Ethical Business In The Minds Of Its Customers Commerce Essay

This paper aims to answer the question “Has McDonald’s PLC achieved its objective of being seen as an ethical business in the mind of its customers?” I chose McDonald’s because it is one of the biggest food outlets in the world. Over the years, it has been criticised by costumers for being unhealthy and not environmental conscious.

My investigation is based on a comparison of what McDonald claims to change and to work on against the counterclaims posed by the public. In order to fortify my claim, typical case studies of how McDonald has achieved being an ethical business in the eyes of the consumer were presented and analysed. They are: “Analysis of the McDonald’s Beef Fries Controversy” and “the McDonalds Happy Meal Challenge”.

Other research and enquiry was done to further analyse my investigation and they include: a primary research and a secondary research .A primary research was carried out in order to seek the opinion of the people in my local community about the state MacDonald’s has reached as an ethical business. To further investigate on this, a secondary research was conducted using the company’s sustainable card for the year 2011 in order to determine if McDonald’s is environmentally sustainable. Results gotten from this were analysed and it was observed that 60% of the people who answered the questionnaire were not satisfied with McDonald being an ethical company due to certain reasons. The remaining 40% of people wer in support of MacDonald’s being ethical.

In conclusion, I realised that McDonald is really not as ethical as most allegations claim. With regards to this, suggestions regarding marketing strategies, and organisational structure were given under my recommendations. With these suggestions, McDonald can indeed reach a commendable level as an ethical business someday in the future.

Word count: 295

Table of content

Abstract……………………………………………………………………………………………………………..1

Introduction………………………………………………………………………………………………………3

Research Question…………………………………………………………………………………………….3

Investigation……………………………………………………………………………………………………7

Body…………………………………………………………………………………………………………………8

What is ethics?…………………………………………………………………………………………8

Organisational Structure of McDonalds……………………………………………………10

Case Studies on McDonalds as an unethical business and Counterclaims by the company as being ethical…………………………………………………………………………12

Result Analysis…………………………………………………………………………………………………16

Conclusion………………………………………………………………………………………………………18

Recommendation……………………………………………………………………………………………..19

Bibliography……………………………………………………………………………………………………20

Appendix…………………………………………………………………………………………………………21

Introduction

In 1937, McDonald’s was started as a drive-in restaurant by two brothers, Richard and Maurice McDonald in California. From the beginning, it was making about $200,000 per annum. However, in the 1940’s the company began to implement self-service policies called the ‘Speedee system’ where consumers serve themselves and this boosted their annual earnings.

Initially, McDonalds was designed for mass production where people line up to collect their food. During this era, food prices were relatively low and the two brothers considered service and cleanliness as the paramount factors to the success of their business. With this growing in buisness, people started showing interest in this business and wanted to take it on as a franchise. A franchise is an agreement where a business (the franchisor) sells the right to other businesses (the franchisees) allowing them to sell products or to use them to sell products or use the company’s name (Dave Hall, Rob Jones. 2004. P.50) This system failed because at this point the Donald brothers were very transparent in their business dealings. In addition, this franchises formed were not able to meet up with standards set by the parent organisation. This encouraged a lot of imitators that copied their business and the format it employed.

However, in the early 1990s, McDonald’s was facing problems due to changing customer preferences and increasing competition. Customers were becoming increasingly health conscious and they wanted to avoid red meat and fried food. They preferred to eat at other fast food outlets that offered discounts. (Anon. 2002)

As at 21 may 2012,McDonalds was ranked by the Fortune magazine (Anon, 2012) as first company in the food services making him the world’s largest fast food chain, selling primarily hamburgers, chicken, French fries and carbonated drinks and more recently salads, fruit and carrot sticks. There are McDonald’s restaurants in 120 countries and territories and they serve about 54 millions of customers each day.” (Anon, 2006)

Such a success implies a lot of responsibilities such as finding the right management style to keep the business running a good Human Resources management in order to have the best workforce to be able to deliver good services and to satisfy the consumers. The consumers are one of the most important elements for a business’s success so there opinion should be considered. Looking at McDonald’s which operates in the food industry; it has to provide food that is in respect with consumer’s health, culture, taste, etc… This aspect of the business is called Ethics which is a system of moral principles, being in the business context we talk more of Business Ethics.

