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Term paper on McDonald's Corporation

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Term paper on McDonald's Corporation

Post  PapersQueen on Sat Jan 23, 2010 7:01 am

Today McDonald’s operates in the global quick service restaurant industry business. McDonald’s was the pioneer of this business and it was McDonald’s which made the quick service restaurant business a global industry by creating a huge global commercial empire. Currently McDonald’s ranks 114th in the list of Fortune 500 companies and thanks to its pioneering processing and standardized approach to the commercial production of fast food, McDonald’s has placed the quick service restaurant industry amongst the big economic driving force industries such as steel and automobiles.

Raymond Kroc the founder of McDonald’s had the vision of a chain of fast food restaurants in every American State and in the world as well. He wanted his fast food restaurants to serve quality food according to fixed standards and specification. When Kroc started business in 1955 there were other well established fast food chains in United States, amongst the most widely known were A&W, Dairy Queen, Tastee -Freez, and Big Boy, Burger King then known as InstaBurger King was just starting out. There were many things which separated McDonald’s from its rivals. Raymond Kroc’s goal was to create world wide fast food chain whereas the rest of the major fast food chains were not so enthusiastic about expansion. Other fast food chains which operated on a franchise basis viewed their operators as customers and only reaped benefits without providing much guidance relating to operation, promotion, sales strategy, financing and food processing. Raymond Kroc extended his hand to operators of franchised McDonald’s restaurants by treating them like trading partners in every respect of the business. This close relationship with operators ensured that McDonald’s restaurants in any State in the United States would serve food according to fixed specification and quantity. Raymond Kroc did more than by just give advice regarding process management he allowed his operators to exercise their innovatory skills relating to every aspect of the franchise business. McDonald’s had set new standards for the fast food industry by selling a branded service not just patented food recipes and formulas. (Greatest Business Stories of All Times)

McDonald’s trademark competition edge was its process management approach in which the company literally put hamburgers on the assembly line. For McDonald’s outlets to succeed they had to attain perfection by breaking the labor into parts and fine tune every aspect of hamburger manufacture. This approach is being imitated by companies all over the world not just fast food companies. McDonald’s even has a Hamburger University which is actively engaged in developing efficient food assembly processes and teaching and training McDonald’s employees, no other fast food chain goes to such lengths to ensure product consistency. John Love, a McDonald’s chronicler 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.” (Greatest Business Stories of All Times)

McDonald’s was the first fast food chain which launched a central advertising campaign and built advertising icons in the shape of Ronald McDonald the McDonald clown. McDonald’s advertised in network television and radio which made its franchise even more popular. Later on the McDonald’s Golden Arch would display the yearly sales figure on them. The character Ronald McDonanld is so popular that he ranks second in recognition to santa claus among children of 4 to 7 years of age. McDonald has also sponsored players and the American All Starr Basket Ball teams. Among the sponsor list of McDonald’s are names like Michael Jordan and Magic Johnson.

When McDonald’s started operations in foreign countries like Uk, Germany and Japan they had to adopt to the local environment, McDonald’s did this by not only improving and changing its strict product line but also changed its promotion strategies for example in Japan McDonald is known as Makudonaldo and in one promotional campaign in Ireland McDonald’s proclaimed, ‘Our name may be American, but we're all Irish’. (Greatest Business Stories of All Times)

McDonald’s global strategy can be summarized as strict quality and consistency standards, innovation and continuous development, central promotional campaign and adaptability to local environments. McDonald’s has not only made an impact on the American culture but has also created an American symbol; McDonald is now synonymous with everything American. McDonald’s operates more than 31,000 outlets in 121 countries in the world. Over the years McDonald’s has diversified their restaurant interests by operating fast food chains under other brand names such as Aroma Café, Boston Market, Chipotle Maxican Grill, Donatos Pizza and Pret A Manager. One of the unique features of McDonald’s business model is that it extracts huge revenues from the real estate business, unlike its competitors McDonald’s owns many of its outlets and collects rent for their use.

McDonald’s faces stiff competition from global operators of fast food chains such as Burger King, KFC, Subway, Wendy’s and YUM! Burger King for example runs more than 11,500 outlets in United States alone and 55 other around the world. An area of concern is that most of Burger King’s and KFC and Subway’s sales strategies involve self service, drive through, patented burger recipes and other food items. All this is very similar to McDonald’s, in fact it would not be wrong to say that other fast food chains have adopted the McDonald style of operational management and sales strategies quite successfully. Now McDonald’s not only faces competition at home from similar fast food chains but also faces competition abroad. Companies like KFC have utilized the McDonald model of product perfection and consistency while offering similar restaurant environment. When McDonald’s introduced the play zone for kids other fast food restaurants followed.

Imitation of sales, operation and promotional strategies seems easy but no other fast food company can compete the strong brand image created by the McDonald’s corporation. (Full Company Description)
The primary competitive advantage McDonald’s has over its competitors is the constant emphasis on innovation and consistency. McDonald’s ensures this by setting quality assurance labs worldwide which involves ongoing product reviews and on site inspection of suppliers facilities. While it is true that McDonald’s hires inexperienced staff but it also trains them vigorously for handling and preparation of the company’s products. Training for customer service is also provided by McDonald’s.

The standardization of McDonald’s operation is very advantageous for McDonald’s as it not only provides cost standards for outlets it also enables cost efficiencies, moreover outlets can compare there sales ratios with other outlets of similar shop floor space. Therefore benchmarks for productivity can be set as well as targets for sales. Areas of weaknesses can easily be evaluated. Standardization in more than 30,000 outlets also promotes innovation. Outlets want to reduce their costs so it is in their interest to use as cost efficient procedures as possible without compromising on quality and any innovation in one outlet can be implemented for others.

The Hamburger University also engages actively in market as well as product research and McDonald’s standardized food assembly procedures have been acclaimed as industry standards. In 2003 McDonald’s was awarded the NSRS (National Skill Recognition SYStem award for French fries cooking. A McDonald’s Director stated, "We have always had our own procedures. We are now helping Spring Singapore to develop standard skills that will be used as a benchmark for the quick-restaurant business under the NSRS and we are proud to have been selected for this role.” (Dhalival, Rev)

Perhaps the biggest disadvantage to McDonald’s is its rigid standards which can never capitalize on changing consumer preferences. McDonald’s offer a uniform food menu which in recent years it has amended according to local tastes and preferences, however, the new menus can not compete with restaurants which can offer new and exciting meals and react to consumer changes more efficiently.

McDonald’s operation system form financial management to customer service is extremely cost and time efficient and to improve those standards the company is constantly looking to increase efficiency through innovatory procedures. McDonald’s has built up an enduring brand image and a taste for their food. However, McDonald’s only relies on its brand image to carry its sales. Consumer responsiveness if measured against other fast food chains is not good considering the fact that other chains are extremely quick at bringing new products to market.

McDonald’s performance is based on its brand image and exponential historic growth and of course the factor that McDonald’s is a status symbol in other countries because it is a representative of the American culture. With revenues of more than 18.61 Billion and revenue growth of 11.3% McDonald’s has the largest and fastest growing revenue figures and testament of its superior brand image. (Full Company Description)
Other companies can imitate McDonald’s operational strategies but they can not compete the invincible and resilient brand image of McDonald’s.


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