UK McDonald’s External and Internal Environment Analysis

UK McDonald’s External and Internal Environment Analysis

 

When the McDonald brothers, Dick and Mac opened their first restaurant in 1940 in San Bernardino, California, they could never have imagined the phenomenal growth that their company would enjoy. From extremely modest beginnings, they hit on a winning formula selling a high quality product cheaply and quickly. However, it was not until Ray Kroc, a Chicago based salesman with a flair for marketing, became involved that the business really started to grow. He realized that the same successful McDonald’s formula could be exploited throughout the United States and beyond. 

McDonald’s success is built on a foundation of personal and professional integrity. Hundreds of millions of people around the world trust McDonald’s. We earn that trust everyday by serving safe food, respecting our customers and employees and delivering outstanding Quality, Service, Cleanliness and Value (QSC&V). We build on this trust by being ethical, truthful and dependable. McDonald’s is a large scale employer. In September 2004 in the UK the company-owned restaurants employed 43,491 people: 40,699 hourly-paid restaurant employees, 2,292 restaurant management, and 500 office staff. McDonald’s franchisees employed a further 25,000 people. Each McDonald’s restaurant is structured as an independent business, with restaurant management responsible for accounting, operations, inventory control, community relations, training and human resources.

For McDonald’s, people are its most important asset. This is because customer satisfaction begins with the attitudes and abilities of employees and committed, effective workers are the best route to success. For these reasons, McDonald’s strives to attract and hire the best, and to provide the best place to work. In fact, McDonald’s is so active and successful in newly emerging markets that other companies will sometimes use the golden arches as a valuable indicator of future growth markets.

McDonald’s is an example of brand franchising. McDonald’s, the franchisor grants the right to sell McDonald’s branded goods to someone wishing to set up their own business, the franchisee. The license agreement allows McDonald’s to insist on manufacturing or operating methods and the quality of the product. This is an arrangement that can suit both parties very well.

In the UK, McDonald’s recognized the need for a co-coordinated marketing policy. In order to be successful, an organization must find out what the customers want, develop products to satisfy them, charge them the right price and make the existence of the products known through promotion. Cinema and television advertising have played a major part in McDonald’s marketing mix. McDonald’s is now the biggest single brand advertiser on British television. Radio and press advertisements are used to get specific messages across emphasizing the quality of product ingredients. Promotional activities, especially within the restaurant, have a tactical role to play in getting people to return to the restaurants regularly. All franchisees benefit from any national marketing and contribute to its cost, currently a fee of 4.5 per cent of sales.

 

McDonald’s views the relationship between franchisor, franchisee and supplier to be of paramount importance to the success of the business. Ray Kroc recognized the need very early on for franchisees that would dedicate themselves to their restaurants. He wanted people who had to give up another job to take on the franchise venture, relying on their franchise as their sole source of income and would therefore be highly motivated and dedicated. Consequently, McDonald’s will not offer franchises to partnerships, consortia or absentee investors. The initial capital has to come from the franchisee as a guarantee of their commitment. The selection process is rigorous to ensure that McDonald’s only recruits the right people.

 

Porter’s Value Chain Analysis

Value Chain is a term used by Michael Porter (1985) to describe the various activities that the organization performs and relates these to the competitive position of the organization. An analysis of the value chain of an organization shows the activities inside and surrounding the organization and connects these to the analysis of the strength of the organization in relation to its competitors. This model enables the organization to evaluate the value that every single organizational activity contributes to its products and services.

Figure 1: Basic Model of Porter’s Value Chain

           

            The value chain concept was established based on the recognition that an organization is not just made up of building, machinery, money and people but these factors should be taken together, arranged and organized into systematic components in order to produce goods and services that customers are willing to purchase. An organization achieves competitive advantage through the ability to perform essential activities and effectively link these activities.  

            In the value chain model, activities are distinguished as primary or support. Primary activities cover the creation and delivery of products and services, grouped into inbound logistics, operations, outbound logistics, marketing and sales, and service. Every primary activity is related to support activities that seek to help achieve efficiency that are differentiated into procurement, technology development covering research and development, human resource management, and infrastructure such as planning, finance, quality and information management systems. Margin refers to the level of returns that the organization achieves depending upon its ability to integrate and direct the dynamics of primary and support activities towards its goals.

            Marketing and sales is a primary activity and a process that commences from the development of a product to customer utilization of the product. McDonalds engages in marketing and sales strategies that creates value linked to the satisfaction of customer demands. Marketing for McDonalds covers the entire process of deciding on food, methods of cooking and serving food, actual delivery of ordered products and services, and ending with post company experience of customers. Its marketing strategies involve the facilitation of the exchange of value-for-value between the restaurant and its customers. McDonalds facilitates the exchange of value by matching the money paid by customers with quality and variety of products and services resulting to the customer feeling of having received their moneys worth and even more than what they paid for.  McDonalds targets customer satisfaction by offering food and services, catering to customer preferences to make the customer feel satisfied about the value exchange or transaction affecting the propensity of the customer to return to McDonalds or recommend the restaurant to family, friends and colleagues.

