McDonald’s is the organisation, which operates globally. The organisation’s overall strategy in terms of its growth is that they want to be the leader in fast food service industry across the globe by following their philosophy that is quality, service, cleanliness and value. McDonald’s is divided into business units like American business unit, European business unit, Asian business unit, etc. Further, each business unit has been divided into sub-units. For example, European business unit has been divided into sub-units like McDonald’s UK, McDonald’s Germany, etc. (Head Office, McDonald’s)
Now onwards, unless and otherwise specified, the report concentrates on McDonald’s UK.
Corporate strategy & Key strategic issues of McDonald’s UK
(Using PLEST and McKinsey 7-S)
McDonald’s corporate strategy is to increase profitability and increase market share through high level of customer satisfaction. They want to be the UK’s best quick service restaurant experience. McDonald’s want to achieve this by focussing on Quality, Service, Cleanliness and Value. They believe that delivering great levels of “QSC&V” is the best way to achieve 100% customer satisfaction.(Employee Handbook,2003)
Some of the key strategic issues of McDonald’s can be considered as follows:
First, their commitment to the brand’s core functional attributes, which are about serving food, by friendly people in clean surroundings and at an exceptional value for money. Second, they keep raising their own performance, reinventing themselves to improve their operations and also their purchasing, training and marketing skills. (Continuous training and development) Third, autonomy and self-regulation of each business sub-unit in the way it delivers the vision. Here, McDonald’s UK is free to design their own strategy and framework they want to follow depending upon local market and local conditions. (Gilmore F,1999)
Other issues include taking the brand to new markets, strength of franchising, maintaining corporate identity, advertising, believing them as a part of community and protecting the environment. (Gilmore F, 1999)
What is HR strategy and what role it has to play?
An HR strategy can be defined as “the pattern that emerges from a stream of important decisions that indicate management’s major goals and the means that are (or will be) used to pursue them.”(Dyer, 1984;cited in Bratton and Gold,1999) HRM is closely related to business strategy. A range of business-HRM links have been identified and classified in terms of a proactive-reactive continuum. (Kydd and Oppenheim,1990;cited in Bratton and Gold,1999)As seen earlier, people and workforce of an organisation has been identified as capable of increasing productivity and hence achieving goals of the organisation. Thus, it has been almost necessary to design and implement HR strategy to support the business strategy once it has been determined. (Buyens & Ans De Vos, 2001 Human Resource Management Journal Vol.11 No.3) “The impact of HR practices on business results can and must be measured. HR professionals must learn how to translate their work into financial performance.”(Ulrich, 1997)
Adopting innovative HR practice, as measured by value added per employee, is associated with more effective organisational performance. (Thompson,1998;cited in Purcell, 1999 Human Resource Management Journal Vol. 9 No 3)
HR strategy of McDonald’s:
McDonald’s operates in the food industry that has a lot to do with quality, service, customer satisfaction, and hygiene. McDonald’s has identified its workforce as the key resource to deliver its philosophy, maintain its brand and achieve growth in terms of profitability. They feel that it’s impossible to achieve goals without motivation and commitment of the employees and also without keeping them satisfied. So, their HR strategy seems to be:
Increasing motivation and commitment of the employees, emphasising on learning and improvement of the employees by providing them training and satisfy them by various promotional programmes.
McDonald’s continues to enhance its strategic position by further evaluating additional factors critical, such as an employee’s perception of the organization. Also, they encourage employees to add a little bit of their own personality.(Dana Moore,I-O Psychologist, McDonald’s)
HR activities:
Theoretically, HRM activities include organisation design and development, job and role design, recruitment and selection, performance management, HR development, reward management, employee relations, welfare services, etc.(Armstrong M,2003)
For McDonald’s, training is continuous throughout the company and in the restaurants this includes day-to-day coaching and technology assisted learning programmes. Aspiring managers attend a two week advanced operations management class at company’s Management Training Centre. Once a year, they hold what they call “Founder’s Day”, when all office employees leave their desks, put on a new uniform and work in a restaurant for the day so that they remember what business they are in.(Gilmore F,1999)
Employees are being moved around from one function to another to gain experience in all areas of the business. Other HR activities include promotions in terms of position and pay(appraisals),scholarship programmes, service recognition awards, life assurance plan, private medical care, providing opportunity to employees to invest in shares of the company, etc. (Employee Handbook,2003)
Literature has identified two versions of HRM:
Hard HRM and Soft HRM.
Hard HRM emphasizes the quantitative, calculative and business strategic aspects of managing people. It regards people as human capital from which a return can be obtained by investing in their development. “The worker is regarded as a commodity.”(Guest, 1999)
Soft HRM emphasizes communication, motivation and leadership and the need to gain the commitment “It views employees as means rather than objects.”(Guest,1999)
Its focus is on ‘mutuality’ that is interest of management and employees should coincide.
