McDonalds top five critical success factors

1. Executive Summary

This report will lay out the importance of McDonald’s top five critical success factors which has made the company this successful. Firstly, the history and background of the company will be established to get the mood and feel of the restaurant, this will include the positioning of the company within the market as well. Secondly, the critical success factors of the company will be elaborated in this section. Thirdly, the report would give examples of the downfalls of McDonald’s as well, as every product and company has it’s declining stage, and how it overcame the situation. And lastly, insights and conclusions will be stated to give a broader sense of the importance to why it is important to discuss about such company.

2. Introduction to McDonald’s

McDonald’s has become a wide spreaded company in the world today. It would be interesting to look into the factors to what made the company so successful. However, before going into details of any insights and findings, we must first establish understanding from the background and histories of the company first.

McDonald’s Background

It is probably safe to say that McDonald’s existence and expansions has been one of the prominent events in revolutionizing the eating habits and lifestyles of people globally. Located in 119 countries world-wide, it is estimated that more than 46 million people dine at one of the 31,000 outlets everyday. (xxx) While 9,000 of the venues are owned and operated by the corporation itself, others are managed by franchisees or affiliates. (xxx)

McDonald’s History

Originally, the McDonald’s business was started by two brothers, Dick and Mac McDonald’s in 1940. At that time, the restaurant in California was using eight of Ray Kroc’s Multimixer milkshake machines. Curious about the learnings to his great sales success of his Multimixers to the McDonald’s company, Ray Kroc decided to find out more details of the restaurant.

During the time of Kroc’s visit, he witnessed the restaurant at its peek. Families were much attracted to the concept of the restaurant, for it was a simple self-served, streamlined operation that had a simple menu of hamburgers, cheeseburgers, french fries, shakes, soft drinks, and apple pie. (xxx) The most attractive aspect of the restaurant had to do with the worker’s efficiency level, because each worker’s steps were formatted in such a way that resembled the assembly line, it allowed the savings in preparation time which directly related with the increasing in volume, ultimately resulting the restaurant to lower the price of a hamburger from 30 cents to 15 cents. (xxx) A clear price competitive advantage over its competitors at that time.

With the success of McDonald’s in 1954, Ray Kroc foresaw bigger and better potential growths for the company by means of franchising the name out. Indifferent and unbothered by the plan, the brothers allowed Kroc to get on the mission by himself using their restaurant’s name. (xxx)

McDonald’s first advertising campaign “Look for the Golden Arches,” made its way in 1960 with great achievement. In that year, McDonald’s became larger and larger, which could be linked to the vast growth of U.S. automobile industry that came with suburbanization. (xxx) The following year, Kroc decided to embark the journey alone with the McDonald brothers, he bought out the restaurant for $2.7 million USD and made it a mission to make McDonald’s “the number one fast-food chain in the country.” (xxx)

McDonald’s amazing growth continued in 1970. Fast service was always preferred by the Americans and McDonalds was fastest at its service. By 1972 it crossed the profit margin of 1 billion in annual sales and by 1976 McDonalds sold as much as 20 billion hamburgers for which the sales exceeded $3 billion. It broke new ground in breakfast by introducing Egg Muffin in 1973 when market research point out that quick breakfast would be preferred. And 5 years later it introduced a full breakfast menu and by 1987 maximum breakfasts of USA were ordered from McDonalds

By 1970, McDonald’s had restaurants in all fifty states and a few in Canada and the Caribbean. Foreign operations exploded during the 70’s and 80’s, as the company expanded into Asia, Australia, South America and Europe. Kroc counted on the expertise of local companies to help them adapt McDonald’s food and service to other lands.

Only within the first 30 years after the establishment of the company, McDonald’s dominated the domestic market with more than 10,000 restaurants throughout the states of USA.

In 1980, about 28% of new McDonald’s restaurants were opened outside the United States market borders, this number increased to 40% in 1986 and went up to nearly 60% in 1990. In 2000, McDonald’s collected about 21 billion dollars from 28,707 restaurants located in the external market, made up for 53% of total revenue of 40 billion. According to statistics in 2000, with each 25,000 American, there was a McDonald’s restaurant, this rate made the competitors in the fast-food industry admire and envy.