Processes comprise the formula for achieving organizational goals. Every process requires inputs, methods and outputs. Inputs refer to the requisites placed strategically prior to the application of the determined methods. The presence of requisites and the application of methods results to outputs. Processes also pertain to the dynamics of connected structural activities producing things of value to the organization, to stakeholders and customers. A process may be the mechanism through which the organization realizes product and service delivery to customers. A process may form part of an encompassing process so that processes may be viewed through varying degrees of specificity. The connection of processes with value generation implies that processes are also workflows to realize relationship results, such as the close relationship between an organization and its customers. (Keung 2005)  

            Processes are important to the organization because the organization can manipulate these mechanisms to achieve desired results. In the value chain, processes are mechanisms based on the economic value required by customers. Organizations engage in the primary activities as the main processes in value delivery and optimize available and accessible support activities or processes to achieve efficient value creation and delivery. On the aggregate, the primary and supporting processes should be managed by the organization to direct the dynamics of these factors towards the organization’s objective of value delivery. Process determination, manipulation and management are important factors to be performed simultaneously and continuously by organizations to achieve their targeted goals amidst changing environment. (Smith & Fingar 2002)

            McDonalds Corporation has evolved in different ways and in different areas due to inappropriate or outdated processes and the changing internal and external global environment. It is during these changes that process determination, manipulation and management reach their height of importance. The first process change that McDonalds went through in order to enhance its value delivery is automation. This required the company to change the application of its entire value chain in order to reorganize its food processing, cooking and food delivery to provide added value to its customers. Raw food is processed through an assembly line utilizing a strict process with each worker assigned to a single specific task. Cooking was done by strictly following a process and food delivery removed dine-in space to speed up the process of fulfilling orders.

            The second process change that McDonalds had to manage was its expansion into other countries and different business environments. The company realized that it had to adapt to the unique customer demands in different countries if it were to succeed in taking hold of the global market. McDonalds had to adjust its food preparation, cooking and delivery service to meet new demands. Originally, hamburger patties are made of processed ground beef. However, in India, cows are deemed sacred and the people do not eat beef. The company had to change their food ingredients from beef to mutton for the burger patties and change the process of preparing french-fries from seasoning it with beef–based flavoring to the use of substitute flavoring to respect the reverence for cows and its consideration as a non-food source.   

            The third process change that McDonalds Corporation had to address is the intensity of the negative publicity that the company faced from animal rights and human rights advocate criticizing the manner that the company treats animals in growing and preparing these as food raw materials as well as the treatment of their workers and employees. In terms of animal rights, advocate groups claim that the company supports the practices of commercial farmers of keeping cows and chickens in closed spaces to obtain optimized weight gain through lack of movement and physical action implying the lack of consideration for animal welfare. In relation to human rights, labor groups claim that McDonalds runs a restrictive and anti-labor organization by not allowing its workers and employees to create unions as well as providing only minimal wages and benefits, particularly in developing countries, that do not meet international labor standards. McDonalds took years to shift its processes to accommodate these issues, which is still a continuing endeavor. Instead of applying a uniform standard for all its franchises, McDonalds is shifting to customized food and service based on the demands of a given market. McDonalds opted to pull out unprofitable chains due to strong negative publicity and concentrate in areas with positive reception.

            These process changes are important to organizations in channeling their resources towards activities that work for the company. McDonalds directs different facets of organizational processes in creating and delivering value by evaluating the appropriateness of inputs and the corresponding methods and then linking the inputs and methods to achieve desired results. Without processes, McDonalds does not have the mechanism by which to assess changes in market conditions and rising issues, redirect its inputs and methods to meet these changes and issues, and integrate inputs and methods towards desired outputs.

     

References

 

Guarisco, T (1998) ‘Franchising still a way of life’, Greater Baton Rouge Business Report, April 23, 2002 issue

 

Keung, P (2005) ‘Business Process: Expert View’, Business Process Management         Journal, 11: 6, 624-627

 

Miller, RR (1998) Selling to Newly Emerging Markets, Westport, CT: Quorum Books

 

Porter, M (1985) Competitive Advantage: Creating and Sustaining Superior Performance, New York, NY: The Free Press,

 

Smith, H and Fingar, P (2002) Business Process Management: The Third Wave, Tampa, FL: Meghan Kiffer Press

 

 

Supplementary Websites

 

http://www.mcdonalds.co.uk/pages/companyinfo/franchiseinfo.html

 

http://www.franchiseprospector.com/franchising-trends/mcdonalds-franchise-profile.php

 

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