Mcdonald's Hbs Case Review Essay

* What is McDonald’s key value proposition? * McDonald’s key value propositions are listed below. These propositions helped McDonald’s to build an unparalleled network of loyal suppliers and entrepreneurial franchisees that contributed greatly in moving the McDonald’s bandwagon ahead. The propositions not only differentiated McDonald’s from the competition but also helped build an operating model that was extremely difficult to emulate. The key value propositions are: * Quick service & tasty inexpensive food Standardization of preparation methods with exact product specification using customized equipment * Consistently high quality and uniformity across all outlets. * A unique operating system * A special set of relationship between the McDonald’s corporation, its suppliers and its franchisees often described as a three-legged stool. The stool is only as strong as the three legs and thus each supported the weight of McDonald’s equally. Restaurant’s service is measured in terms of three categories QSC (Quality, Service & Cleanliness), imparting ‘V’ for Value. * Corporate-level strategy can be defined as centralized decisions making process which are uniformly deployed at the franchisee level across the globe. * Innovation at franchise level was centralized, standardized and put across all the outlets. * Determine the key elements of Operation Strategy of McDonald’s? The key elements of the operations strategy implemented by McDonald’s were: * Revolutionizing the entire supply chain, introducing innovation in product & process * Standardizing operating procedure in the form of Operating Manual detailing exact cooking times, proper temperature settings & precise portions for all food items * Improving the product * The Three-Legged stool * McDonald’s followed a philosophy that is often referred to as the Three-Legged Stool. One of the legs is McDonald’s, a second leg is our franchisee partners and the third leg is our supplier partners.

The stool is only as strong as the three legs. * Developing outstanding supplier’s relationship, caring about supplier’s operation & being sensitive about their profit margins and thereby earning supplier loyalty was what formed one of the other two tools in the McDonald’s stool! This way, the growth & profit of the suppliers was inexorably tied with McDonald’s. * McDonald’s seeked hands-on franchisees – active, on-premise owners prepared to work full-time running their McDonald’s operation – not just investors.

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The franchisee/company relationship stresses personal commitment to the business and emphasizes people, community commitment, financial management and a sharing of goals, principles and ideals. * Improving efficient equipment tailored to restaurant’s need * Training & monitoring franchisees * Initially restricted menu sizes. * Constant evaluation & assistance of restaurants * McDonald’s consistently studied every component of its operation, experimented & revised its best operation methods revised and practice again & again. What are the challenges McDonald’s faced in the 1990s? * McDonald’s faced numerous challenges in the 1990’s from competitors that specialised in proving speed and service to those that offered greater variety band those that featured discounted menus. The major challenges that McDonald’s faced were: * Change requirement in Operating strategy: – The most perplexing question vexing top management was the extent to which McDonald’s operating strategy was to be changed to accommodate the growing need for flexibility & variety in products. Managing volume: – In the US alone, McDonald’s is serving over 20 million customers every day. Management of quality service to so many people as well as attracting more business becomes a formidable challenges in a huge dimension, especially in the wake of competitors who have a lot on offer. * Slow Rate of growth: – McDonald’s had an average annual return on equity of 25. 2% from 1965 to 1991 and an average annual earnings growth of 24. 1%. But sales per unit had slowed between 1990 & 1991 causing management to question the company’s famed operating system’s suitability in the new changing circumstances. Change in demographic, ethnic, religious composition of society: – In the 1990’s, US was no longer what it once was, a white dominated country. The metamorphosis to a multiethnic, multireligious society & distinct change in demographic pattern of more aging population is posing fundamental challenges in America’s eating habits thus adding extra difficulty to already stretching limits of Operating Complexity. The shrinking size of Hamburger consumption from 19% to 17% indicated this trend. * Consumer Consciousness: Consumer consciousness increased considerably in terms of nutrition & dietary opinions without compromising on taste. McDonald’s shrinking share: – McDonald’s share of US quick service market has dropped from 18. 7% in 1985 to 16. 6% in 1991, even though the company gained sales from a bigger quick service pie. Despite this between 1988 & 1990 sales per US outlet dropped an average of 3. 7% in real dollars. After years of double digit income growth, McDonald’s 1991 net US income grew just 7. 2% to $860 million. * Overseas profit surpassing US profit: – Overseas business showing greatest sign of growth in recent years with operating income rising from $290 million to 1987 to $678 million in 1991.

But US business which accounted for 60% of profit simply had to be bolstered. * Challenges galore in all segments of its competitive advantage :- From chains specializing in speed & services ,chains offering more variety to those offering deeply discounted menus ,drive through service ,restaurant serving typical ethnic variety, family sized restaurant where patrons sat down to be served, wider variety of food items but prices remained competitive with McDonald’s , casual dining restaurant —-McDonald’s is facing endless challenges from all front of its competitive advantage. How does McDonald’s operation strategy address the challenges faced by them in the 1990’s? * In 1990’s, to counter the growing challenges faced by them, McDonald’s were in the process of implementing the following operations strategies: * Core Competence: – McDonald’s drew on its traditional strengths of careful product development closely gauged to customer’s tastes, to respond to competitors’ challenges & customer’s new habits. * Healthy nutritious food: – McDonald’s introduced salads, chicken & muffins to address concerns about nutrition.

Besides this, it developed 91% fat free burger McLean Deluxe in conjunction with Keystone & Auburn University. * Precooked & Seasoned Food items: – Keystone also convinced McDonald’s to experiment with chicken fajitas which proved an instant success in initial tests. The chicken arrived precooked & seasoned so it only required heating and did not slow operations. The fajitas sold well in market. * New venues for restaurants: To keep pace with the number of meals eaten off the premises of quick-service restaurants, McDonald’s opened up double-drive windows, as well as restaurants in schools, museums, airports and hospitals.

It also developed new smaller restaurants that were less expensive than its traditional designs. * Meticulous product and process development:- McDonald’s has actively pursued the adoption of advanced process technologies and product developments in its preparations like introducing a special French fries scoop or a new grill capable on cooking ham on both sides. Continuing with same in 1990’s it introduced a new pizza that could be cooked within five minutes. McDonald’s was also developing new high tech staging equipments that would further increase speed by preparing part of products ahead of time. Price cuts: In response to competitors like Taco Bell McDonald’s returned back to value menu and cut the prices by 20% on average. As a result of this price cut the sale of hamburgers increased by 30% and also resulted in an increase in customer count. But due to the reduced prices revenues and profits did not increased much. * “What You Want Is What You Get at McDonald’s Today”: McDonald’s is now more concerned with meeting changing customer requirements than sticking to its core strategy of sticking to limited offerings. New Building Prototypes: McDonald’s has developed a number of new building prototypes, like drive through models, small cafes suitable for small towns to compete with competitors. * Menu Diversification: McDonald’s did a lot of experimentation testing a wide range of items like lasagne, carrot, sticks and fruit cups. McDonald’s was always concerned with nutritional issues like calcium deficiency and fat reduction. * Dinner menu with complete service: Only 20% of total sales of McDonald’s were coming from dinner and McDonald’s eyed this casual dining opportunity as the next growth factor.


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