Thesis Chapter 2 - McDonald's Secret of Success
McDonald's Secret of Success
Chapter 2: Literature Review
1940, the year when the two brothers established in San Bernardino, California the today’s well known McDonald’s restaurant. From focusing on the existing market and providing the products that are appealing to the customers such as hamburgers, the business recognized the growth and expanded (Svoboda, 1995; Botterill and Kline, 2007). In U.S. alone, it is estimated that there are more than 18 million of people that daily visiting a McDonald’s store (Svoboda, 1995). And in recent years, the firm became the favorite place of the teenager who usually hangout with their friends after school. Manager often took the youths’ behavior as a negative impact because they are “babysitting” the children, spending their time with single orders, and doing assignments which crowding their place. While this arrangement continuously affects the performance of the business, some manager viewed the “babysitting” approach as an additional opportunity and strategy (Kaounides, 1999). It only means that the parents trust the business and this is a good indication that market already entered in the store without even noticing it. The most admirable changes that might appear in the food servicing business is through the elimination of the unnecessary products or the products that do not add value to the firm, continuously producing appealing products, lowering the prices, making the service more efficient than before, and opening new stores (Patnaik and Mortensen, 2009).
2.1 McDonaldization: McDonald’s Business Model
According to the book of the sociologist, George Ritzer, McDonalds is the most notably fast-food business because it effectively revolutionized not only the restaurant business but also the American society, and even the world (Ritzer, 1995). McDonalds is successfully conquering the globalization and the application of the term “McDonaldization” is the representation of McDonald’s business model. McDonald’s Corporation is said to be moving in three spheres of philosophy of system in management, knowledge, and environment; technology, and society. The method of establishing an organizational system as a model is suggested to be common among the organization but can be effective in the internationalization (Boje, et al., 2005).
2.1.1 The Empire (Business Environment)
In 1955, the entrepreneur Ray Kroc entered and bought the rights to franchise the McDonald’s System and following the change of the name into the McDonald’s Corporation. Focusing on the marketing efforts targeting the children and family, the firm might be well known on their trademark using a clown with a happy face named Ronald McDonald (Stewart, 2004; Botterill and Kline, 2007). The introduction of such strategies was supported by the continuous promotion on television and on advertising that increasingly attracts most of the children. As expected, organizations are always looking forward for a continuous growth and McDonald’s is not different from those organizations that have an intention in providing strategies that are suitable in answering the demand for growth. Through the combination of three targets enumerated as the: maximization of sales and profits in the existing restaurants or branches; adding new establishments of McDonald restaurants and; improving the international profitability. Ray Kroc created an empire of fundamental principles that are based on those targets which delivers the Quality, Service, Cleanliness, and Value (Q.S.C. & V.). Other than that, there is also a development coming from the goals and operating practices that are appropriate in carrying out the company’s vision.
From the traditional values, McDonald’s integrated the learning into three strategic priorities; first is to enhance the appeal of McDonald’s in giving the value in to their customers by emphasizing the profitable value-meal combinations. Second is to provide the kind of service and care through exceeding the customer’s expectations in terms of accessible locations, quick service, quality of products, and cleanliness. And lastly, is for the company to remain an efficient producer while maintain the achievement of quality. This can be only possible by having a positive approach on the innovations in food processing, construction, and the design of their operations (Svoboda, 1995). All of the three strategic priorities are assumed to help increase the company’s global profits.
2.1.2 Changing Markets (Society)
The management of McDonald’s promoted several strategies that spin the mass-marketing efficacy. Many organizations attempted to follow the celebrated success of the company. However, same as the other organizations, McDonald’s and their various practices have been under the keen eyes of the critiques. The organization was observed to be involved in the issues of the student or young labors, environmental, and social concerns (Botterill and Kline, 2007). Moreover, the organization are said to be a great influence in changing the community or family values, globalization of culture, and health and lifestyle of the children. The issues that revolve in the market definitely created a bad environment for the company and reached in filing lawsuits of libel case (Patnaik and Mortensen, 2009).
2.1.3 Innovation (Technology)
But what would be the true secret behind the success of a company? Aside from this question, there is a train of assumptions of business strategies that gains respect from the past years. But one thing is for sure, there’s no story of magic involved. If the business analysts or strategists will be asked, they will surely answer what is mundane and obvious in the era of globalization. Innovation can be the simple answer of the businesses to provide the better execution in both manufacturing and service industry (Patnaik and Mortensen, 2009). Along with the trend of the innovation is the technological approach of the company in making the processes and services more efficient. The use of the telephone or online-ordering services makes it possible for the company to reach the people (Young, 2005). The vast influence of the technology in the lives of the people became one of the advantages of the company. Through the evolution of the technology, the business can now advertise via Internet and create a Website to help them learn the other concerns, suggestions, or demands of the customers. This strategy is part of the company to look into world by identifying the opportunities and placing the people to work according to the newly discovered opportunity.
