The person setting up the restaurant is getting advice and sometimes equipment in return for a percentage of the profit. Also a franchising has its advantages and disadvantages for the franchisee and the franchisor.
Advantages:
For the franchisee
- You will get a business that is already tried out and tested in the market, so you know that is a success.
- The name McDonald’s is well known, so the customers already know what they can expect.
- You’re more likely to be able to raise finance from a bank for a franchise as McDonald’s because it’s a famous name.
- You will get advice and maybe equipment from McDonald’s
For the franchisor
- They have the possibility to expand very quickly.
- It is easier to set up businesses in other areas. For example if McDonald's wants new restaurants in China, they don’t need to know a lot about the market in China. They sell the concept to a person who lives there and knows the market.
Disadvantages:
For the franchisee
- You have to pay a big amount of money just to get the name.
- A certain percentage of your profit goes to the franchisor.
- You cannot develop the business as you wish. You’re bound to a certain formula, so you can’t change the name or the method of doing business.
For the franchisor
- They can not totally control their own restaurants because they only provide the concept. The manager is in charge of the restaurant.
So the McDonald’s Corporation is a large organization and sells his shares at the stock market. But ‘McDonald's’ is a formula too, which can be bought by franchisees.
Objectives
There’s a difference between aims and objectives.
An aim tells in general terms what the business sets out to do in the long term. It is the direction in which a business wants to develop.
An objective is a goal the business wants to achieve.
A business will achieve its aims by succeeding in their objectives. A business can set itself different kinds of objectives, e.g. profitability, growth, quality and social responsibility. Some of these objectives conflict with each other, because if you want to provide the best quality it’s hard to also have the lowest price. So you will have to make choices. A business has to decide what they want to achieve, how they want to achieve and which factors are important to them.
Revitalization plan
McDonald’s recently started a revitalization plan, which has to make sure the new objectives come true. They made this plan because of an expected large growth in the food service industry for the next four years. So McDonald’s hopes to be able to use this growth with their revitalization plan.
The four main objectives are:
- To attract new customers
- To encourage existing customers to visit more often
- To build brand loyalty
- To create enduring profitable growth
And the aims of McDonald's as set in April 2003 are:
- Improve the trends in comparable sales and margins and create momentum toward sustainable, profitable performance during 2003 and 2004.
- Achieve annual System wide sales growth of 3 percent to 5 percent in 2005 and beyond.
- Achieve annual operating income growth of 6 percent to 7 percent starting in 2005.
- Achieve annual returns on incremental invested capital in the high teens in 2005 and beyond.
Strategies
McDonald's has three key strategies to achieve all their plans. Because according to McDonald's one strategy alone is not enough. The strategies are designed to work together to help McDonald's to achieve the growth and improved returns they’re targeting for 2005 and beyond. The strategies are:
Right the ship-
‘Returning McDonald's to the operational excellence and leadership marketing for which we were once famous’
Their first priority is to improve restaurant operations and create marketing that people can relate to. They also want the food, the service, the ambience and the customer experience to be consistently very good. They intend to achieve this each and every day in all the restaurants around the world.
Align the System around McDonald's Plan to Win-
‘Revitalizing the brand and becoming more relevant to a broader group of people by consistently delivering on the drivers of exceptional customer experiences.’
The ‘new’ McDonald's is going to be aligned around the things that matters most, the five drivers of good customer experiences. The five drivers are People, Products, Promotion, Place and Price.
People: They think it’s the job of the staff to ensure the customers leave satisfied. They want to do a better job of staffing the restaurants during busy periods and rewarding and training their people.
Products: They want quality food and a various choice. They also want to provide food that fit into today’s lifestyle, like salad menus.
Promotion: They hope to achieve brand loyalty with the right promotion. With their new brand direction -I’m lovin it- they want to connect with customers around the world.
Place: The restaurants have to be clean, relevant and modern. It has to be a place with a welcoming environment where customers feel comfortable.
Price: The price has to be affordable for customers and profitable for the System. And there are going to promote brand and price together.
