Management: McDonald’s

Organization Summary

McDonald’s Corporation operates the chain of McDonald’s restaurants. The company also franchises it brand in various countries. The company’s restaurants offer a diverse menu of food products, soft drinks, coffee, and other beverages in more than 100 countries (McDonalds’s). As of 2015, the company had a total of 36,525 restaurants inclusive of the franchises. McDonald’s franchised restaurants are held and run under conventional franchise, developmental license, or affiliate. The company’s main business model is franchising. The majority of its restaurants (80%) are owned and operated by autonomous franchises (“McDonald’s Corp.”).

Mission

The company’s mission as articulated in the mission statement is to be the first choice of customer when it comes to the best quality products, exemplary services, cleanliness, and high value for money (McDonald’s).

Vision

McDonald’s vision is to become the best fast service restaurant experience for customers. The vision statement elaborates becoming the best means offering exemplary quality, service, cleanliness, and value in order to grant every customer in all its restaurants a smile (McDonald’s).

Corporate Values

Irrespective of the location of the restaurant, McDonald’s values include commitment to the people, believing in McDonald’s system, ethical operation of business, giving back to the community, growing the business profitably, and striving for continuous improvement (McDonald’s).

Guiding Principles

The company is committed to improving the health and welfare of animals in its supply chain throughout their lives. This principle is global and applicable to all its business segments, and it is reinforced by further detailed policies that are specific to different kinds of species and topics (McDonald’s). The guiding principles are expressed as follows:

1. Safety. The company’s first and foremost objective is to provide safe food and drinks to the customers.
2. Quality. McDonald’s believes in care and respect for animals as a vital part of its commitment to providing customers with safe food (healthy animals give safe food).
3. Animal treatment. The company has in place objective measuring systems at all accredited slaughter facilities to protect positive welfare for animals. Such effective approach is also related to the supply chain in order to affirm that the stipulated standards for animal welfare are implemented on farms.
4. Partnership. McDonald’s is committed to collaborating with suppliers, industry leaders, and non-governmental organizations while promoting the idea of sustained improvement of animal health.
5. Segment leadership. The company recognizes the responsibility inherent in being the leader in the global market place.
6. Performance measurement. The company formulates the objectives for its business through its suppliers, which propel continuous improvement and align purchasing strategies with the commitment of enhancing health and welfare of animals throughout the supply chain.
7. Communication. McDonald’s endeavors to negotiate its plans, processes, and progress appertaining to animal health and welfare.

Organization Culture

McDonald’s has an organizational culture that supports efficiency in operations and maximization of productivity. The organizational culture puts emphasis on the development of human resources and business growth. It is based on the following characteristics: people centricity, individual and organizational learning, diversity, and inclusiveness (McDonald’s).

Organizational Structure and Management

The company has a divisional organizational structure. Every division handles a stipulated area of operation. This form of organizational structure supports autonomy and organizational flexibility. Such structure has the following features: global hierarchy, performance-based divisions, and functional-based groups. The global hierarchy encompasses all worldwide operations. The company’s CEO gives directions of all business areas. Mandates are relayed from the CEO down to the middle managers, to individual restaurant managers, then down to the personnel (McDonald’s).

Performance-based divisions are a distinctive aspect of McDonald’s organizational structure. Following a re-organization in 2015, the company uses performance as the criteria for divisions in its organizational structure. A president is in charge of each segment (McDonald’s). New organizational structure based on performance now includes:

1) United States, the largest segment accounting for over 40% of the firm’s operating income as of 2014.

2) International lead markets, which encompass established markets such as UK, Australia, France, Canada, and Germany. These markets are operated under identical economic and competitive forces, provide comparable growth opportunities, and jointly accounts for approximately 40% of the conglomerate’s operating income as of 2014.

3) High-growth markets, which encompass markets with comparatively higher expansion and franchising budding. They include China, South Korea, Italy, Spain, Russia, Switzerland, and the Netherlands. In total, these markets represent around 10% of the corporation’s operating income as of 2014.

4) Foundation markets include the rest of the markets in McDonald’s system, each of which has the prospect of operating under a fundamentally franchised model.

Financials

McDonald has reported plummeting revenue in three consecutive years. The company posted total revenue of $28.106 billion, $27.441 billion, and $25.413 billion in fiscal years 2013, 2014 and 2015 respectively (“Income Statement”). Net income for three-year period also showed a declining trajectory: $5.5859 billion (2013), $4.7578 billion (2014) and $4.5293 billion (2015) (“Income Statement”).

Market position

Despite a sustained decline in financial figures, McDonald’s is still the market leader in the fast food restaurant industry in terms of revenue, profitability, and market capitalization of $110.85 billion (“McDonald’s Corp.”). As of 2014, McDonald’s had the biggest market share in the US fast food restaurant segment at 17 % (Jones).

