mcdonald jaspreet

Running head: Case Study McDonald’s and Its Critics








Case Study: McDonald’s and Its Critics
ORM 680: Capstone in Strategic Management
Spring Arbor University
Jaspreet Kaur (Jas)
Terry A. O’Connor, Ph.D.
August 27, 2010






Abstract
McDonald Corporation is the leading fast-food industry. The company has an established brand name that is well known at home as well as internationally. McDonald’s management believes in keeping long-term relationship with customers, suppliers, and shareholders. The company’s key to success is its name brand, healthy food, quality customer service, and the focus on “play to win” strategy. Although in the past, the corporation has had global critics attack but today the company is able to accomplish and keep its positive image. McDonald’s focus of being socially and environmentally responsible helps the company with its positive revenue growth.










McDonald’s and Its Critics
Introduction
The purpose of this document is to analyze the existence of McDonald’s Corporation and its Critics. This paper will discuss the history and background plus the strengths and weaknesses of the company. In addition, the document will define the differences among the CEO’s of McDonald’s and their main strategies for the company. And finally, the document will discuss the McDonald critics and the recommendations for the Corporation.
McDonald Corporation is the world’s leading retailer in the food service industry. Today, McDonald has 32,000 local restaurants serving more than 60 million people in 117 countries each day. The company focuses on providing excellent customer service and building positive relationship with employees and suppliers. McDonald’s “play to win” strategy helps the company gain customer confidence as well as revenue growth. As per the USA Today, in the U.S., where McDonald’s has almost 14,000 of its more than 32,000 restaurants, operating income in July 2010, climbed 7% to $895.1 million. Revenue in the U.S. rose 2% to $2.08 billion while rising 5.2% in Europe and 4.6% elsewhere around the globe. The $15.15 billion company has increased its market profit share by offering healthy menu items such as salads, milk, and deli sandwiches, wide range of beverages, ice creams, fries, new breakfast dollar menu, kids’ meal, and last but not the least the everyday dollar menu items. In addition, nearly 50% of McDonald restaurants have included the play area for children which help the corporation attract the younger crowd tremendously.

McDonald’s Mission Statement
McDonald’s brand mission statement is “to be our customers’ favorite place and way to eat and improve our operations and enhance our customers’ experience”, (mcdonalds.com).
History and Background
The journey of McDonald Corporation actually began in 1930’s by two brothers, Richard and Maurice. Both the brothers opened up a carhop drive-in restaurant in San Bernardino, California in 1930. By the 1950’s, the restaurant was replaced into self-service car hop with simplified menu to offer just hamburgers, cheeseburgers, French fries, milkshakes, soft drinks, and apple pie; and ran like an assembly line operation (Hill and Jones, 2010, p. C147). Both Richard and Maurice believed in the concept of providing quick and simple service. The idea was to prepare a model that could be learned quickly from anyone stepping into the restaurant kitchen for the first time. As per John Love, the McDonald’s historian; “typically, there were three grill men, who did nothing but grill hamburgers, two shake men, who did nothing but make milkshakes, two fries men who specialized in making French fries, two dressers, who dressed and wrapped the ham burgers, and three countermen who did nothing but fill order at the two customer windows”. The resulting labor cost savings, combined with the increases volume of sales, allowed the McDonald brother to cut the price of hamburger from 30 to 15cents (Hill and Jones, 2010, p. C147).
By the 1954, the restaurant working model of the McDonald brothers was doing astonishingly good. The restaurant revenue was growing by leaps and bounds and caught the eyes of Ray Kroc, who supplied milkshake mixer machines to the brothers. After observing the concept of their restaurant, Kroc knew that this was the formula to the business success in the food industry. He bought the rights from the McDonald brothers to open a restaurant franchise across the nation. On April 15, 1955; Kroc opened up his first McDonald fast food chain in Des Plain, IL; featuring the same concept of using limited workforce, low price, quick and efficient service as San Bernardino, CA site. The very first day, Kroc was able to draw customer’s attention and made $366.12 in sales. After that there was no looking back, from 1955 till the present day; McDonald Corporation has grown rapidly at home as well as globally. From the era of 1950’s till the 2000’s, the McDonald Corporation went through several transitions. The company’s foundation was laid out by the founder Ray Kroc in 1955 and moved on to the food consolidation of the food service network under Fred Turner’s direction (1973-1987). From 1987-1998, the company was under the leadership of Michael Quinlan, who encouraged the concept of global expansion. The 1998-2003 was the era of Jack Greenberg, under whom the company went through the financial crises and faced revenue declined. In 2002, Jack Greenberg announced his resignation. In the November of 2004, Jim Skinner became the CEO of the company and has shown positive results both financially as well as company’s expansion growth.