As seen earlier in this chapter, McDonald’s has identified its “People” as part of the global corporate strategy for success. They use their workforce extensively to achieve their goals. Workforce has to follow clearly defined procedures and path. On the other hand, it is very clear from their HR activities that they stress on human side by motivating the workforce, developing commitment, collaboration and communication, skills development and appraisals. So, it is difficult to draw clear line between hard and soft HRM for McDonald’s rather it can be said that they follow both the approaches which includes more of soft HRM and less of hard HRM.
3. BEST PRACTICE AND BEST-FIT(CONTINGENCY)HRM THINKING
Comparison with “Best Practice” and “Best-fit”(Contingency) HRM thinking
Best Practice Model:
Best Practice HRM is the idea that a particular bundle of HR practices has the potential to contribute to improved attitudes and behaviours, lower levels of absenteeism and labour turnover, and higher level of productivity, quality and customer service, ultimately generating higher organisational performance and profitability. (Marchington & Wilkinson, 2002)
Components of best practice include employment security and internal promotion, selective hiring and firing, extensive training, learning and development, employee involvement and voice, high compensation upon organisational performance, reduction of status differentials, etc. (Marchington & Wilkinson, 2002;Hughes & Julia M, 2002 International Journal Of Contemporary Hospitality Management Vol.14 No.5)
The 40% of senior managers at McDonald’s have been promoted internally and not hired from outside directly. They started their career by working at the lowest level of the hierarchy that is as crewmembers in the kitchen of the restaurant. (www.bized.ac.uk) They conduct training, learning and development programmes regularly and extensively which is reflected in their HR activities. They also provide high level of employment security. By implementing various HR activities, they’ve been successful in developing committed and competent workforce who delivers quality and customer satisfaction and this can be observed easily by the current market position of McDonald’s.
On the contrary, the best practice model assumes that employers can take a long-term view of strategy. Practically, by personal experience, it is observed that the lowest level employees (who work in the kitchen and believed the ‘hub’ of the business) generally don’t have the perception of the organisation’s strategy. Also, employee voice has not much to do with the organisation and its strategy. (The lowest level employee of ASDA, Wal-Mart Inc., can make suggestion for the organisation, which is considered and discussed at senior management level.) Further, reward system is totally appraisal based and not performance based.
On the basis of above arguments, it can be said that McDonald’s has been practising many components of the best practice model but they’ve not implemented the full best practice model.
Best-Fit (Contingency) Models:
There are 3 different models have been defined under contingency:
(1) Business Life Cycle
Here, strategy reflects stages of organisational development i.e. start-up, growth, maturity and decline. It relates human resource functions (recruitment and selection, compensation and benefits, employee training and development, employee relations) with business life cycle stages.
Talking for McDonald’s, at least one new restaurant opens still today anywhere in the world (Headquarters, McDonald’s) and recruitment is all round the year.(HR department, McDonald’s) Training and development, as seen earlier, has been practised regularly and extensively. Best-fit model says that during growth, organisation recruit adequate numbers and practises effective management and organisational development. (Marchington & Wilkinson, 2002) McDonald’s is controlling labour costs, maintaining labour peace and improving productivity, which matches the HR function during maturity of an organisation according to the model.
It is difficult to say exactly which stage of business life cycle in McDonald’s is. But it can be said implicitly that they are mature but still growing at particular rate.
(2) Strategy/Structure
HR choices are linked to organisational aims and structure.
Miles and Snow (1984;cited in Bratton and Gold, 1999) identified four modes of strategic orientations:
Defenders, prospectors, analysers, and reactors.
Defenders are companies with a limited product line and the management focus on improving the efficiency of their existing operations. HR practices in defenders include extensive and long-term focus, well defined career ladders, clear grading structures, employee share ownership, well-established HR function, etc. Prospectors are companies with fairly broad product lines that focus on product innovation and market opportunities. It has tight performance standards and expectations (Bratton and Gold, 1999)
From the corporate strategy and issues of McDonald’s, it is seen that they are very keen on improving their efficiency (by extensive training and development) and always working to take the brand into new markets. Therefore, it can be said that McDonald’s is classified as combination of defenders and prospectors.
(3) Business Strategies
The model is based upon Porter’s competitive advantage model.