These drivers are the basis of ‘McDonald's Plan to Win’. By keeping deliver on all five drivers they hope to create enduring growth for McDonald's.
Manage for financial strength-
‘Reducing capital spending compared with 2002 and using the money remaining after capital expenditures to pay down debt and return cash to shareholders.’
They want to improve the profitability of the restaurants, and control the expenses associated with supporting their restaurants. They also want to divide there capital more effectively.
Achieving the objectives
McDonald’s is making new plans for the future. They management recently has set up a new revitalization plan with new objectives for the next years. So it is hard to say if they can achieve their objectives, this will turn out next year.
But as you can see in the diagram below, McDonald's has only grown over the past years. Not only the total revenues increased, but you can also see the number of restaurants is still growing.
In 1998 McDonald's decided their main objective had to be attracting more customers. This worked for a few years, but they noticed the numbers stopped growing so quickly. That is why they set up new objectives last year. Now one of the main objectives is to build brand loyalty, to ensure the customers will come back.
Functional areas
Every business, whether it’s a Plc or a sole trader, has six different business functions. The functions need to operate efficiently together in order to achieve the objectives. These functions are:
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Production
This is the basic function of any business, because this is what the customers need and where they make their profit on. A business has to control the production process strictly and they have to ensure the purchasing function is buying the right materials.
If a business provides services, this function is called ‘operations’.
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Research and development
This is an essential function, because if a business does not develop new products or update their existing products they won’t have a long-term profit.
The relevance of this function though, depends on the type of business. It is for a business based on technology much more important then for a business that provides food.
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Finance
This department is responsible for the financial record keeping. This involves all the money received and paid out. This information is used for the financial statements, which are required by law in case of limited companies. They also carry out the payment of wages and they raise the finance.
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Marketing and sales
This function is important because it helps the business to provide a product that people want to buy. Marketing is about what the customers want or need, and investigating how the business can satisfy that need. The sales function involves persuading the customers to buy the products that are already produced.
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Human resources
It is important to keep the staff satisfied, because the business can’t exist without them. The human resources department oversees every matter that has to do with the employees. It is responsible for the hiring new employees, training the staff and plan the workforce.
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Administration (facilities management)
This department is essential to keep the business turning. The administration department takes care of all the back-up needed by the business, for example catering, office machines, security, photocopying etc.
Business functions at McDonald's
When a business has set out its objectives, they have to co-ordinate their functional areas to achieve their objectives. The head office of the McDonald's Corporation is located just outside Chicago, the business functions are also to be found here.
McDonald's wants to appeal to a large public, so that’s why the production department now also manufactures fat-free products and salad menus. The helps McDonald's to achieve the important objective of attracting new customers. Recently McDonald's in Holland was nominated for an award called ‘good food 2002’ because of the McSalad shaker.
The research and development department investigates these new products, and the marketing and sales function ensures that there is demand for the new products and the customers know about the products. In this way marketing and sales contributes to achieving the objecting of profit growth.
The human resources department of the McDonald's Corporation is also placed in Chicago, but they only manage the employees of the head office. Every single McDonald's restaurant takes care of it’s own employees. Though every franchisee has it’s own employees, all restaurants has the same staff policy.
The finance department and administration department of McDonald's are also situated in the head office, and every restaurant keeps it’s own financial records and administration too. It is important for the finance department to provide accurate information and that is probably one of their objectives.
All the information of the different departments of the head office is collected in the annual report.
The business functions help the business to achieve its objectives. But how effective the management achieves its objectives depends on three factors:
- The structure of a business
- The style of the management
- The culture of the business
Structures
There are different kinds of structures. All the structures apply to different organizations. Not only to businesses, but to families, classes or schools too. In an organisational structure it’s important to note the communication between the different parts of the organization and the levels of control and authority.
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Hierarchical structure
A hierarchy is a series of levels of people, each level controlled by the level above it.
Large organizations like limited companies may have thousands of employees. They have a more complex and ‘taller’ organisational structure, which includes a number of levels of hierarchy and division into functional areas such as sales, finance and human resources. In the example you see the structure of a manufacturing company.
