McDonald’s Success in 2008 and 2009

QUESTION

Case: McDonald’sPlease read the following case and answer the questions.
Currently in “bad times”, McDonald’s ability to create value for its stakeholders (e.g. customers, shareholders and employees) during the difficult times of the global recession that began around the beginning of 2008 and continued through 2009 is truly impressive. As an indicator of the quality of their performance, consider the fact that during 2008 McDonald’s and Walmart were the only two companies listed on the DowJones Industrial Average that ended the year with a profit. With one of the most recognized brands in the world, in mid-2009 it found McDonald’s operating approximately 32,000 restaurants in 118 countries. The largest chain fast-food restaurant in the world, McDonald’s sales revenue was $70.7 billion in 2008, up from $64.1 billion the year before. The chain serves more than 58 million customers daily. McDonald’s dominates the quick-service restaurant industry in the United States, where its revenue is several times larger than Burger King and Wendy, its closest competitors. This impressive performance of McDonald’s as the first decade of the twenty-first century at this time came to an end and this suggests that the company is not effectively implementing its strategy. (Strategy is defined as an integrated and coordinated system of a set of commitments and actions designed to exploit core competencies and gain a competitive advantage.) However, McDonald’s image was much less positive in 2003. In that year, some analysts concluded that McDonald’s “seemed obsolete” because it did not realize the changes in the interests of its customers and needs.

The fact that the company reported its first quarterly loss in history in 2003 and the decline in its stock price from about $48 per share to $13 per share, suggested that McDonald’s was becoming less competitive. However, by mid-2009 things had changed dramatically for McDonald’s. Its shares were trading at around $60.How was this radical change achieved? After examining the deteriorating situation of their firm in 2003, McDonald’s strategic leaders decided to change their strategy at the corporate level and take different actions to implement their strategy at the business level. From a business-level strategy perspective, McDonald’s has decided to focus on innovations and product upgrades from its existing properties rather than continuing to rapidly expand the number of units, while relying almost exclusively on the commodities it had sold for many years as the source of its sales revenue. From a corporate-level perspective (corporate-level strategies), McDonald’s has decided to become less diversified. To reach this goal, the firm sold its interests in the Chipotle Mexican Grill restaurant concept and the Boston chain and market where it sold its minority stake in Preta Manger as well.
Operationally, McDonald’s begins to listen carefully to its customers, who demanded value for their money and comfort, as well as healthy products. One analyst describes McDonald’s response to what it was hearing from its customers this way: “McDonald’s eliminated the super-size option, which offers more premium salads and chicken sandwiches and has offered greater value options. Better training for employees was also initiated, extending service hours and redesigned stores to appeal to younger consumers. However, as McDonald’s experiences in the 2000s indicate, business success is never guaranteed. The likelihood that a company will succeed in the long term is indeterminate when strategic leaders constantly evaluate the adequacy of their firm’s strategies, as well as the actions taken to implement them. With this in mind, McDonald’s established continuous offering of innovative food products to customers and created Mc Café in almost every location in the United States in 2009. McDonald’s coffee drinks create value for customers by giving them high-quality beverages at prices that are typically lower than those of competitors like Starbucks. A Southern-style chicken sandwich was also added to the signature of chicken-based offerings. The company continues to improve its existing stores and in anticipation of a global
economy recovery. Strategic leaders seem to be committed to making decisions today to increase the likelihood that the firm will be more successful in the future as it was in the last years of the first decade of the twenty-first century.

McDonald’s Case Questions

1. Do you think McDonald’s was successful during 2008 and 2009? Why?

2. What was the reason for this success?

3. Which companies did McDonald’s beat and how did I outperform them?

4. At what level of strategy did McDonald’s decide to change and why? Explain each of the levels of strategy that changed and what each level of strategy consisted of.Answer questions completely and concisely.  Provide clear examples, if necessary.

1. What do you think was the easiest task in conducting this week’s case study?  Why?
2. What do you consider to be the most difficult work and why?

Also, reflect on the implementation of organizational strategy, answer:

1. What is it? How is the organizational strategy implemented? What factors should be considered for successful implementation?

ANSWER

McDonald’s Success in 2008 and 2009

Yes, McDonald’s was successful during 2008 and 2009. Despite the challenging economic environment caused by the global recession, McDonald’s managed to perform exceptionally well. One indicator of their success is the fact that in 2008, McDonald’s was one of only two companies listed on the Dow Jones Industrial Average that ended the year with a profit. Their sales revenue increased to $70.7 billion in 2008, up from $64.1 billion the previous year, and they served more than 58 million customers daily. This success can be attributed to various strategic changes and actions taken during this period.