Michael Porter (1980;cited in Bratton and Gold, 1999) formulated a framework that describes three competitive strategies: low-cost leadership strategy, differentiation strategy, and focus strategy. In a differentiation strategy, managers try to distinguish their services and products –such as brand image or quality. In this way, value is added to the product and reflected in the product price.(Purcell, 1999 Human Resource Management Journal Vol.9 No.3)
In literature, it is also said quality enhancement which includes sophisticated methods of recruitment and selection, comprehensive induction, focus on learning and development, benefits package, working closely with line manager, etc.(Lecture Notes,2004 Topic 2)
McDonald’s has achieved its present position by distinguishing its brand and providing quality of food and service across the globe. They have their standard recruitment methods and policies, highly focussed training and learning, reward system for employee benefits. HR function works very closely with line management, which can be derived from their HR strategy and activities. So, on the basis of above, it seems that they have been following differentiation strategy.
Criticism of contingency theory is that it simplifies reality i.e. no one single feature dominates in the real world. Practically, it is difficult to integrate HR strategy with corporate strategy. In reality, it is very difficult to follow one model purely and totally. Some of the largest UK companies have been using several HR practices at the same time to complement and reinforce each other. (www.hrmguide.net)
4. CONCLUSION AND RECOMMENDETIONS:
Conclusion:
From the discussion above, it is very clear that McDonald’s has been successful so far because of the commitment to their brand, raising their own performance, their philosophy and autonomy provided. Also, it can be concluded that McDonald’s has implemented HR strategy and integrated it with the corporate strategy really well and have implemented some HR practices at the same time, which is reflected in their success.
Recommendations:
As McDonald’s operates in the food industry, which has to deal with quality and service, there are always chances of improvement.
From the analysis carried out here, following recommendations may be suggested to improve performance.
As analysed, ‘people’ are the key resource for McDonald’s. It has been observed by personal experience that the lowest level employees (crew members working in the kitchen-most responsible persons in delivering the philosophy of McDonald’s-QSC&V) are not satisfied with pay and reward schemes. Also they are unhappy with appraisals as appraisals are majorly concerned with pay only.
Talking in HR terms, McDonald’s can increase motivation and commitment of lowest level employees by improving their appraisal schemes. This can be done by rewarding and appreciating employees regularly rather frequently (compared to present) on the basis of results of appraisals.
Performance management is also good practice to increase motivation, commitment and satisfaction of the employees.(Armstrong M,2003) From the analysis, it is seen that there are bright chances of introducing performance management into the organisation. Initially, it can be implemented partly on experimental basis and depending upon the outcomes, McDonald’s can decide whether to continue it or not.
APPENDIX:
In summarizing the organisation’s corporate strategy and strategic issues, strategy analysis tools-PLEST and McKinsey 7-S, have been used.
Here, one or two factors of PLEST & McKinsey 7-S are shown as examples, which affect the corporate strategy of the organisation.
McDonald’s India offers products developed especially for the Indian market, especially vegetarian customers. It serves only mutton, chicken, fish and vegetable products, not beef, pork or their by-products because selling beef is political and legal issue in India and also a religious matter and hence socio cultural factor.
Saudi Arabia has a restaurant which closes five times a day for Muslim prayer.
This is religious matter and so socio cultural factor.
Also, McDonald’s have been changing their packaging from time to time depending upon environmental demands and issues.
The strong brand image and relationship with people are their internal strengths that can be classified as their skills under McKinsey 7-S.
Dividing organisation into sub-units can be considered as structure, their culture (remained focused on their core business) as style factor of McKinsey 7-S.
BIBLIOGRAPHY:
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Bratton, J. and Gold, J. (1999) Human Resource Management, Theory and Practice 2nd Edition MacMillan Business
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Armstrong, M. (2003) A Handbook of Human Resource Management Practice 9th Edition London Cogan Page
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Marchington, M and Wilkinson, A (2002) People Management And Development-Human resource Management At Work 2nd Edition CIPD
- Ulrich, D. (1997) Human resource champions: The next agenda for adding value and delivering results. Boston, Massachusetts: Harvard Business School Press
- Buyens and Ans De Vos, 2001 Human Resource Management Journal Vol.11 No.3
- Purcell, 1999 Human Resource Management Journal Vol.9 No.3
- Hughes and Julia M, 2002 International Journal Of Contemporary Hospitality Management Vol.14 No.5
- Lecture Notes, 2004
Topic 1.What is HRM?
Topic 2.Organisation and HRM strategy
- Gilmore, F. (1999) Brand Warriors: Corporate Leaders Share Their Winning Strategies, Harper Collins Business
- Mintel- the database, Lanchester Library, Coventry University
- Employee Handbook (2003) McDonald’s Restaurant Limited
- Human Resource Department, McDonald’s UK
- McDonald’s Restaurant Ltd., Cross Cheaping, Coventry