By 1992 almost 40 percent of the company’s sales came from overseas. Today, McDonald’s has more than 31,000 chains across 119 countries around the globe.

In 2007, McDonald’s served more than 16 billion customers, equivalent to one lunch and one dinner for everyone on the world. With revenues of 4 billion worldwide, McDonald’s became the largest provider company of food worldwide. (DAVID)

McDonald’s Position in the Market

The simple yet profound concept in which is still being used today was established in the early developmental stages of the new franchised outlets of McDonald’s, under Ray Kroc’s supervision, which is: Quality, Service, Cleaning and Value. This standard procedure was enforced in order to obtain maximum quality and standards. (xxx) Unsurprisingly, their vision and mission statements of the company followed such statement.

The Vision:

“McDonald’s vision is to be the world’s best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile.” (xxx)

The Mission:

• “Be the best employer for our people in each community around the world
• Deliver operational excellence to our customers in each of our restaurants; and
• Achieve enduring profitable growth by expanding the brand and leveraging.”
  (xxx)

Even though the earlier stages of McDonald’s attracted more families than it did other categories, nowadays, McDonald’s has made it clear that it positions itself to target and cater people of all backgrounds. Suitable for people of various needs and wants; from families to young children, to people who love to enjoy life to people who are on the go, and meat lovers to vegetarians, virtually anybody and everybody can find something on the menu for themselves.

Aggressive Business Goal

“Hello, I’m the new McDonald’s supervisor . . .We’re going to run you out of business” was infamously said by Ralph Lanphar to a competitor near by. Although this saying might come out as aggressive and rude, looking at it from a different perspective, it could very much be a manifestation of pride and the eagerness to grow bigger and stronger. From this statement, it is evident that McDonald’s was committed to build the strongest superior operation firm.

This pride and eagerness has been carried on until today. All staff, employees and top management have been engrained in their early stages of training to love the company, to understand that there are benefits for them and that together McDonald’s and they can grow together. They should take pride in the success.

Even to this day and age, the mission to instill loyalty to the company could be seen today. Charlie Bell, McDonald’s CEO in 2004, used to say that the people at McDonald’s people must be “proud of where we work, proud of what we do, proud to wear the McDonald’s pin, proud of our food offerings, proud to eat our food offerings and proud to be part of McDonald’s.”

Going back to the point where McDonald’s has a strong and aggressive business plan, McDonald’s plans to make everybody in the world know McDonald’s (from the video)

Uncompromising Standards

One of the most influential factors that made the initial set of McDonald’s possible would have to be credited to the restaurant’s extreme commitment to their aimed standards of consistency and their motto of “Quality, Service, Cleanliness and Value.” In which both were created by Kroc himself. Even customers knew that no matter where they travelled, they could rely on those qualities at every McDonald’s they visted.

Tom Peters said “keeping it simple in amdist of the growing complexity. Uniformity.” (from the video)

Consistency

In 1955, Kroc incorporated his company as McDonald’s corporation and opened his first very own restaurant in Illinois.

Placing his concern over the consistency and uniformity from store to store, he decided to establish strong restaurants first before franchising them out. (xxx)

Wants McDonald’s to be a multi local and not a multi national corporation. (from the video)

QSCV

For example, cleanliness is one feature of the McDonald’s corporate system that needs no explanation; clean toilets are universally appreciated. McDonald’s is widely credited with starting a revolution of rising expectations among East Asian consumers who had never experienced high standards of public hygiene in the catering trade. In Taipei, Beijing, Seoul, and Hong Kong, local restaurateurs had to match this new standard or watch their customers go elsewhere. Young people began to draw an equation between the condition of a restaurant’s toilet and the state of its kitchen.

Willingness to Adapt

McDonald’s success is dependant on adapting to its consumers needs and demands McDonald’s franchise business has not only survived but thrived through boom times and recessions and has successfully reacted to consumer trends. It was one of th first franchise restaurants to post nutritional information about its menu, and now offers salads and other healthy options in recent years.

Also, the key to McDonald’s worldwide success is that people everywhere know what to expect when they pass through the golden arches. This does not, however, mean that the corporation has resisted change or refused to adapt when local customs require flexibility.