Business ethics could be defined as the moral values that guide the way corporations or other business make decisions (Mark S. Putnam.2002).

It is at this junction, my research question: “Has McDonald’s PLC achieved its objective of being seen as an ethical business in the mind of its customers?” comes in. I might be a bit prejudiced in my judgement and answer to this question as I have been a big fan of McDonald’s right from childhood. Consequently, I have employed other sources to aid my unbiased and objective analysis of this.

Over the years, there have been a lot of cases and reports presenting McDonalds as an unethical business. The question here is; how true are all these allegations which are laid against this company? Are there other perspectives as to its credibility as an ethical business and what are preferable suggestions as to how McDonald can be more ethical, if indeed they are currently considered unethical in the minds of the consumers? All these are going to be analysed in my essay bringing to the limelight both sides of the coin and critically analysing various prominent case studies such as; The McDonalds Beef Fries Controversy, and McDonald’s Happy Meal Challenge. With all this in mind, conclusions as to whether McDonalds has been an ethical business will be made and preferable suggestions given as to how to boost their image.

McDonald’s has to portray a good image to its customers and its employees; by offering a good quality of food. This essay aims to investigate the achievement of McDonald as an ethical business over the years as well as its loyalty lies i.e., its profit or the well-being of the community and the environment at large. The problem is that on various accounts, allegations have been laid against McDonalds as an unethical business. Many ethical issues are subjective and are difficult to enforce and easy to neglect that is why I have come up with the title of “Has McDonalds PLC achieved its objective of being seen as an ethical business in the mind of its customers?”

Investigation

With regards these allegations passed on McDonalds as to not achieving the standard as an ethical business, a primary research was conducted in the form if a questionaire This was done to find out peoples opinion on this subject matter i.e; whether they think they are ethical or not. I chose a stratified sample of public, because it makes the sample more representative of the whole group. The sample is divided into segments. I therefore chose a sample of 20 people aged from 17 and plus and all of them went to different locations in the world. The questionnaire was launched on Survey Monkey (Darrell, 2012), so that everybody could fill it, and I will make the results more general.

As secondary research I looked at the McDonald’s Sustainability scorecard and for the year 2010 and 2011 (refer appendix 1), to look at the goals that McDonald’s has set to meet in terms of ethics. These goals could be included in the questionnaire for the customers to counter or to confirm their affirmation of being ethical.

I also looked for different articles and point of view about McDonald’s ethics which will be used to counter McDonald’s opinion about its ethics. They are: “Analysis of The McDonald’s Beef Fries Controversy” and “the McDonalds Happy Meal Challenge”.

Body

What is Ethics?

The ethics of a business depends upon the values of its employees. The ethical stance of a business is likely to be determined by the values of senior managers, directors and other important stakeholders. It will also be influenced by codes of conduct which may operate in the industry. The term ethical is used to refer to businesses which explicitly recognise the importance of social responsibility and the need to consider its actions upon stakeholders. This has led to the rise of stakeholder concept. Some businesses now take into account the needs of employees, customers, suppliers and the local community as well as shareholders when making important business decisions. The benefits of this approach might include the following:

If the needs of the McDonald’s employees are taken into account which is usually a higher salary they may be more motivated, more productive, more loyal, more flexible and less likely to leave. However if McDonald’s chooses to focus too much on shareholder needs might find it difficult to recruit high quality staff.

If businesses have a higher regard for the local community they might win their support. For example, if the local community is consulted when expansions plans are announced, there may be less resistance to the construction of new buildings. Having their regard for the local community is also likely to improve the image of the company. In this case, McDonald’s could consult the local communities about the food they serve and their origin, this will make less protestations and this will give McDonald’s the image of an ethical business.

If the needs of customers are satisfied more effectively there is likely to be an increase in business. For example, if McDonald’s deal with complaints in a friendly and supportive manner, customers are more likely to return and “spread the good word”.

One way of considering the impact of businesses upon society is to view all the groups affected by the behaviour of a business as a stakeholders. The stakeholders in the case of McDonald’s are likely to include customers, employees, shareholders, suppliers, government and local communities.