Organization Problem/ Challenges

McDonald’s faces myriad challenges attributable to slumping global sales and loss of customers to other companies in the fast food industry.

Shifts in Dining Habits

In the US context, the millennial generation is one of the biggest problems McDonald’s has to deal with. This generation love food and dining out, but they also prefer healthier and fresher food made of natural ingredients. Competitors have been able to capitalize on this fundamental shift in consumer preferences (FT reporters). Therefore, McDonald’s firmness on consistency of its products which are perceived as unhealthy explains in part why the fast food giant’s market share is shrinking.

Food Safety Concerns

Food safety concerns have undermined McDonald’s brand in the recent years. In Chinese market, McDonald’s gives rise to the issue of food safety. The company suffered injury on its brand reputation in July 2014, when an undercover television probe accused its restaurants of using a supplier that relabeled expired products. The scandal had adverse effects on McDonald’s sales in the stores in Asia-Pacific, Africa, and Middle East. The consumers, especially in China, are still doubtful of McDonald’s brand, and it will take a lot of effort to convince them that the company has control over issues in its supply chain. In addition, the general perception of western food brands as increasingly unhealthy puts more pressure on McDonald’s as Chinese consumers look for alternative brands that they consider healthier and safer (FT reporters).

Poor Pay Reputation

McDonald’s has a bad reputation concerning poor wages. In the past few years, the company experienced numerous protests from its employees, most of whom earned the minimum wage despite long tenure of service within the company. In 2014, shareholders argued that there is a massive gap between executives’ salaries and the wages of average employees. A bad reputation for McDonald’s on the ground of remuneration of workers can be detrimental to the company in the current competitive environment within the restaurant industry (Monaghan).

Pricing

McDonald’s suffers challenges in its pricing strategies. At one end of the spectrum, prices for some of its products are significantly high relative to competitors. This has made the company less attractive to low-income customers, thus losing them to its traditional competitors such as Burger King (Monaghan). On the other hand, some pricing strategies for McDonald’s are based on ambiguous criteria; and the CEO, Steve Easterbrook, attests to this challenge (Jargon). For instance, when a bunch of burgers is sold for less than $2 in the Dollar Menu & More segment, a very similar burger costs $5 in the regular menu(Tuttle).

Complicated Menu

In an effort to satisfy broad tastes and preferences of diverse consumer base, McDonald’s has expanded its menu to the point of rendering it too complicated, thus slowing down kitchen operations and causing some customers to wait longer for their fast food orders(Monaghan). In addition, the complexity of the menu has stirred dissatisfaction among franchisee owners in the past (Tuttle, 2015).

Geopolitics

Geopolitics has been adverse to McDonald’s financial performance. McDonald’s has long been depicted as a success in Russia. However, the company’s sales in Russia suffer a shortfall following deterioration of relations between Russia and the United States. In late 2014, some Russian stores were closed, including its flagship store in Moscow’s Pushkin Square, by Russian authorities amid allegations of not meeting the stipulated health safety standards. Some politicians even lobbied for the chain to be evicted from Russia completely. Although the closed stores have been reopened since then, McDonald’s operations in Russia continue to be under threats of geopolitical backdrop. In 2015, McDonald’s Russian segment experienced close to 100 court cases based on issues such layout of its kitchens and intentional mislabeling of food products (FT reporters).

McDonald SWOT Analysis

Strengths

Strong global brand. McDonald’s prides in having one the most familiar brands in the world. In the US and in the whole world, most people instantly recognize McDonald’s golden arches. In addition, the company endeavors to main consistency in its food offerings so that the consumer gets the same taste irrespective of the geographical location of the restaurant.

Diversification of markets. McDonald’s had its presence in more than 100 countries all over the world (McDonald’s). This factor mitigates market-based risks since the company does not depend on one market for its revenue unlike some of its rivals such as Burger king which relies virtually exclusively on the US for its revenue. Shortfall of sales in one market can be offset by upsurge of sales in another market, thus ensuring relative stability of cash flows and profitably.

Wide capital and asset base. With a market capitalization of $110.82 billion as of April 25^th, 2016 (“McDonald’s Corp.”), McDonald’s is the biggest firm in the restaurant industry. The company also owns vast real estate properties which are valued at $40 billion as of August 2013 (Jargon).

Weaknesses

Inadequate process flexibility. McDonalds’s has a standardized operational process that ensures consistency of its products, which is beneficial to the company’s brand (Tuttle). However, this also reduces the flexibility of the company to respond effectively to market dynamics.

Low diversification of product. McDonald’s focuses on food and beverage products only. This makes the business vulnerable to downturns in the restaurant industry.

Susceptibility to western market decline. Most of McDonald’s revenue is derived from the United States and other western countries. This makes the company vulnerable to economic downturns in the western countries.

Opportunities

Expansion. Due to the fact that most of McDonald’s markets are in fairly saturated United States and Europe, the company has a lot of opportunities to expand further to countries in other continents such as Africa and Asia.

