Katherine Baez April Gasparri Elizabeth Tabachnik
MCDONALD’S AND ITS CRITICS: 1973-2009 STRATEGIC STRATEGIC ISSUES AND DISCUSSION QUESTIONS
1. What were were some of the key elements elements of of strategy strategy that Ray Kroc Kroc designed designed for for McDonald’s Corp.? Ray Kroc founded McDonald’s Corporation. In doing so, he put forth some of the McDonald brothers’ strongest competencies. He believed in the brother’s concept of a limited menu and easy food preparation. The end result was cutting the price of a hamburger from 30 cents to 15 cents. Kroc dipped into his service background and proved that the key to successful franchising was uniformity. Kroc sought to develop standards of operation, train licensees to meet them, and monitor restaurants to make sure franchisees followed the standards. These were some of the key elements of the strategy that Ray Kroc designed for McDonald’s Corp. From the outset, the hallmark of Kroc’s franchise system was commitment to quality, service, and cleanliness (QSC). Kroc’s Corporate-level strategy can be defined as centralized. All decisions were made at top-level management and pushed to the franchises. This can be viewed both as a weakness and strength. When it came to innovation, it was not stifled by the centralized corporate-level strategy. On the contrary, the Big Mac was created at a franchise. The only on ly drawback to the centralized decision making was that the local manager of the restaurant knew they had a winner – innovation at its best and top level management, not wanting to change the menu, resisted – deployment of the innovation was delayed. In the end, management allowed the franchise to test the “Big Mac” menu change. It proved to become one of the greatest additions to the original menu. McDonald’s Corporation put the new item into nationwide distribution in 1968, and within less than a year, the Big Mac accounted for nearly 20% of all McDonald’s sales. Over time, the Big Mac became it most recognizable item. 2. How did did Kroc’s Kroc’s successor successor Turner Turner embellish embellish McDonal McDonald’s d’s strategy? strategy? Fred Turner started his tenure with McDonald’s as a franchise manager. He quickly showed his ability in overseeing restaurant operations, and Kroc asked him to train new franchises. In doing so, Turner laid laid the foundation for a successful franchise system that that has lasted well into the 21st century. He introduced ground breaking measures unheard of o f in the food industry. These measures would become the foundation of McDonald’s’ core competencies. Kroc leveraged Turner’s standard operating procedures to further develop uniformity – a key success factor for McDonald’s. He sent him to the franchises as a field auditor. A franchise’s score ultimately determined whether the franchise could open more restaurants. Turner created a manual which detailed how food had to be cooked, established quality control measures, how to staff each station, and the optimal number of crew members needed for each shit of operation. This continued the consistency of the uniformity un iformity model that Kroc had begun during his leadership term. Turner took over leadership in 1968. It was at that time the corporate strategy shifted to decentralization, thus showing that Turner was a strategic manag er who realized that
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decentralization was the way to go from now on for the organization to continue growing. It was Turner’s belief that the closer decision making is to the stores and the marketplace, the better the decision that managers make. In Turner’s first five years, annual sales per restaurant almost doubled, and the total number of McDonald’s outlets tripled. Turner decisively dealt with several threats during his reign. He stifled an uprising by franchise owners when he created The National Operators Advisory Board to deal with policy issues. When McDonald’s was threaten by a union, he used flying squads, closing down restaurants threatened by union organizing, and hiring anti-union labor lawyer to remain union free for the next three decades. One of Turner’s greatest accomplishments came in the form of advertising – the birth of Ronald McDonald. McDonald’s capitalized on the opportunities introduced by this campaign. Suddenly, Ronald was singing happy birthday at children’s parties. He has since become loved by children all over the world. A 1996 survey of American schoolchildren found that fully 96% of all children could identify Ronald McDonald; the only fictional character more recognizable to American children was Santa Claus. It is safe to say that Ronald has become one of McDonald’s greatest strengths. 