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Flat structure
A simple horizontal or ‘flat’ structure is very different from the complex hierarchical structure. In this kind of structure the diagram is flat in shape; there’s only one level of command. In this diagram of a sole trader you can see the owner has control over his assistants, he tells them what to do. The owner probably carries out the mains functions like finance, administration, marketing and human resources and the assistants do the selling.
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Matrix structure
The word ‘matrix’ means a web, which operates in two directions. Sometimes it is necessary to take people out of their functional areas to form teams to work on specific projects, as you can see in the example below.
The McDonald's restaurants all have a flat structure. There is one manager who is in control of the other assistants and employees. He takes all the decisions and he is in charge of the main functions. This makes it very simple for the staff because all they have to do is selling. This way they can pay more attention to the customers, so I think this is indeed the best structure for a McDonald's restaurant.
But the McDonald's corporation has a hierarchical structure. This is a huge company with lots of different departments which has to be organized very well, because if the employees aren’t directed in the right way they won’t do their jobs right. So this way it is all ordered and the people can work undisturbed, this saves time and money for the business.
Management
The management has four main functions.
Planning
This involves setting objectives and making plans to achieve those objectives in a certain period.
Organizing
They have to set up structures and procedures within the business that will help to achieve the objectives.
Directing
Once the functional areas have been set out, it is the job of the management to organize the workforce and direct what they are doing.
Controlling
The management has to control the activities in their business so they have to supervise what is being achieved.
Whether a managing succeeds in motivating their employees depends on the management style they take on. There are three different kinds of styles:
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Autocratic style
The manager takes all the decisions, and the employees have to do as they are told. They employees however tend to be less motivated in this kind of style. It’s suited to hierarchical structures.
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Democratic style
The manager still makes the decisions, but he discusses it with the employees so they are part of the progress. The employees usually are more motivated because they’re involved. This style suites the ‘flat’ structures.
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‘Laissez faire’ style
The manager here allows the employees ‘to go on with it’. He doesn’t give clear directions and has little input in how things go. This style can work well in small businesses, but it wouldn’t work in hierarchical structures because the employees tend to be unproductive.
McDonald's restaurants are working with the autocratic style. Because these are such small businesses there’s one manager, and the rest of the staff are all selling or preparing the food. The manager is the only one in charge and will make the decisions alone. This works because most of the restaurant staff is not highly educated, so the manager will know which decisions to make without consulting his staff.
The McDonald's corporation will probably also use the autocratic style. But there is not one person in charge, but there is a group of people on the management who are making the decisions. So there is no need for them to consult other employees, because they already are with a group to discuss the issues.
Cultures
The culture of a business is reflected in the way individuals in the organization carry out their tasks, the attitude and values of the individuals and how they rely on the organization’s rules. There are four main styles of cultures.
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Role culture
The tasks are clearly set out, there’s a clear chain of who’s in charge and the employees rely on the rules and procedures of the business.
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Task culture
This is task or project based; there is no one in charge. It is a team working on a specific project.
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Power culture
This is an organization with a powerful figure in the centre, he makes all the decisions.
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Person culture
This is only used for individuals like entertainers, or architects. There’s no formal structure at all.
The restaurants of McDonald's are using the power culture because there is one central figure, the manager, and he makes the choices.
The McDonald's corporation probably has a role culture. Every person in the company has his own ‘role’ and acts according to the rules and regulations of the company. All the work that has to be done is clearly defined and there is a clear chain of who is in command.
Affect on performance
I think the style and culture of McDonald's fits very good in their concept. Because in the restaurants they want to serve food quickly and keep the customers satisfied. In such environment it is better to have one central figure that makes the decisions and tells what has to be done. If all the employees would interfere with everything that is going on, every procedure would take a lot longer and they wouldn’t be able to serve the food that quickly.
McDonald's is also very strict about putting the customer first at everything. The employees now don’t have to worry about running the business but they are only concerned with the customer. This helps by keeping the customers satisfied and makes them feel welcome.