The application of various processes within the organization encompassed with the relative theories. Accordingly, the theories are the fundamental ideas in generating the appropriate strategies. In addition, through the help of a good theory or the combination of theories, the organization can effectively navigate the business towards to success.
2.2.1 Theories of Global Culture
Part of the overall theories in globalization, the position of the culture and its impact in the individual lives is also affected. The world cuisines, world tourism, and patterns of consumption are affected by the McDonaldization (Ritzer, 1995). The world-wide domination of McDonalds across the globe is very obvious that tends to highlight the autonomy and capturing the different dimensions of cultural globalization. In accordance, the influence of McDonalds spread in the social and cultural processing, discovering that there is a human creativity in terms of human relations. The popularization of “McJobs”, “McInformation”, “McUniversities”, “McCitizens” and many others pertains to the “McWorld” which is characterized by the Western culture (Ritzer, 1995; Robinson, 2007). The cultural theories in globalization also mean universalism that is now the representation of the new global age.
2.2.2 Total Quality Management (TQM) Theory
McDonald’s is considered as one of the largest employer in the U.S., and it is amazing on how the business continuously attracts the customer. The promotion of the organization in terms of quality can be easily seen among the small and medium enterprises for it is difficult for an international market to handle. For an instance, the combination of the quality and service in an organization is a part of the material can the TQM can produce. Originally, this idea is a simple procedure by following the standard of practices and managing it as well (Khamalah and Lingaraj, 2007). In the application of the TQM in the system, McDonald’s can realize the changes more likely minimizing the customer complaints because the poor performance and customer services has been eliminated. The aggressiveness of the organization to provide the quality in service might reflect on the level of the management’s approach towards TQM.
The quality of control practices can be in the commitment of the management, relationship on customers and suppliers, quality measurements, benchmarking ideas, etc. (Agus, Ahmad, and Muhammad, 2009). In considering the TQM as part of the theories in the success of a business, the most admirable benefit it can deliver is the improvement of the productivity in which affects the profitability of every firm (Subedi and Maheshwari, 2007).
2.2.3 Customer Relationship Management (CRM) Theory
In service industry, it is expected that the organizations are the one who will act first to win the favor of the customers. A good relationship towards the market can be the greatest advantage of the business. Therefore, the creation of the CRM system serves as the process in which the business’s new ideas are based on the information formerly gathered from the customers. From the basic approach of the organization in surveys, the information are collected, analyzed, and transformed into another strategy. All of the ideas incorporated from the survey are effective strategies that can contribute to the company’s profits. In addition, surveys can be also changed into the suggestions that are popular on the online services of the organization (Pensar and Rinta-Runsala, 2004). On the other hand, the use of online marketing can be the tool for CRM and gain the ideas about the customer behavior. Since the online business cannot get in touch with the customers, they are only based their ideas by viewing what each customer wants (Young, 2005).
2.2.4 The Unified Services Theory (UST)
The UST is focus in targeting the customers’ perceptions and applying the customer-input concept. The service processes are broadly distinguished from non-services only through the presence of the customers. The customers’ inputs and implications are then turned to be part of managing the services (Sampson and Froehle, 2006). The uniqueness of this activity arises in the inputs or contribution of the customers or sometimes, referred as the suppliers of ideas, may be another challenge in the service management. The illustration of the universality in the services theory come into the concept and approach of the services management regarding the ideas of customers and treat them as their business partners in making their business more effective in the competition as well as in the market itself.
The consumer-producer interactions are important in the business process because it already proved itself pertaining to the diversified service businesses. Consumer, as an important element as input in services and as compared to the non-services such as the manufacturing or production firms, the involvement of customer’s input is not that high. The interaction of the service management and customers can directly influence the communication in which there is a conclusion of valuable ideas. As it brings the diverse perspective in one, there is an assurance that the value formulated from the interaction is not entirely wasted, otherwise, transformed into a much admirable way. The consumers provides another opportunity for the managerial insights which often leads to the strategies in innovation, strategy, design, implementation of new policy, quality in most of their concerned areas, and many others that can improve the service industry (Sampson, 2007). The reason behind this participation is probably behind the concept that products and services are meant to be enjoyed by the consumers. Therefore, to effectively deliver quality products and services, the firms should provide an important requirement that only the market can identify. In return, the firms can have the opportunity to deliver the customer satisfaction.