In Israel, after initial protests, Big Macs are now served without cheese in several outlets, thereby permitting the separation of meat and dairy products required of Kosher restaurants. Similarly, McDonald’s restaurants in India serve vegetable McNuggets and a mutton based Maharaja Mac. Innovations that are necessary in a country where Hindus do not eat beef, muslims do not eat pork. In Malaysia and Singapore, McDonald’s underwent rigorous inspections by muslim clerics to ensure ritual cleanliness; the chain was rewarded with a Halal certificate, indicating the total absence of pork products (Watson, 1997)

This also includes the fact that McDonald’s needs to take the environmental factors and the changing world into consideration as well. McDonald’s continually seeks for innovation and they need to adapt to new market conditions according the fast paced globalize world. For example, in 1963, McDonald’s introduced the “Filet-of-Fish” sandwich in the Cincinnati area for Catholics who were restricted not to consume meat on Fridays. This new offering was later on implemented to the standard menu, then to the national menu and lastly world wide.

In 2005, another adaptation to the times and consumer demand was the provision of WiFi with Nintendo in select locations; and delivery service in Singapore, where customers can phone in their order and have it delivered 24 hours a day, seven days a week. The company has also departed from its standard free-standing units, and installed quick service kiosks in busy places, like malls and airports.

Valuing People Approach

The real secret to successful operation system is not found in its regimen but in the way it enforces uniform procedures without stifling the entrepreneurship of franchises. For example, in Japan, without the freedom of franchisees and suppliers to exercise their entrepreneurial instincts, to test their own ideas. . . it would lose touch with the market place.”

(from the video) think of people. Everybody from below to top. Also, McDonald’s views people, including the maintenance people, partners, corporate managers, hostess in the restaurant, suppliers etc. what to see our associates grow. If one example of a family succeeds, we all succeed.

Franchisees/ Associates/ Partners

His idea was to start the franchisee without paying the franchisee charges. This was the start of Mc Donald’s success. First, make your partners rich. Though Kroc focused more closely on the burger than others, his real innovation was to turn the business of franchising on its head. Typically, franchising deals were struck by firms that wanted to get rich quick by being paid up front for licensing their brand name and menu and supplying products. They were not confident in their long term survival, so they wanted to pocket money now Kroc burst with confidence in McDonald’s future and that’s why he was willing to get rich at a slower pace, if it meant that his franchisees would prosper. Kroc felt that his competitors cared only about jamming profitable stuff down the throats of their partners, rather than long term growth. He noticed how casually and negligently the companies supervised their stores. Kroc felt passionately that his job was to make his franchisees rich by cutting thir costs and improving their products. (Buchholz, 2007)

Kroc’s business model required an extra helping of patience. Kroc trusted a bunch of novice franchisees. Kroc may have been confident, but not completely naïve. He slowly distributed the stroes, testing and training the franchisees and requiring them to meet his excruciating standards for QSCV. Because other companies were eager to collect big bucks fast, they sold off vast statewide territories to rich speculators. Kroc sold just one at a time and refused to sell a second franchise to an operator unless his performance was stellar.

Wanted the corporation to have control over its franchisees, the local business people who paid the corporation to run its restaurants. Other chains let franchisees buy the right to open as many stores in a region as they could. Kroc sold his franchisees just one store, so he could make sure they kjnew how to run a McDonald’s the way he wanted it run. He made sure his franchisees did well, their success served his interests, since the corporation earned money on their restaurants’ sales.

Also, from his background knowledge of being a successful salesman, he understood that he would not be a supplier to his franchisees, for it would jeopardize the relationships between the two because of profits. “You cannot be a partner and a supplier at the same time” says Kroc. Because it creates beaucracy. Do it another way and it builds trust.Kroc was adamant in helping out his franchisees as much as possible, as he knew that McDonald’s growth was highly dependant on their success.

He trained franchisees in McDonald’s methods at the company’s hamburger university. As John Love writes in McDonald’s behind the arches, ” In the end, the genius of Ray Kroc was that he treated franchisees as equal partners.”