As the McDonald Corporation entered the 21st century, the company had to face many criticisms publically as well as politically. Although the world’s largest food chain has been attacked several times and gone through several litigations yet, the company is still able to grow and challenge its competitors on the world’s platform of food industry. Today, the McDonald Corporation is maintaining its reputation by being environmentally responsible, offering healthy and high quality food options, providing quality service, supporting and giving back to the community, and finally; practicing McDonald values of being responsible towards the community, business, and corporate world.
McDonald’s Strengths and Weaknesses
Strengths and weaknesses are the internal factors that are use to analyze the company’s organizational and environmental issues. Below are the McDonald Corporation’s strengths and weaknesses which play a key role in company’s operations. McDonald’s is the well known food chain at home as well as internationally. There are various aspects that are aligned under McDonald’s strength factor such as:
· Strong name brand and mascot
· Huge market share nationwide as well as globally
· Well trained managers and employees from the McDonald’s hamburger university
· Customer focused
· Introduce new products
· Committed Suppliers base
· Exceptional positive financial and revenue growth, and
· Kids friendly reputation
Although McDonald Corporation has various strength factors, the company also has some weaknesses that have become the road blocks for the organization’s success such as:
· Negative publicity and image
· Unhealthy food
· Strong competitors like Burger King and Wendy’s
· Legal actions and lawsuits, and
· High management turnover
Differences among CEO’s and their Strategies
Foundations: Ray Kroc, 1955-1973
Ray Kroc was the founder of McDonald Corporation. He opened up his first adventure in the food industry – McDonalds in 1955. Kroc’s key idea to a successful business was the strategy of creating uniformity among all McDonalds, building a partnership relation with the franchises, and promoting individual creativity. Kroc’s sales background convinced him that the key to successful franchising was uniformity. Uniformity was the revolutionary concept in the food service industry in 1950’s (Hill and Jones, 2010, p. C147). Ray Kroc created an empire in the fast food industry with a vision to provide consistent service in all McDonalds around the nation. Kroc was a perfectionist; his goal was to create an operating system under which every McDonald would follow the same guidelines from making burgers to providing quality customer service. He believed in quality, service, cleanliness, and value. Unlike, other businesses; Kroc saw his franchisees as business partners rather than customers. He knew that the only way he would be successful if his business partners were making profit. Finally, Kroc believed in individual creativity and innovative ideas. As McDonald’s chronicler John Love wrote: “Ray Kroc’s genius was building a system that requires all of its members to follow corporate-like rules but at the same time rewards them for expressing their individual creativity (wiley.com).
His goal was to make McDonalds a global food chain service. He would encourage his business partners to bring him innovative ideas and was very open to implement them. The introduction of Big Mac item was case in point (Hill and Jones, 2010, p. C147).

Consolidation: Fred Turner, 1973- 1987
Fred Turner started his journey with McDonald Corporation in 1956. In 1958, he was named Operations Vice President, and in 1967, an Executive Vice President. He was elected President, Chief Administrative Officer and a member of the Board of Directors in 1968, and CEO in 1973 (mcdonalds.com).
Fred Turner was a 23year old college dropout when Ray Kroc hired him to manage one of his restaurants. In 1957, Kroc asked Turner to train other franchisees and create a training program. By 1950-1960’s Turner was able to develop a training manual for the company and laid a foundation of successful franchise system. There are number of contributions from management science to the invention of Hamburger University that Fred Turner gave to the world’s fast food leading corporation. Turner’s strategy to successful business was his management operating technique, which helped the franchisees as well as McDonald’s revenue growth.