Communication
If a business successfully wants to achieve its objectives, it is important for the organization to communicate effectively. There are a lot of different ways to communicate, through telephone, through letters, through email etcetera. The most communication in a business goes electronic. ITC is an important part of the communication. The ICT has grown enormously in the past few years. It is possible to send emails from all over the world, you can check your computer files everywhere and almost everyone has a sell-phone. This is very useful for the communication within and between businesses.
There are different objections of communications, for instance; providing information, giving instructions, negotiation or confirmation.
There are different ways to communicate. You can use:
Because of the internet it is easy for the public to gain information on the company. This is an open form of communication as anyone outside the business can view different information on it.
The managers would use the internet to gain information on the business.
The fax machine for McDonalds is a vital piece of office equipment. It is used to transmit and receive important documents. Without ICT McDonalds would not receive these documents.
E-mail is the transfer of text, graphics and other information between computer users. The franshisees would use e-mail if they need to contact McDoanld’s and the other way round. Again this would not be possible without ICT.
The impact of ICT has had huge effects on internal and external communications of McDonalds. ICT makes the communication between the franchisor and franchisee much easier. It saves a lot of time and money, because information can be send and received without people have to tavel and the information can be received 24 hopurs a day.
Internal
Most of the McDonald’s restaurants also have a notice board, which they use to share important information with the staff. Information placed on the notice board could be:
- Health and safety requirements at work
- Terms and conditions of employment, for example, hours of work, rates of pay, period of notice needed when leaving
- Job description which sets out the requirements of the job
- Disciplinary procedures.
Another method of communication within McDonalds is the telephone. This can be used as a form of either formal or informal communication.
An example of formal communication would be to congratulate an applicant on receiving the job. This can also be done face to face.
An example of informal communication would be a manager phoning a staff member to see if they can work extra shifts. Again this can also be done face to face.
External
External communication at McDonald's goes two ways. They need to communicate with their customers and their suppliers.
Communicating with customers
The internal customers of McDonald’s are its employees. The external customers are the consumers.
Communication also takes place with potential customers. External customers require a different set of communication methods, sometimes called the communication mix. These will include advertising through the mass media, promotional and information literature and website selling, all of which require the use of ICT. Without ICT it would not be possible for McDonalds to advertise its goods to customers, so therefore would not be as successful.
Communicating with suppliers
Developing long-term relationships with suppliers is better than chasing the lowest cost by continually changing. McDonald’s works directly with suppliers on issues such as quality standards and environmental policies. They have to continue negotiating with their suppliers. Again without ICT this could not be possible for McDonalds.
Impact on communication
As you can see ICT has a big impact on the communication. Not only the communication happens much easier and quicker, but it is possible to send and receive information from all over the world.
Production process
This is the process that turns the inputs into the required outputs. There are three kinds of inputs: land, labour and capital. The outputs are the products or services that are offered to the market.
For instance, the inputs at McDonald's for a franchisee are
- The place to build the restaurant
- The effort and time of the employees
- Money to invest in the restaurant
- Equipments like machinery, tools etcetera.
The output in this restaurant will be prepared food and drinks, which leads to satisfied customers.
A process is efficient if you achieve the maximum result from the minimum cost. No matter what the business does, or what sector of the economy it operates, the aim will always be to organise production in the most efficient way possible. Efficiency relates to costs and to profits, but businesses also find it useful to relate the output to specific inputs, this is the productivity.
Quality assurance and control
It is important for a business to ensure that the products they are manufactured are of the right quality. To achieve this, they have to assure the quality before the production process and control the quality afterwards.
They have to start with purchasing quality products. McDonald's is associated with world-class suppliers that share their high standards. They also train their staff around the world in the proper storage, handling and preparation of the products. McDonald's has its own safety criteria, which always meet-and often exceed-the rules set up by the government.
For example, McDonald's has last year set up the McDonald's ‘International Scientific Advisory Council’. This council of scientists and medical experts from all over the world evaluated the safety practices for the meat. The council validated the McDonald's System’s as the best practices. They also worked with McDonald's to discover new opportunities to increase the quality of the meat supply.