Reasons for Success

The primary reasons for McDonald’s success during this period were strategic changes and a shift in focus to better meet customer demands. McDonald’s began to listen carefully to its customers, who were seeking value for their money, comfort, and healthier food options. They responded by eliminating the super-size option, offering premium salads and chicken sandwiches, and providing greater value options. They also improved employee training, extended service hours, and redesigned stores to attract younger consumers. Additionally, McDonald’s introduced innovations, such as the introduction of Mc Café in most U.S. locations, offering high-quality coffee beverages at competitive prices. They also expanded their menu with items like the Southern-style chicken sandwich.

Outperforming Competitors

In 2008 and 2009, McDonald’s outperformed its closest competitors in the quick-service restaurant industry, such as Burger King and Wendy’s. McDonald’s revenue was several times larger than these competitors, and its ability to adapt to changing customer preferences and provide value for money helped them maintain a competitive advantage.

Changes in Strategy Levels

McDonald’s made strategic changes at both the corporate and business levels to achieve its success.

Corporate-Level Strategy

McDonald’s decided to become less diversified by selling off interests in businesses like Chipotle Mexican Grill and the Boston chain. This move allowed the company to focus more on its core competencies in the fast-food industry.

Business-Level Strategy

At the business level, McDonald’s shifted its strategy towards innovation and product upgrades within its existing properties, rather than rapid expansion. They also diversified their menu by offering healthier and more premium food options, better training for employees, and redesigned store layouts to appeal to a broader customer base. This strategic shift helped McDonald’s adapt to changing consumer preferences and maintain its market leadership.

The easiest task in conducting this week’s case study was likely identifying the key success factors and strategic changes that McDonald’s implemented in 2008 and 2009. This information was readily available in the case, and the success factors were clearly outlined.

The most challenging aspect of this case study may have been analyzing the specific changes at the corporate and business strategy levels. It required a deeper understanding of strategic management concepts and the ability to connect the actions taken by McDonald’s to their strategic objectives.

Regarding the implementation of organizational strategy:

What is Organizational Strategy Implementation?

Organizational strategy implementation is the process of putting a company’s strategic plan into action. It involves translating the strategic goals and objectives into practical actions and initiatives at various levels of the organization to achieve the desired outcomes.

How is Organizational Strategy Implemented?

Successful strategy implementation involves several key steps:

Clear Communication: The strategy must be communicated effectively to all levels of the organization. Everyone should understand the strategic goals and how their roles contribute to the overall plan.

Resource Allocation: Allocate the necessary resources, including financial, human, and technological resources, to support the strategy’s execution.

Goal Setting: Set specific, measurable, achievable, relevant, and time-bound (SMART) goals that align with the strategic objectives.

Action Plans: Develop action plans outlining the tasks, responsibilities, and timelines for achieving the goals.

Monitoring and Control: Continuously monitor progress, track key performance indicators (KPIs), and make adjustments as necessary to stay on course.

Feedback and Adaptation: Encourage feedback from employees and stakeholders and be willing to adapt the strategy in response to changing circumstances.

Leadership and Accountability: Strong leadership is essential for driving the implementation process. Leaders must hold individuals and teams accountable for their roles in strategy execution.

Factors for Successful Implementation

Leadership Commitment: Top leadership support and commitment are crucial for successful strategy implementation. Leaders must set the example and actively champion the strategy.

Organizational Culture: Ensure that the organizational culture aligns with the strategic goals. Culture can either facilitate or hinder implementation.

Effective Communication: Clear and consistent communication of the strategy at all levels of the organization ensures that everyone understands their role in implementation.

Resource Alignment: Adequate resources must be allocated to support the strategy. This includes financial investments, skilled personnel, and technology.

Flexibility: Recognize that the business environment is dynamic. Be prepared to adapt the strategy as needed to respond to changing conditions.

Employee Involvement: Involve employees in the process, listen to their feedback, and encourage their active participation in strategy execution.

In summary, successful organizational strategy implementation requires a well-defined plan, clear communication, resource allocation, monitoring, and a commitment to adapt as necessary. A supportive leadership team and an aligned organizational culture are also essential factors in ensuring the strategy’s successful execution.