The General Policy of McDonalds - Case Study Example

?McDonald’s Case Study Answers to questions for chapters 10, 11, 12, 13 & 14 The General policy of McDonald’s as shown in its 2009 Annual Report is to elevate the company into an industry leadership status; focusing on enhancing long term profitable growth, giving constant attention to talent management and leadership development, and to continue to provide relevant offerings, and support balanced lifestyles. This policy is appropriate because it is measureable and has specificity. Its long term objectives are broken down into short term measurable targets that used product, price, promotions and place. For instance, in product, McDonald’s introduced new products and phased out old ones, and will continue to do so. This is in line with its strategy of product re-imaging. McDonald’s know that at some point in time, products have a life cycle. In terms of pricing, McDonald’s is careful on setting the price for its product, as they consider the customer’s perception of value. Their philosophy behind this is that when their food is priced too low, customers may think that low price is indicative of low quality. Promotions play an important role in the marketing strategy of McDonalds. Most commonly used are TV, billboards, and a mix of marketing tools to get people’s attention, be interested, desire for the food and finally to act and buy. As to place, McDonald’s can be found in almost all areas around the world, which are 32,748 as of 2009. Location is part of re-imaging policy of the company. The bonus compensation plan of McDonald’s is the share-based compensation plan that grants executives various equity-based incentives that includes stock options and restricted stock units (McDonald’s Annual Report 2009) One of the problems of stock options is the upside and downward risk of price of stocks. Stock options have vesting time so that when stock option vests, the executive exercises option whether to buy the stock or not. The executive does not own yet the stock until he exercises the option to purchase it. Stock options are better when the stock price is going up. In stock options, one has to commit to the purchase until the stock price reaches to a point where you wish to sell. In restricted stock units, executives already own the stock units and he can do anything with it. When the stock vests and the market price remain the same or lower, the restricted stock units becomes a better alternative. It is an appropriate compensation plan because it encourages executives to improve on their performance in order to achieve the strategic goals set by McDonald’s. As stock holders of the company, they become part owners of the company; they retain loyalty and services to McDonald which is the basic purpose of the executive compensation plan. When the strategic goals are attained, profitability of the company follows, that eventually increases the market price of shares stocks of the company. 2. McDonald’s wants to be the leader in the industry. In so doing, McDonald’s is using global strategy and a centralized organized structure in its operation. It has over 31,000 restaurants located in 120 countries. It has adopted a concentration strategy in order to achieve greater market penetration by becoming highly efficient at servicing its market with a limited product. It uses a repetitive focused strategy in serving its million customers. Typically, McDonald’s operates through restaurant franchises and has centralized food and packaging from the same approved vendors. This means that a McDonald’s restaurant will be the same in U.S, as in elsewhere around the world that maintain the standard menu and services. All decision making regarding menus and marketing practices are done at the corporate level in the U.S. It is a good fit because of the cost-savings measures realized thru economies of scale that allows McDonald’s to offer their products at lower prices. Furthermore, the global strategy allows the company to learn the lesson of diversity in the market that is applied to all their restaurants around the world (Scott, 2009). 3. A management control is imposed within the framework established by the strategy; and the most commonly used control measures are ROI, cost, product quality, to mention some. Purpose of strategic control is to aid managers in determining, based on strategy implementation, whether there is a need to alter basic direction. Management control used by McDonald’s is thru feedback, result of sales and budgets. Result of sales is a control measure used by McDonald’s in 2007 and 2007 when they realized its declining operating income. Because of this, McDonald’s has to review its strategies and has to alter is efforts to regain leadership in the market. Management realized there is a need to consider a change in strategy so that in 2009, it has focused in re-imaging the restaurant, its menu and products. Another case in point is the feedback control. Feedback of research studies in the mid-1900s showed that older people change taste buds. The feedback mechanism was manifested by the decline of McDonald’s share as its customer base aged. This led to a change of strategy by creating a new hamburger for adults, the “Arch Deluxe”(Scott & Scifres, n.d.) 4. The firm’s current incremental and continuous improvement led to a total improvement in McDonald’s operation. Its new approach of menu innovations and competitive advantage gave the company a comparable growth of 3.8% as compared to 2008 performance. Shareholders are happy with 9% earnings per share and a total of $16.6 billion cash returns to them (McDonald’s 2009 Annual report). Financial rewards shown in their report show its innovative measures are appropriately taken in the operations. Entrepreneurship is clearly present in McDonald’s operation as it is able to assist its franchisees in creating new products, processes, and services. It has created the new interest and demand for their products of consumers. As shown by the turn -around of the financial picture, the entrepreneurship spirit of McDonald’s enabled all of the stakeholders of the company to commit to the company’s goal to establish its leadership in the market. References McDonald’s 2009 Annual Report, viewed 10 March 2011 Scott, Herbert, Jan. 30, 2009. Market strategy and organizational structure: three companies, viewed 10 March 2011 Scott. Julian, D. & Scifres, Elton (n.d.). An interpretive perspective on the role of strategic control in triggering strategic change. Journal of Business Strategies Entrepreneur. Viewed 10 March 2011 http://www.entrepreneur.com/tradejournals/article/96125626_2.html Read More