Most countries have also their own Quality Assurance team. These teams monitor the quality of McDonald's food products, both in the restaurants and at the suppliers at all stages of production. They continuously make rounds of visits and inspections at McDonald's production facilities, distribution centres and restaurants. In the McDonald's restaurants no delivery is accepted until a series of quality and safety checks are completed. All restaurants complete a Daily Product Safety Checklist to ensure that the food served is of the highest quality.
Besides all this the McDonald's restaurants are using two quality control and assurance systems. These are:
Total Quality Management (TQM)
This is an organisational culture, which is totally committed to the continuous improvement of quality at all levels within every function and department. Every member of the organisation must be involved from the highest executive to the crewmembers of McDonald’s. The commitment to quality must be tought to everyone from the moment they join McDonalds.
For McDonalds this means improving their business in every way possible.
The basic principals of McDonalds are:
- Putting the customer first by:
- Making sure all customers are properly looked after and are fully satisfied with McDonalds
- Anticipating and fulfilling their needs
- Exceeding their expectations, by using market research to find out what they want, they aim to surprise you with their quality, choice and service
- Making sure that all service standards are met.
- Making continuous improvements by:
- Reducing costs. McDonalds could do this by cutting out unnecessary steps in the production service process by reorganising the sequence of work
- Better ordering procedures. I think that McDonalds could save time by moving to just-in-time ordering so there is no expensive useless stock is not
Do it right first time, it can be very expensive putting it right afterwards. Prevention is better than cure. This requires strict quality testing and control so that defective products are spotted immediately. This is particularly important when there are a series of separate processes involved. The technique requires inspection at every stage.
The advantages for using this system are:
- Every individual in McDonalds is responsible for quality
- Quality becomes the focus for all activities
- Everything McDonalds does is designed to satisfy their customers. This can lead to a greater market share and also increased profit.
The disadvantages for using this system are:
- Requires well-trained, responsible staff, this could cost more money for training each crewmember.
- The crewmembers in McDonalds may be resistant to change
- It takes time before TQM is set up.
Quality Circles
This is another quality control and assurance system that is used at McDonald's restaurants. A quality circle is a small group of people from the store who meet regularly to examine such workplace issues as quality, productivity, health and safety and food safety.
There are around 5 - 8 people trained in quality control techniques such as decision making and problem solving etc.
In McDonalds the membership is voluntary and each person can choose their own issues or problems to examine.
The advantages for using this system in McDonalds are:
- Each member of staff feels more important as they have been given more power and responsibility therefore they should do their job better
- Each member of staff is able to share experience and make concrete proposals
- Can result in cost reductions and improvements in productivity
- Encourages team-building and co-operation
The disadvantages for using this system are:
- May be resented by quality department
- Managers believe they may lose some of their power
- Management may not listen to the crews ideas
McDonald's says their commitment to quality and safety extends beyond their food to all they can do.
Adding value
The aim of the production process is to ‘add value’ to the goods or services being supplied so that they can be sold at a profit.
At McDonald's a cow has to be processed into meat, from the meat burgers can be manufactured and the burgers can be sold with sandwiches in the restaurants. Each step of this process adds value to the product.
Adding value makes the product more attractive to the customers and more profitable to the business.
McDonald's is also adding value by providing the best possible service. They put the customer first at everything they do. The restaurant staffs must have the knowledge and tools needed to ensure great customer experiences. They want to offer food as fast as possible because they discovered their customers tend to be pressed for time, especially the ones who are using the drive-thru.
They’re investigating the customer experiences by sending ‘mystery guests’ in the restaurant. These are undercover restaurant visitors who evaluate the experience from a customer’s perspective. This helps McDonald's to achieve the objective to keep the customers satisfied and ensure they visit more often.
And McDonald's is adding value to their products by serving safe products of the highest quality, as described above.
www.mcdonalds.com
www.mcdonalds.nl
www.mcspotlight.org
www.academicdb.com
McDonald's revitalization plan
McDonald's 2001 summary annual report
Advanced Business