Management Science to Management Style
Turner attempted to turn the task of running a restaurant form an art to a science. Turner’s training manual converted the systematic knowledge the McDonald’s corporation gained from operating its franchise into a “management science”, (Hill and Jones, 2010, p. C148).
Fred Turner’s 360 pages training manual was the key to success. It explained operating techniques on how to run a restaurant in minutes. The Turner’s training manual instructed managers how to staff, make reports, calculate operating costs, detect quality problem, forecast demand, and many other factors. In addition, it also has instructions for cooks on how to grill and how much ingredients to use when cooking. Altogether, the manual turned out to be very beneficial for managers as well as for employees. Fred Turner used decentralized strategy for McDonald’s organizational structure. Turner knew that the closer the manager would be to the store the better the decision he would make for that store. With that said, the regional managers were empowered to grant new site and franchise. This new strategy produced positive results with the company’s growth rate. Hence the total number of McDonald’s restaurants tripled and the profit margin doubled.
From Training to Supervising Franchisees
Turner’s another great accomplishment was the creation of Hamburger University. For a long time, Turner supervised the university as well as the text used at the school. The university played a huge role in corporation’s success. From 1961-1983, the university expanded from one classroom to seven auditorium classrooms. The graduates from the university had a better understanding of how to run the business and be successful. The classes were taught in three areas: food, equipment, and management techniques. As per the data, it was the only school in the fast-food industry accredited by the American Council of Education (Hill and Jones, 2020, p. C148).
Next, Turner invented a new technique for the company to supervise its franchisees. First of all, he created a position of “field consultant” to oversee the franchisees. Second, he developed a manual to evaluate the franchisees based on quality, service, cleanliness, and overall performance. Under Turner’s leadership, the consultant position had become the prerequisite for promotion; managers wishing to climb up the corporate ladder were required to have experience working as field consultants (Hill and Jones, 2010, p. C 149). Now franchisees had to get “A” or “B” grade in order to expand the business or obtain license to operate another restaurant.
Advertising
Another great concept to company’s success was the introduction of corporate mascot “Ronald McDonald” in 1960’s. The advertising campaign of the clown character “Ronald McDonald” became so famous in the children market that by 1992, 40% of the sales were coming from children under seven. Ronald McDonald became the highlight for kids’ birthday parties. In addition, the company sold Ronald’s wristwatches and wall clocks. In 1990’s the company launched a website encouraging children to send an email to Ronald McDonald listing their favorite menu items (Hill and Jones, 2010, p. C 149). Ronald played a huge role in increasing company’s profit margin and competitive advantage over its competitors.
McDonald’s under Attack: Franchisees’ and Union Rights
During the management of Fred Turner, the corporation had to deal with two major issues: first, franchisees issues and second, union issues.
First of all, in 1970’s; the group of 50 franchisees staged an open rebellion against McDonald’s asking to establish their own organization, the McDonald’s Operators Association (MOA). The reason for this revolt was that the franchisees were getting frustrated with the tight operating rules of the company. Second, the franchisees complaint about declining sales of their existing stores which was caused by the opening of new stores. To eradicate both the issues, Turner established a committee called National Operators Advisory Board (NOAB). The role of this committee was to listen to franchisees’ complaints and issues and provide them the necessary assistance. In addition, the NOAB issued policies pertaining to McDonald’s relationship with its franchisees (Hill and Jones, 2010, p. C154).
Second, in order to keep McDonald Corporation unionized, Turner hired John Cooke; a labor management consultant who was a former union organizer. Cooke organized a team of “flying squads” which helped managers at the restaurants detect union threats. The team would visit the store sites to make sure that the stores were unionized and would hold “rap sessions” with employees if suspect any union organization target.
Expansion: Michael Quinlan, 1987-1998
Michael Quinlan began his career from McDonald’s mailroom in 1963. In 1982, he became the President of the company and in 1987 was appointed as the CEO of the McDonald Corporation. Quinlan reputation of informality combined with his hands-off management style made him popular among the McDonald’s employees. Quinlan transformed McDonald’s into a global empire, extending the chain’s reach to more than 100 national markets (Hill and Jones, 2010, p. C150). Quinlan’s strategy to successful business was his customer service initiative, cost cutting, and global expansion.