The following lines of my extended essay will mainly be the comparison and the analysis of some information collected from McDonald’s which obviously would described itself to be an ethical against some articles found on the internet which contradicts the version of McDonald’s of being ethical. While a business is considering its stakeholders, a problem could possible arise which is the ethical dilemma. Ethical dilemma is the moral decisions that have to be made when choices are equally unfavourable. With McDonald’s being so popular, they have to meet the demand of their patrons, but at the same time, think of ways to make more sales, cut costs, and basically maximize the profits of the firms. During these processes, they face many ethical dilemmas concerning their consumers and competitors.

Many Fast food restaurants serve foods that are unhealthy to a high fat content which is detrimental to the health of its loyal consumers. They are basic decisions that these fast-food restaurants like McDonald’s have to make with regards to serving healthy food. Should they increase the cost of food served and provide healthy meals or serve deep-fries that can cause health hazards in the long run.

Most fast-food restaurants tend to imitate menus of their competitors. For example, McDonalds started selling twisters also known as curly fries which was originally a product of A&W. This food was very high in price at the expense of the consumers as it was unhealthy. This is unethical and these outlets should invest into Research and Development of new foods which would have the health of their consumers at heart rather than copying their competitors and exploiting their customers (Anon. 2008).

In some cases, these Fast-food outlets tend to cut down the portions of food served. Many of McDonald’s customers have noticed that the burgers are smaller (Anon,2008). Thus they are not satisfied after eating the food. The company increase the price of the food in order to meet the demands of the consumers. This will then make the consumers buy more in order to be satisfied. At this point, there is a question that comes in; ‘Should McDonald’s reduce the amount of food served at the same price in order to maintain their reputation of being honest or to increase the price to maintain their net profit and destroy the reputation as an unethical business?

In order for these fast-food restaurants to be ethical, the decisions made could either be detrimental to them in terms of their profit margin although it would be to the benefit of the consumers. In this capitalist economy nowadays, which fast-food outlet is ready to suffer at the expense of their consumers?

Organisational Structure of McDonalds

To be able to answer if McDonald’s is an ethical company in the mind of its customers I am going to look at the organisation’s structure of McDonald’s. McDonald’s Corporation franchises and operates McDonald’s restaurants in the global restaurant industry. These restaurants serve menu at various price points providing value in 119 countries globally. This is due to the difference in currencies and of the consumer wealth due to the different GDP per capita of these countries as well as the varying exchange rate system. All restaurants are operated either by the Company or by franchisees, including conventional franchisees under franchise arrangements, and developmental licensees and foreign affiliated markets under license agreements (Anon, Unknown).

McDonald’s has a centralized organisational structure. It means that the decision making and the authority are in the hands of few persons in the McDonald’s head office. The franchises around the world are dictated how to order, cook and prepare all the food from McDonald’s headquarters. The headquarters also make decisions on the price at which the products have to be sold (Anon, 2012).

Referring to their Global Sustainability Scorecard in the appendix 1, McDonald’s claims to be an ethical business by giving back to the community and the environment by working with schools and local organisations, and by showing how it has improve his food and how it improved the working conditions at McDonald’s. According to their scorecard, in the countries they operate they have been able to raise $ 170 million from all the countries through the McHappy Day (McDonald Corp. 2011) and $27 million from customer donations. I can actually say that McDonald’s undertakes some actions for its community, but it does not actually say what they plan to do with the money they have raised and the reason why they raised money. McDonald’s is undertaking actions to give itself an ethical image but it still uses the customers to collect funds instead of using a part of the huge profits it makes. However, it has included fruits and vegetables in its menu in their restaurants in North and South America and West Europe. This could probably mean that they are conscious that their food is healthy enough for their customers. But McDonald’s could appear more ethical in the mind of its worldwide customers if it expands the new menu into the others restaurants in the world, since McDonald’s has been accused by health campaigners in America and Europe of helping to cause an obesity epidemic.

Case Studies on McDonalds as an unethical business as well as Counterclaims by the company as being ethical.