2.2.5 Queuing Theory
In service industry, it is common to create a line in front of the counter area; but it is unusual to see the line last for a very long time. In this case, the service of McDonald’s might in danger by simply losing the customers. Time is valuable, and as incorporated with the word “fast-food”, it is expected that fast service is the company’s philosophy. The waiting time in the line is called queue, it is usually formed when the customers arrived faster that they are expected to be served. The congestion of the customers is not a good sign for a quality of service. Under the queuing theory, which is originally came from mathematical modeling; there is an analysis of the queues or the waiting lines to be served (Berry, 2006). Making the customers wait might lead them to jump on decision to leave the store. It may sound simple but it can affect the firm, if not in sales and revenues, but in their reputation (Perros, 2004).
McDonald’s and other service businesses understand the importance of the customers and their time. Therefore, understanding the actual waiting time of the customers is essential for the organization, not to lose the consumer trusts. As an answer, the firm manages to set an appropriate action that effectively handles all the queues through the use of guidelines that target the specific speed needed to meet the delivery of service. It is important for the organization to understand the principle in waiting such as the average time in which the customer is willing to wait or the probability time when the customer will be served is part of service management that can effectively minimize the queuing time.
2.2.6 Theory of Purchasing Power Parity (PPP)
The theory of PPP, which is commonly applied in economics, states that the price level in any two countries should match after the conversion into a common foreign currency. The application of PPP in the international price determination often referred to as the “market basket” of goods that represents the consumer’s pattern in spending. Part of the studies in international economy is comparing the prices of McDonald’s Big Mac™ sandwich in various countries around the world and the price indexes were evaluated in prevailing exchange rates (Debres, 2005). Moreover, the product became the indicator because of its uniform composition. Big Mac, although often fails to meet the demanding tests of PPP, still considers as a convenient market basket of goods. One reason is the components or ingredients of the Big Mac are the same everywhere around the world (Pakko and Pollard, 2003).
2.3 In the Midst of Challenges
As a recognized leader in the world, still McDonald’s is competing among the collection of the national and international fast-foods across the globe. McDonalds has grown through several challenges and this includes their adaptation in foreign market. However, that typical challenge obviously did not stop the organization to continue opening additional restaurants. Still, there are many areas and changes are dictating the organizations’ next move. The challenges that includes are the global change for eating healthy and the issues of obesity, large invasion of the organization, online marketing, environmental factors, McJobs which concerns in hiring student and young workforce, and the international neck-to-neck competition among the other fast-food restaurants (Young, 2005; Botterill and Kline, 2007).
Probably, the biggest challenge that the organization faced is the demand of society for healthy eating and affects the governmental approach in health care (Lemieux, 2003). The social trend created a great impact on the firm and as recorded, in U.S. by the year of 2001, McDonalds became the least visited. This primarily affects the movement of the organization to establish another store in other places. However, this very same trend produced the organization another idea to change their strategy, instead of focusing in opening other store; they should try to introduce other healthy meals. There are new menus that are available for the range of children to adults and consist of fruit snacks and grilled chicken flatbread. Because of their product development, the organization finally recognized the revenues after the sabotaging years (Mujtaba and Patel, 2007). Also, the organization introduced vegetarian burgers as part of the British “ethical eating” but failed in U.S. and in Britain because of their relative failure to understand the desires of the primary market (Debres, 2005). The social threats for the change in healthy foods are not only the main concern of the society, but also the health issues exist in the society (Stewart, 2004). In the late twentieth century, the socio-cultural approach of most fast-food restaurants, like McDonalds, Burger King, Wendy’s, and many others are argued that they can only gave the risk in society such as alienation, waste, low nutritional value, other risks of health problems, and others (Robinson, 2007).
Various documentation, books, and movies became the critics of fast-foods and considering the influence that it can give to the people as well as in their health. In 2001, the investigative journalist Eric Schlosser revealed through his book, then afterwards became a movie in 2006, entitled “Fast Food Nation: The Dark Side of the All-American Meal” the various local and global influence of U.S. fast food industry and stating that McDonalds and its rival Burger King are the biggest consumer of meat products (Lemieux, 2003). And in 2004, an American Documentary Film starred and directed by Morgan Spurlock, entitled “Super Size Me” speaks that McDonald’s offer foods that are not appropriate to the body and by eating the meal everyday, only makes people bigger or fat and remain malnourish. The “McDiet” or eating nothing but McDonalds’ products can have an unwelcome effect in the body. Furthermore, there are many cases regarding the health issues and ethical operations are presented against McDonalds (Botterill and Kline, 2007). It is also identified that too much franchise can stifle the community and close competition that triggers to lose the consumers. This is the bad result of the McDonaldization that instead of focusing the additional customers, the organization focused on establishing stores (Stewart, 2004).
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