3. What aspects of McDonald’s management ensure that it was able to deliver a consistent strategy? Address any possible downsides of these decisions in the context of McDonald’s continued expansion. Consistency and uniformity are what we feel best illustrate McDonald’s strategy, at least at the onset of the company – the Ray Kroc era. The aspects of McDonald’s management which ensured that it was able to deliver a consistent strategy were: vision, consistency, commitment, management being well informed, and willingness to delegate and empower. Turner continued Kroc’s strategy for the most part. Attention was given to further documenting processes to ensure consistency, a la McDonald’s now-famous Operations Manual, along with decentralization of supervision (more pushed out regionally). Managers coming up through the ranks continued through Quinlan’s tenure, including the staunch adherence to McDonald’s as a stand-alone brand. A high degree of consistency was also key to the organization’s strategy, at least until what appears to be mid-way through Quinlan’s tenure. What are now clearly regarded as wrong turns taken during Quinlan’s leadership and continued (arguably worsened) during Greensberg’s, were examples of what not to do; hence, they’re not going to be included as an effective component’s of McDonald’s corporate-level strategy. 4. Evaluate how Greenberg’s changes may have actually ensured McDonald’s further growth. Greenberg was a strategic manager that was focused in finding ways to make the McDonald’s Corporation thrive. Greenberg made changes to the limited menu that had characterized the McDonald’s restaurants and acquired d ifferent entities to diversify the McDonald’s brand. Greenberg was not aware of the external threats against the corporation. The company was being attacked, and he did nothing to counter. A major Campaign against child obesity singled out McDonald’s as the principal culprit, generating unfavorable publicity and damaging McDonald’s reputation. In 2002, McDonald’s stock price was trading at a seven-year low, and during seven of the eight quarters ending summer 2002, McDonald’s earning declined. Under Greenberg’s failed leadership, McDonald’s continued to fail. At the p innacle of a financial lull –
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the stock price at a seven-year low and seven of the past eight quarters posting declined earnings – Greenberg resigned. The changes that Greenberg did to the menu and the diversification ensured the future growth of the fast food chain. When Skinner took over the reigns of the McDonald’s Corporation, he took heed of the protests and the external threats the company had. The menu was modified but to tailor the needs of customers not just for the sake of introducing products the company wanted to introduce. The businesses that were bought were sold and Skinner focused on the existing stores. 5. Evaluate McDonald’s international strategy. McDonald’s international strategy is of entering most foreign markets by means of joint ventures with local partners. Establishing a joint venture has long been a favored mode for entering a new market. McDonald’s formed partnerships with local entrepreneurs acting as franchisees and owning 50% of the business. If successful, the foreign entrepreneur might buy McDonald’s 50% share in the business and become a full-fledged franchisee. This strategy was perfect, it allowed McDonald’s to enter markets such as Russia and China and allowed them to make profits from the royalty fees collected from the franchises. 6. Evaluate McDonald’s strategy in the context of the crisis it faced from a variety of stakeholders. What steps can McDonald’s take for the long term in this regard? a. Skinner is re-adopting the cord values established by Kroc and Turner, and this adherence to those values needs to be paramount and consistent. During Kroc and Turner’s era, McDonald’s thrived. Now, under Skinner, it is once again thriving. During Quinlan and Greensburg’s leadership, things were not going well; both of those leaders chose to abandon the key core values which differentiate McDonald’s. Clearly, by now, the lesson should be understood – re-learning it again is not necessary. b. A “healthy options” strategy will be needed in the foreseeable future. Skinner sees this, and it will remain, hopefully expanded. This should help counter the criticism that McDonald’s is responsible for the obese customers, especially Americans. While there are doubts that much (if any) profit will be made by selling these items, having these exist on the menu is, in my opinion, 80% of the solution. With them, Skinner, et al, can clearly state that McDonald’s supports and embraces a healthy lifestyle – in addition to the standard offerings; an array of better options is present. c. Expanding organically instead of through acquisitions. The strategy of purchasing other companies was a complete failure. Instead, the expansion of new products such as the McCafe coffee line is a sound, proven approach for McDonald’s. It was started slowly and then, after initial testing proved favorable, it was expanded more broadly. This embodies the means McDonald’s has used for decades in analyzing and deploying new products. Using the proven test market approach using – beginning in geographic testing regions such as Evansville, IN – has served them well in the past.
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