Suppliers

Kroc wanted to tame his suppliers by making them rich. He wanted better prices and better quality. . Ray Kroc’s plan to do business with outside suppliers was giving many small but new companies a chance to make a profit on high volume orders. Kroc negotiated better deals with small suppliers who were hungry for his emerging business. Kraft had the McDonald’s cheese account early on, but when Kroc requested a sharper- tasting cheddar for the burgers, Kraft was too busy or too comfortable to develop a new recipe. When Kroc went looking for good-quality beef, major players like Armour and Swift refused to extend credit. So Kroc made mulitimillionaires of the quick and hungry suppliers. When Kraft failed him, Kroc turned to a cheesehead in Green Bay, Wisconsin, named L.D. Schreiber. Today the Schreiber company is a multibillionaire dollar firm. Kroc could not negotiate great deals with Wesson oil and Procter & Gamble. Instead he turned an upstart named Harry Smargon into a very rich man.

Staff

McDonald’s saw the importance of doing an internal marketing plan. Explaining that “external plans and programs will not be as successful if you put the outside world before your own people. Employees come first” (xxx) When “im loving it’ was first globally launched, McDonald’s launched it internally first before a single consumer saw the advertising and experienced the marketing. This demonstrated that the people were the most important elements for making the revitalization of the McDonald’s brand work. They wanted “i’m loving it” to become an internal rallying cry, and not just an external slogan.

Charlie Bell recognized that proud employees provided greater service, which can make an incredible impression that will have an impact on a customers loyalty.

Also, they initiate staff to go out and be creative, contribute to the company. Fred Turner, “I want you to go out there and make mistakes. Better than doing nothing and being concern free. Learn but don’t do the same mistakes twice.” (from the video)

Currently, approximately 1.6 billion people all over the world are employed or own a franchise at McDonald’s. Though much of the success could be contributed from the sharp eyes of Ray Kroc and his management team, we cannot deny that one of the contributers to the success lies within the employees inside the organization.

Since employees play such an essential role in the main activities of the company, There have been surveys conducted concerning employees and staff of the growing popularity of this chain of restaurants and employees’ contribution to it. One of the most important points is that employees are motivated in their work and duties. Company provides with a set of benefits for their internal staff, such as:

• Employees are allowed to eat for free;
• Employees have a month of paid holidays;
• Employees have an access for private health care;
• Employees have discount card;
• Employees are awarded for servicing for 3, 5, 10, 15 and more years;
• Employees have an opportunity to get sponsorship program, etc.

Moreover, training sessions are provided for the internal new coming staff. These training sessions are properly structured and highlight the main values and principles of the company – Quality, Service, Cleanliness and Value (QSC&V). Newcomers and freshmen are trained how to provide the better service to customers and clients. What is more important is that the training sessions are constantly updated, to become more modern and realistic.

McDonald’s has went further and established its own education center for learning and training classes, called Hamburger University, in which is now opened in many parts of the world . In this university there is a centralized system of education, which teaches new staff about the importance of people in marketing management, the sense of employee training and so on. That is why even every day new technologies appears, McDonalds remain the number one in the fast – food providers.

The career ladder is very attainable for everyone who wishes it in McDonalds. Approximately 20% of the top management staff passed through the very beginning position in the kitchen. For example, If the person really has a willing to be promoted further, he always can reach it. Everything in the hiring and promotion people in McDonalds depends on ability and hardworking skills of a particular person. For a new coming employee there is a set of stages he/she should take in order to have a desired position within the company. People taking high positions within the company and willing to know all internal processes need to pass through them by themselves. They should clearly understand all the details their subordinates report to them so that they do not only rely on their results, but can estimate what has been made incorrectly or in improper way. McDonalds exactly gives such an opportunity for people to start from the early steps and grow till the desired point of destination.

Nowadays, more and more students come to interviews trying to get the job in McDonalds. It becomes popular among the youth to have a part – time job and the companies like McDonalds also benefits it as they offer a little bit higher the industry’s average minimum salaries. Students have several benefits working for McDonalds; they have free meal and have the opportunity to earn their own pocket money. McDonalds, on the other hand, should have trained employees, whom they need to teach immediately, and accurately introducing to the existing process and paying them less. To reach the goal of fast training and not disturbing other employees from their routine work, managers of McDonalds decided to implement the E-learning system for freshmen, consisting of videos, role plays, newspapers and so on.