Customer Service
Michael Quinlan launched a “customer service” program at all McDonald’s restaurants. The focus of customer service initiative was to empower the employees to do “whatever it takes”, to satisfy customer’s requests or needs, listen to customer, and solve their problems on the spot. McDonald’s management implemented several techniques in order to improve customer service such as: customer complaint tracking system, consumer focus group, face-to-face orientation between employees and customers. By executing customer improvement techniques, McDonald Corporation was able to differentiate its products and services from the other competitors in the industry.
From Cost Cutting to International Expansion
Michael Quinlan’s another major contribution to McDonald Corporation’s was his philosophy of cost cutting. Under Quinlan’s direction, McDonald’s lowered its restaurants’ construction costs by three means: redesigning restaurant buildings, using more efficient construction methods, and substituting pricy material with cheaper alternatives (Hill and Jones, 2010, p. C150). As a result, first; the company was able to reduce construction cost by 27%, and second; the company gave option to its franchisees to choose their own insurance company which helped the corporation save $50million annually. In addition, the management introduced a new style “mini McDonald’s”, which gave the company competitive advantage over other competitors. The concept of mini McDonald helped the company tremendously with lower the construction and other overheads costs. Moreover, the mini McDonald’s concept became so popular that it opened up many doors for the corporation. Now the company started to operate its restaurant business in hospitals, Wal-Mart, military bases, and gas stations.
Next, under the leadership of Michael Quinlan; the McDonald Corporation was able to increase its international profit share. The global expansion was Quinlan’s remarkable achievement which helped the company with its revenue growth. McDonald’s two major milestone entries were into Russia and China. Due to the large population count in both the countries, the international market grew by 18.2%.



McDonald’s in Crisis
During the management of Michael Quinlan, McDonald Corporation went through several crisis: first, introducing new products, second; opening new stores, and third; increasing competition.
First, the introduction of new product such as vegetable burgers, pizza, pasta, fried chicken, and fajitas did not catch consumer’s eye. When people thought of McDonald’s, they thought of hamburgers and French fries; the variety of new products on the menu created negative impact on the sales. And finally, all these products were withdrawn from the menu. Second, the opening of new stores created a revolt among existing franchisees. The existing store management claimed that the new restaurants were building in the wrong places and were effecting negatively on the existing stores. Third, the company was losing market share in the food industry because of the growing number of competitors such as Wendy’s and Burger King. Altogether, because of these three factors; McDonald’s market share declined and the company’s profit share in the United States dropped tremendously between 1987 and 1998.
Crisis: Jack Greenberg, 1998-2003
Jack Greenberg was appointed as the CEO of McDonald Corporation in 1998. Greenberg joined the company as a CFO (chief financial officer) in 1982. The day Jack Greenberg took the company’s leadership; he called each of McDonald’s 20 largest shareholders telling them “I’m a different person; I’ll have a different style”. Wall Street responded enthusiastically; McDonald’s stock gained 4% on the day of the announcement. Greenberg launched a strategy aimed at “recasting the image” of McDonald’s from a stodgy consumer products company to a dynamic global brand (Hill and Jones, 2010, p. C152). Jack Greenberg implemented three ways in order to run the leading fast food restaurant chain - McDonald. First, he decided to hire executives from other firms, second; rather than keeping the uniformity policy, Jack decided to introduce new menu products. And third, he believed that the McDonald’s growth relied on mergers and acquisitions.
New Menu
The idea of introducing “new menu” at McDonald restaurants’ was initiated by Michael Quinlan but was later developed by Jack Greenberg. McDonald’s CEO, Jack Greenberg implemented the new food preparation concept called “just in time” or “made for you”. This new principle was introduced to improve the quality of the new menu food preparation, development of new innovative menu products, and customer experience. By the spring of 2000, the “just in time” concept was installed in nearly 12,500 domestic McDonald restaurants. Since the changeover of the new kitchen installation cost was expensive, the McDonald management decided to pay 50% of the unit cost to their franchisees.