While researching on the McDonald’s ethics an article called “McDonald’s Beef Fries Controversy” (Anon. 2002) was found where McDonald’s was sued by Hindu activists in India because of the French fries that were falsely promoted to be 100% vegetarian, while there was some beef flavouring in it. This case could be classified as unethical, because McDonald’s does not respect the religious values of Hindus, thus its social responsibility towards it customers is eluded. Social responsibility is the duty that a business owes those who are directly or indirectly affected by its activities.

McDonald’s headquarter makes most of decisions and the franchises follow the orders from the headquarters. This could lead to a problem as there might be bureaucracy and these franchises might not be honest. This affects the image of McDonald, since there is no control of what is being done in the others restaurant. Disadvantages such due to lack of centralised organisational structure could arise as there is no control of the subsidiaries. Thus, franchises have no power to make decisions without consulting the managers due to bureaucracy.

McDonald’s mission is to be the favourite family restaurant and it believes that this involves protecting the environment at a local and global level. McDonald strives to ensure that its operations today do not have a negative impact on the lives of the future generations. McDonald’s goal is to achieve continuous environmental improvement so it complies with all current legislation and where possible, acts in anticipation of future environmental legislation McDonald’s bases its environmental program around the hierarchy of ‘Reduce, Reuse, and Recycle’ and are committed to continuous review, evaluation and improvement of its program. This includes targets and monitoring and reporting on progress towards meeting them.

McDonald’s business impacts on the environment through:

-Sourcing agricultural products and other materials to serve and build its restaurants

-The operation of its restaurants and administrative functions.

McDonald’s aim to address these impacts by:

-Improving energy efficiency

-Minimise impacts associated with odours, noise.

Previously, there were most famous environmental issue. It was suggested that McDonald’s had destroyed hundreds of acres of Brazilian rainforest to make way for large-scale cattle ranching. This not only removes a valuable natural resource, but also has an impact on global warming, as the rainforest is an essential mechanism for the absorption of Carbon Dioxide in the atmosphere. McDonald’s also ‘annually produces over a million tons of packaging used for just a few minutes before being discarded. Traditionally a number of ozone depleting gasses were used in polystyrene foam packaging. In the 21st century, McDonald’s uses almost all recycled packaging. However, the company still faces criticism due to the amount of waste it produces. ‘Each of McDonald’s US restaurants produces 238 pounds of waste per day and each of its U.S. regional distribution centres disposes of another 900 pounds of waste per day'(Kevin Thompson. 2006). This is not only expensive to dispose of, but also difficult when considering that similar quantities of waste are being produced around the world.

Aside from the pollution from factories where the food is produced, the unusable waste from nearly all the food they sell, and the massive amounts of power and energy that are required to keep all branches up and running, this corporation is destroying natural rain forests. McDonald’s like to purchase their meat from privatised farms, which is not a problem in itself. The conflicts arise when these privatised farmlands are built on the land where a lush rainforest once resided. So not only is McDonald’s polluting the air, but they are destroying a large part of what would help to keep clean it out.

McDonald’s has also been accused for internal ethical issues related to the working conditions and treatment of employees. ‘McDonald’s employs over 1 and a half million people worldwide, over half of them are under 21 years old’. McDonald’s has adopted ‘age differentials between adult and younger workers, meaning that they pay most of their employees less than the normal adult minimum wage’. For example, McDonald’s pays some 16-year olds as little as $6.80 an hour. McDonald’s employees also experience poor working conditions with discrimination, illegal working hours, and poor safety conditions (Kevin Thompson.2006). There is little that can be done about this due to the absence of trade unions, within McDonald’s, to represent staff. If Milton Freeman’s theory of stakeholders is adopted, the needs and expectations of staff are just as important as those of customers.

McDonald’s employees are frequently underpaid for the amount of time that they work which often extends into illegal amounts of labour hours. The farmers from which they get their food are also generally underpaid for the amount of produce and meat which they sell to the corporation, particularly considering the cost that many of these farms have regarding the environment and health of the workers, therefore the buyer power of McDonald’s constraints.

Over the past 30 years McDonald has been mainly criticised over one thing: ‘its food’ which is claimed to contribute to the increased-level of obesity in US and in the other developed countries. 1 in 5 adults are dangerously overweighting in the UK, while it was reported that 300,000 deaths a year in the U.S related to obesity. McDonalds has also been criticised for exploiting children with advertising, with the ‘Happy Meals’ where there are toys, as well as colourful advertising campaigns and promotions in schools. The unhealthy diet of many children is contributed with these marketing tactics.