Product diversification. The company has an opportunity to create new products and expunge some less demanded products from its menu. Furthermore, McDonald’s has an opportunity to venture in other industries, for example by unlocking the potential of its vast real estate properties through establishing real estate investment trusts.

Augmentation of brand image. McDonald’s can strengthen its brand equity by addressing internal problems that have tainted its brand image in the past, poor payment of its workers in particular.

Threats

Intense competition. The fast food segment and, in general, the restaurant industry are highly competitive, thus threatening McDonald’s position as the market leader. Some of the major competitors include Burger King, Yum! Brands, Starbucks, Wendy’s, Chipotle, and Subway.

More health-conscious consumers. Many customers both in the United States and in the whole world are increasingly embracing healthy diets such as organic products, vegetables, fresh fruits, and foods with natural ingredients (FT reporters). This trend poses a threat to McDonald’s, which products are criticized as unhealthy, especially by the millennial generation.

Analysis

An examination of the current state of affairs at McDonald’s reveals points towards the number of performance gaps. They include:

1) Low sensitivity to customer’s expectations; for example, sustained offering of perceivably unhealthy foods, which could be attributed to, among other factors, insufficient market research and inadequate focus on customer relations.

2) Wanting service design and standards being translated into slow service rate, high prices, and mismatch in order.

3) Substandard human resource policies depicted by low salaries and occasional workers’ protests. The analysis of McDonald’s organizational systems indicates the following systems as deficient: human resources, marketing, customer service, purchases, and supply.

Planned approach to change should be adopted to enforce the requisite modifications in the affected organizational systems. Under planned approach, the activities undertaken are intentional and goal-oriented. The objective of planned change is to enhance the ability of the company to adapt to changes in its dynamic environment and to transform the behavior of individuals and groups within the organization (Cummings and Worley 154).

In line with the performance gaps and the affected organizational systems, the following organizational development interventions would be appropriate for McDonald’s change efforts: techno-structural, human resources management, and strategic change interventions. Techno- structural interventions give emphasis to technology and structure of the company. The respective activities include structural design, downsizing, total quality management, and job enrichment (Cummings and Worley 159). Human resources management interventions involve selection, rewarding, developing, and supporting people in organization. The activities include goal setting, performance evaluation, rewarding systems, coaching, career planning, development, management, leadership, workforce stress, wellness and workforce diversity management (Cummings and Worley 160). Strategic interventions address the links between internal functioning of the company and the larger environment with an objective of transforming the company to maintain pace with the mutable environmental conditions. Activities include organizational design, culture change, and integrated strategic change (Cummings and Worley 161).

The implementation of various organization development interventions is likely to be met with resistance by some employees and other stakeholders. The latter is more likely to arise from structural and strategic changes, which can possibly lead to change of jobs, loss of jobs in the company, or reduction in certain benefits. In addition, general fear-of-the-unknown impacts of a particular intervention may also motivate resistance. Further, the company’s stakeholders such as shareholders and creditors may resist interventions that they may perceive as a threat to their interests in the company.

Change cannot be avoided. However, the management cannot always force people to accept change. They must devise appropriate ways to deal with resistance to change, therefore increasing the chances of viability of the various change interventions. One way, resistance can be reduced at McDonald’s by making the employees and other stakeholders participate in realizing the change. Secondly, the management can take tangible steps to deal with resistance attitudes. These steps would include placing emphasis on new performance standards for employees and motivating them to adopt new ways of thinking as well as studying the nature of resistance in order to determine proper timing for implementation of a particular intervention. Proper training on how to handle the changes (for instance, in job description following an intervention) can also aid in mitigating resistance to change.

Engagement of employees and other stakeholders to change interventions can be accomplished through open communication systems. This would entail talking to the stakeholders, giving them as much details as possible about the changes, and allowing them to have an open platform where they can make their queries and receive feedback. The feeling that they were involved in change implementation and allowed to express their opinions would alleviate resistance attitudes.

Final Recommendations and Summary

From the findings of analysis of McDonald’s internal and external environment, human resources and strategic interventions would be the most successful organizational development interventions. Human resources intervention would lead to success of the organization for the reason that it would help seal gaps in service performance. Being a market leader operating in a highly competitive environment, it is imperative that the service provided by the staff matches the customer’s expected standards, for example, in terms of convenience and courtesy. Creating improved structures of employee training, performance evaluation, and rewarding systems should seal service performance gaps caused by the lack of proper mastery of one’s role and low motivation. Strategic interventions would transform McDonald’s financial landscape at a time when its global profits depict a declining trajectory. The company turnaround strategies must involve measures to cut costs and increase revenue, which can be achieved through expanding to underexploited fast-growing markets in Asia through strategic alliances such as franchising acquisition, mergers, and joint ventures. The effectiveness of these interventions should be reflected in improvement of the company’s quarterly revenues in all its performance divisions.

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