order to boost up it sales. The price discounting strategy is a marketing tool which is used by selling at a lower price than the actual price in order to stimulate the sales. The price discounts are governed by two factors; one is the quantity of products to be sold and the and second is to sell to those customers who can promote the sales (Horngren, et al, 2009, p.587). But, even after cutting the price of the product and practicing price discounting strategy the sales lowered and also the franchisees had to bear the brunt of low sales and lower price. The main reason for the decline in the sales was the quality of the product. But instead of improving the quality of the products McDonald’s lowered its prices as a result the sales instead of rising, reduced again (Tannenbaun and Selz, 1997). 3 Conclusion and recommendation McDonald’s is one of the biggest food chain around the world. When it started its operations there was a very little competition in the fast food chain or restaurant industry. As a result with the various innovations in terms of the type of products it grew a lot. In order to reach every corner of the world McDonald used the franchising system and joint venture so that it can make a hold in the foreign markets. With time it has build up a brand image in the restaurant industry. Slowly and steadily the consumers are shifting toward more healthy, fresh and nutritious diet. In many countries government are intervening to ban the junk food. This types of change in preference of food posses a big threat to not only McDonald’s but also other companies who are operating in the fast food sector. The organisational structure and the span of control helps the company to manages its operations efficiently and make it easy to detect the variances in the performance. The adoption of the price discounting strategy was neither beneficial to the company nor to the franchisee. To improve the relations with the franchisees the company should take initiative regarding granting of some more authority to the franchisees in operating the outlets. They should also be allowed to select the menu for their outlets as they will better know the popular dishes in the locality. More over McDonald’s can also provide training to its franchisees at free of cost regarding the customer service and other basics of the hospitality management. The company can also provide incentives in form of rewards for the best performing franchisee. In order to adapt with the change in the taste and food preference of the customers McDonald introduce innovative nutritious food items in its menu in order bring back as well as add on more health conscious customers. Reference CNN Money. (2011). World’s Most Admired Companies. Retrieved on September 22, 2011 from http://money.cnn.com/magazines/fortune/mostadmired/2011/snapshots/2262.html. Deng, T. (2009). McDonald’s New Communication Strategy on Changing Attitudes and Lifestyle. Retrieved on September 23, 2011. from http://www.ccsenet.org/journal/index.php/ijms/article/view/1645/1556. Griffen, R. W. and Moorhead, G. (2010). Organizational Behavior 10th ed. USA: Cengage Learning. Horngren, C. T. et al. (2009). Cost Accounting. 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