Employees are the most essential part in every organization. McDonalds wholly understands the importance and contribution of every one person within the organization; that is why there is well – known principle: “The result is done by a man”. In order to fulfill the requirements of the company – Quality, Service, Cleanliness and Value (QSC&V) – McDonalds considers each employee as the vital part for success in achieving the above mentioned characteristics. In the desire to fit the reputation of brand as number one fast-food restaurant, McDonalds tries to follow four simple rules to help their employees to improve, such as:

• The company has to maintain different kind of motivation to different departments within the organization;
• Every member of the staff has to have one goal, which will be reachable and clearly viewed;
• As a particular employee grow in his positions, his goals should also be changed, so that every position up will spread his goals broader;
• An increase in salary should be attractive for an employee. This will be a good motivation technique. McDonalds uses different aspects of motivation tools, which include financial, non – financial and social ones. Variety of motivation methods were chosen for implementation because the research conducted internally in the company showed that people need not only monetary refunds, but social recognition too. They should not be separated, but rather combined for serving as the strong motivation technique. The results of conducting the survey clearly underlines that although the motivation tools were based on the theory of Maslow’s hierarchy of needs, in the reality employees need the mix of all aspects of motivation, not excluding some of them, in order to improve the performance of people and as the result increase the productivity of the whole activities of McDonalds. (NADIYA)

Giving Back to the Community

Kroc became extremely wealthy following McDonald’s enlisting in the stock market in 1965. . Kroc believed in giving “something back to the community where you do your business This extreme wealth did not stay with him alone, he decided that he would like to share his wealth amongst others too. The Kroc foundation, which supports researches on diabetes, arthritis and multiple sclerosis, is a testimonial of that.

Other wealth sharing opportunities known was that he gave 8 million USD to some of his top employees.

Over the years, the corporation also donated food and money to many charities, and the company encouraged local franchisees to get involved in their communities. The best known charitable effort is the Ronald McDonald house, which is located near hospitals where families can stay for free while their children receive medical treatment. “. In 1974 McDonald’s first opened the Ronald McDonald’s house in Philadelphia thus following Kroc’s philosophy to provide the home away from home for the families of children in nearby hospital followed by 100 similar McDonald houses all over US after 12 yrs

Kroc makes it a mission to give back to the people, as it reflects on the consideration and serves as a “thank you” to those who have always been supporting McDonald’s.

In Feb 2006, McDonald’s stock traded at 27 times earning. However, only one year afterwards, McDonald’s second quarter profit growth was just 4% with a 2% decline in earnings from the US businesses. In 2002, after McDonald’s stocks have been declining for three years, the board of directors replaced Jack Greenburg with Jim Cantalupo as CEO. Mcdonald’s sales were in decline, market share was shrinking, franchisees were frustrated, employee morale was low, and customer satisfaction was even lower.

On the plus side, McDonald’s had one great asset: People recalled their happy experiences at McDonald’s as a child. The problem was that the majority of consumers did not have recent fond experiences.

Now, looking back into the unfortunate event, we can see that there were three areas to where McDonald’s has neglected. Which were, the restaurant lacked, renovation, innovation and marketing (xxx)

When the image of the brand was declining, instead of investing in brand experience renovations and innovations, McDonald’s focused merely on monthly promotions. Completely neglecting the means of brand building. The aforementioned three basics guidelines to profitable growth were mistakenly seen as to place focus on more cost reduction methods, instead of properly managing quality growth of the top line.

For example, the teeny beanie baby promotion in the US had kidss dragging parents in for the toys while tossing the food into trash bins. But, this had the unintended consequence of reinforcing the image of happy meals as a toy with food as an incidental attachment rather than as a great tasting food with a toy promotion attached. With a decline in food quality, poor service, etc. It was not surprising that opportunitic monthly promotions became the dominant marketing focus. Happy meals had become a promotion of a desirable toy, rather than a promotion for desirable food. This is not a way to build an enduring brand. Overemphasis on the deal rather than the brand results in customers becoming deal loyal rather than brand loyal. For brands to live forever, they must be loved forever. McDonald’s leadership fell out of love with the McDonald’s brand, and consumers franchisees, employees and the financial community also fell out of love with the McDonald’s brand.

However, fortunately, Denis Hennequin has brought modifications and redesigned interiors for McDonald are giving it a warmer, more eco-friendly look. This brought in more customers, as the new look generated a fresher image to McDonald’s in Europe.