Acquisitions
Next, Jack Greenberg decided to acquire other branded restaurants in the food industry. He envisioned McDonald’s single brand into multiple line of different brands such as: hamburger and chicken under McDonald’s brand Pizza under the Donatos brand, and burritos under the Chipotle brand. From 1998-2000, McDonald acquired Chipotle Mexican Grill chain, Aroma Café of London, Midwestern Donatos Pizza chain, and finally; the biggest acquisition of the era - the Boston Market merger, which gave McDonald the network of 850 restaurants specializing in serving home style meals (Hill and Jones, 2010, p. C153).



Financial Results
Under the leadership of Jack Greenberg, McDonald Corporation had to face negative financial performances in number of different areas such as: the introduction of new menu, acquisitions, and global attack.
First, the concept of “made for you” failed to increase the company’s sales. The principle was too expensive to install and was labor intensive. Rather than “speed up” the process, the concept gave negative image to the company. As per the Fortune magazine in 2002, the McDonald Corporation showed serious problems with customer service. One of the studies by the “Mystery Shoppers” showed that the restaurant management and the employees provided slow and rude service to their customers. Second, the acquired companies did not perform the way it was expected. Unfortunately, one by one; the McDonald Corporation had to sell off all the ventures. Third, the lawsuits and global criticism of McDonald’s hurt the company and its financial growth. The global attack of negative publicity caused the company lose its market share and public image. Hence, in 2002; the company did not show any signs of improvement and the revenue growth declined immensely.
Comeback: Jim Skinner, 2004-Present
McDonald Corporation elected James Cantalupo to succeed Jack Greenberg along with two senior executives; Charles Bell and Jim Skinner. A year later, James Cantalupo died due to heart attack and Charles Bell was appointed as the CEO. Few months later, Bell stepped down due to his illness and company selected Jim Skinner to take over the leadership of McDonald’s in 2004. Jim Skinner started his career with the company flipping hamburgers in 1962; he was a college dropout but was able to climb up the ladder of the corporation over the years. As per the McDonald’s management, Skinner has a very down to earth personality. He believes in open door policy, Skinner is always open to new and innovative ideas. His idea to successful business is to communicate and involve the subordinates as well as peers before making important decisions. In order to make company profitable as well as responsible, Jim Skinner forged a strategic initiative called “Plan to Win”, which is centering on the five basics of an exceptional customer experience – People, Products, Place, Price, and Promotion. This principle has two goals: first, the upgrading of customer service to improve the financial performance of existing restaurants and second, the introduction of nutritional, healthful, and higher quality food choices coupled with the promotion of a “balanced lifestyle”, (Hill and Jones, 2010, p. C155).
Improving Stores’ Operations
In order to improve store’s operations, Skinner used his “Plan to Win” strategy. First he decided to invest internally rather than opening new stores. Skinner focused on designing, redecorating, replacing old amenities, and adding new value systems such as internet, video games, and wide-screen televisions in existing stores. Second, to improve customer service and attract new customers as well as taking care of the existing customers, McDonald management implemented extended hours policy. The company also offered management training classes to employees so that they could provide best customer service. Finally, the corporation invested into diversifying the coffee drinks. McDonald’s marketing department conducted a survey to find out consumer’s coffee preferences and added a new coffee product –McCafe’, which today is competing with Starbucks’ coffee nationwide.
Answering Its Critics
In 2004, the movie “Super Size Me”, created a negative publicity against McDonald. To respond back to the situation, Jim Skinner decided to discontinued “super size” menu from the restaurants and replaced it with healthier food diets. Also, in 2004; the company introduced milkshakes and fruits to kids’ meal. In addition, McDonald’s promoted salads and deli sandwiches. Moreover, in 2005-2006; the company launched “balanced lifestyle”, with the mission to promote McDonald’s healthier quality food.
Furthermore, between 2004-present, McDonald Corporation has been very progressive. McDonald’s strategy of offering healthier products and taking care of their customers is creating a positive impact on the company. The promotion of healthy food and focus on customer service is being implemented in all McDonalds around the globe, which is helping the company gaining customer confidence and revenue growth.
Financial Results
McDonald Corporation announced 10% increase in sales the very first year of Skinner’s leadership. Even during the deepening recession of 2008, the company was able to make profit and surprised its analysts. In 2008, McDonald’s global revenues rose by 5% and its net income tripled, producing a rate of return on sales of 18%. In 2009, whereas most of the restaurants at home as well as internationally were struggling to remain in the business, McDonald Corporation planned to expand its business by opening 650 additional outlets.