Results analysis

I observed that most people don’t have a concise idea of what an ethical business is, thus 60% of them as shown in Fig 1 see it as unethical because they think that the food is unhealthy as it has too much fatty and oily food served and healthy food like salad are not served. The chart in Fig 2 follows up this analysis, as 50 % of people who answered this questionnaire think there are now more fruits an vegetable and the other 50% think otherwise.

Results from here show that many people think that McDonald has not made a big effort to make the foods healthy as they only focus on the profit rather than the health of their customers.

On the other hand, 75% of the respondents agree that, McDonald’s sells food that come from sure suppliers. This is because they have read about this information in the different outlets they have been to. The other 25% think the opposite because they have seen unfit items like; human hair in fries, among others which has made them unhappy and discontent.

Being more specific, I have noted that people have differents point of view on the environmental aspects of McDonald’s restaurants.

Looking at the diagram above, 75% of people think that most McDonald’s restaurants are not ecological, because of the amount of energy that is used for the lightning, the heating, and for the different machines that are used in the food processing. They believe that they do not recycle the paper used to serve take-away food. This 75% account for people who visited McDonald’s restaurants in Europe.

With this questionaire, the opinions of various people where taken into consideration. However, there might have been some bias in judgement as people might like other fast-food restaurants like :Pizza Hut, Burger King, SubWay. This could have in one way affected the response given to qestions in the questionnaire. On the other hand, people given this quesstionqire might not have bee knowlegable enough as regsrd the definition and the hidden aspects of ethics. This could have led to misjudgement of Mc.Donald’s as an ethical buisness.

In addition, people who responded to the questionnaire have visited different oultets of Mc.Donalds, this would greatly influence their judgemnet as McDonlads is a franchise .Thus different standards might exist as they are managed by different individuals. The McDonalds in America might be different from that in theU.K , although they sell the same type of food, the managerial structure is not necessarily the sam as it is a franchise.

Conclusion

Looking at the analysis, made and the results gotten from the questionnaire, it can be assumed that McDonald’s has failed to achieve its objective of being seen as an ethical business in the minds of its customers. Resources from the internet, journals and questionnaire have helped in examination of this question and conclusion. Articles such as ; “Analysis of The McDonald’s Beef Fries Controversy ” have shown that MacDonald’s is an unethical business. In this article, McDonald’s falsely marketed its fries made with beef flavouring to its Hindu customers without letting them know about the presence of beef seeing as they are vegetarians.

Although, McDonald’s pays their workers according to age, this often discriminatory as the duties in this outfit is not necessarily assigned according to age. This practice goes against the concept of an ideal ethical business.

Through this analysis made in this essay, there is another question that could arise, which will to a deeper discussion and consistent thinking about business of nowadays, should be more carry about their stakeholders, or they should be thinking of making more profits.

Recommendation

Marketing Strategy

Marketing Strategy could be defined as an organization’s strategy that combines all of its marketing goals into one comprehensive plan. A good marketing strategy should be drawn from market research and focus on the right product mix in order to achieve the maximum profit potential and sustain the business. The marketing strategy is the foundation of a marketing plan (Anon. 2012). While investigating we found out that McDonald’s have claimed to make some changes which were not known by the customers because it has not been advertised, thus customers have kept seeing McDonald’s as an unhealthy and unethical business. On this point we could recommend to McDonald’s show to its customers that it has improved his menu for example. To be more efficient they should also undertake questionnaires to customers to find out what they think about them.

Organisational structure

Most McDonald’s restaurants are franchisees and from my investigation we found that it is problem in terms of communication. When the head quarter emits new ideas or new strategy, franchisees might not apply the idea of McDonald’s headquarters; therefore the franchises could give an unethical image to the customers which are probably not the aim of the head quarter. So what McDonald’s could do it to ask for report from the different McDonald’s restaurants in other countries of the different changes they could have decided to do. This will help McDonald’s to be more concerned and involved in what is happening in these other outlets around than world.

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