Also, Charlie Bell’s idea of McCafe to offer quality coffee, tea and pastries in a quieter, more attractive atmostphere also made McDonald’s competitive with the other fastfood joints, as it offered more than just burgers and fries, it offered coffee in which many restaurants were not able to give the customers such variety.

Now that McDonald’s critical success factors and how it dealt with hardships is established, we can now clearly see that there are some essential parts that must always be intact in order to sustain a business.

In contrary to many beliefs, although McDonald’s is regarded as a fast food restaurant, the profit made from the goods sold within the restaurant is not actually what keeps McDonald’s rich. It is actually the real estate business that is doing it. Even in Fortune Magazine they said that McDonald’s is considered as the “largest estate in the world” (from the video) . It earns revenues as investor in properties, a franchiser of restaurants and an operator of restaurants. Most of the income was coming from 1.9% of service tax from the franchisee. Initially the franchisee fee was only $950 which is currently approx $45000. McDonald’s started averaging an annual sale of $200000 in the early 1950 only which shows how people started liking the food and service of it. $1000 went as a royalty to the McDonalds brother and thus the average franchisee was making an operating profit of $40000.Its now making a profit of 1 billion on system wide sales.

It was the real estate business which converted McDonalds into a real money machine. The real estate investment strategy is the most important reason why McDonalds boasts a plan that is not close to being equalled in the food service business. Mr Sonnerborn the top financial officer never tried to follow the Kroc-Turner operating system which is the reason why McDonalds is what now. He came up with an idea of money making on real estate that Mc Donald’s would lease to its franchisees. He started implementing this plan of making McDonalds a separate real estate company which would locate and lease restaurants sites from land owners which would also be leased to the company. He also had this idea which helped for its major success is that it sold food equipment and food supplies to licensees charging a minimum of $840 per month with interest.

In addition to franchisee fees and marketing fees McDonalds collect rent calculated as a percentage of sales. The joint has made a good profit percentage even in the recession making a profit of 23million dollar after tax.

Also, the huge size of McDonald’s could be factored into one of the biggest critical success factors of all. Because of the humougous size of the corporation, it allowed it to do many things which other franchisees or small businesses could not do on a large scale.

Along side it’s philosophy, vision and mission statements, McDonald’s has definitely managed to beat the mediocre standards during the earlier stages, allowing it to take off and penetrate quicker into the fast food market than its rivals.

This is mainly by it’s

• Attributes of speed: Initially, this was the main factor to McDonald’s success. Even from the earlier days, McDonald’s has earned a reputation for serving meals efficiently fast. In comparison to other similar fast food competitors, such as Hardee’s and Rex Burger joints, McDonald’s was always developing its method behind the counters to speed up their process of delivering the goods.
• Types of products offered: A variety of goods catered to all types of people in every region of the world. In India, for example, McVeggie has become a popular delight among the locals, as the majority of the population is vegetarians.
• Prices of products: Affordable to everybody. This was hugely contributed by the speedy process of the food preparation time. Since it took less time to cook, “assemble” and serve the burgers and fries, this only meant that McDonald’s was able to sell more products in a shorter time as well. Hence, the economy of scale, prices were able to fall lower than its main competitors.
• Level of service: Consistency of the services. Ray Kroc understood that the uniformity and precision was key to a successful franchise. He made sure that there were rules set and abided, by carefully creating a manual for all to follow and conform to. In that way, everybody from different parts of the planet could enjoy McDonald’s the way they usually have it anywhere in the world just the same.

As can see, from the introduction to the very last part, everything seems to link back to the history of the start of McDonald’s. This could only mean that Ray Kroc had a leadership long term vision of how he wanted the company to be, how he wanted it to success and how he wanted it to grow and flourish. All the foundations were built on from the early days, with minor modifications as time goes by.

In other words, vision and being confident and trusting to your leaders visions and missions is essential to go on strong for the company.

McDonald’s has become such a powerful symbol of the standardization and routinization of modern life that it has inspired a new vocabulary McDonaldization. George Ritzer, uses the term to describe “the process by which the principles of the fast food restaurant are coming to dominate more and more sectors of . . . society.”

All in all, we can see that the success of a business cannot prolong without the support of it’s associates and employees. External as well as internal clients are happy with the services and qualities provided for them, therefore always coming back for more