McDonald’s Critics
Although McDonald Corporation has been successful from many years, yet the company had to face several lawsuits and critics attacks from a large variety of public interest groups. Unfortunately, McDonald critics contended that the world’s largest fast-food company paid its employees low wages, hired part-time workers, and enforced an aggressive antiunion policy throughout its fast food empire (Hill and Jones, 2010, p. C146). Moreover, the consumer advocates, health officials, and educators had blamed McDonald Corporation for attracting and offering fatty and unhealthy food especially to kids, which was increasing the rate of obesity and causing many other health problems like high blood pressure and high cholesterol. Several critics accused McDonald’s management of not being socially responsible hence filing lawsuits.
From the era of late 1900’s and early 2000’s, the company appeared to have many lawsuits and negative publicity including the “McLibel Trial”, under which the company was accused of selling unhealthy food, exploiting children, mistreating workers, destroying rainforest, and torturing animals, “Jose Bove” case, led by French protestors blaming McDonald’s for undermining traditional farming methods with agribusiness practices, and the “Super size me” movie, which was released and played in movie theatres around the world. The main idea of the movie was to show the side effects of consuming McDonald’s diet. The movie depicted a man getting increasingly sick as he consumed McDonald’s diet for a month (Hill and Jones, 2010, p. C153 and C155). The litigation of all these cases impacted negatively on McDonald’s sales and revenue growth. First time in the history, McDonald Corporation announced its job cuts in 1998.
Recommendations for McDonalds’
Although McDonald Corporation is doing remarkably good nationwide as well as internationally in the fast-food industry but it is my recommendation that the company should focus on some important aspects in order to be competitive in the market such as: offering cost effective healthy meal, implementing child proof play areas, cleanliness, and Wi-Fi technology.
First of all, even though the company is offering healthier meals, but the price needs to be cost effective. Since today consumers have more options in the fast food industry; McDonald management needs to make sure that their prices are as competitive as other food chains. Second, the company needs to make play land child proof. There have been many incidents reported where the child may got hurt or injured due to no railings or carpet in the play area. With that said, the company has been sued several times due to negligence of no child security. Third, cleanliness at McDonalds is a major problem; the management must make sure that the entire site is clean and hygienic including the bathrooms and play areas. And finally, the company needs to install Wi-Fi in all McDonald Corporations in order to compete with its competitor like Burger King.
Conclusion
All in all, McDonald’s corporation is the leading brand name company in the food industry. The birth of McDonald Corporation created a revolution in the fast food market at home as well as globally. In today’s world of globalization and competition, the corporation is doing a marvelous job in keeping their customers, suppliers, and shareholders satisfy while meeting it sales revenue. The strong foundation that Ray Kroc built continues today with McDonald's vision and the commitment of their talented executives to keep the shine on McDonald's Arches for years to come. The company focuses on delivering simple, easy and enjoyable restaurant experiences for customers and creating superior value for shareholders (mcdonalds.com). Starting from the Hamburger University, advertising campaign of corporate mascot, quality customer service, cost cutting technique, global expansion, and introduction of new menu items; to “play to win” strategy, the company have had many successes. Although in the past there have been few negative publicity critics that company had to deal with but today the $15 billion dollar corporation is able to gain customer confidence, consumer praise, and children admiration by offering healthier food choices, good customer service, and innovative products at their stores. McDonald Corporation believes in being socially responsible by giving back to the community and environmentally responsible by eliminating waste and going green.
References
Hill, C., Jones, G. (2010). Strategic Management an Integrated Approach (9th ed.). Printed in
the United States of America: South-Western, Cengage Learning.
Mcdonalds.com. Retrieve August 27, 2010 from www.mcdonalds.com
USAtoday.com. Retrieve August 27, 2010 from http://www.usatoday.com/money/companies/earnings/2010-07-23-mcdonalds_N.htm?csp=obinsite
Wiley.com. Retrieve August 27, 2010 from http://www.wiley.com/legacy/products/subject/business/forbes/kroc.html