ITS 631 – Operational ExcellenceDr Theo TawiahDept of

ITS 631 – Operational Excellence

Dr. Theo Tawiah

Dept. of Information Technology &

School of Computer and Information Sciences

University of the Cumberlands

Week 2 Assignment 1

McDonald’s Case Study

by

[Abdul Azeem, Shaik]

Date: 09/05/2019

Homework Assignment 1 – McDonald’s Case study

1. How has competition to McDonald’s changed over its existence?

The fast food chain conglomerate – McDonald’s was once started as a small but successful restaurant run by two brothers Dick and Mac McDonald back in mid-20th century. At the Central to the development of McDonald’s is Ray Kroc, who was amazed by the effectiveness of their operation and was so impressed that he persuaded the brothers to adopt his vision of creating McDonald’s restaurants all over the USA, the first of which opened in DesPlaines, Illinois, in June 1955.

However, later, Kroc and the McDonald brothers quarreled, and Kroc bought them out. Now with exclusive rights to the McDonald’s name, the restaurants spread, and in five years there were 200 restaurants through the USA.

Over recent years the company’s strategy has been to become ‘better, not just bigger’, focusing on ‘restaurant execution’, with the goal of ‘improving the overall experience for our customers’. In particular it has, according to some analysts, ‘gone back to basics’, a strategy used by McDonald’s Chief Executive Officer, Steve Easterbrook, when he was head of the company’s UK operation, where he redesigned the outlets to make them more modern, introduced coffee and cappuccinos, worked with farmers to raise standards and increased transparency about its supply chain.

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At the same time, he participated fully and forcefully with the company’s critics in the debate over fast food health concerns. But some analysts believe that the ‘burger and fries’ market is in terminal decline, and the McDonalds’s brand is so closely associated with that market that further growth will be difficult.

Throughout its rapid expansion McDonald’s focused on four areas: improving the product; establishing strong supplier relationships; creating (largely customized) equipment;

and developing franchise holders. But also, it was its strict control of the menu that provided a platform of stability. Although its competitors offered a relatively wide variety of menu items, McDonald’s limited it’s to 10 items. Capacity growth (through additional stores) was also managed carefully. Well-utilized stores were important to franchise holders, so franchise opportunities were located only where they would not seriously undercut existing stores.

2. What are the main operations performance objectives for McDonald’s?

McDonald’s wanted to build a process that would become famous for food of consistently high quality using uniform methods of preparation. The emphasis on process standardization meant that customers could be assured of identical levels of food and service quality every time they visited any store, anywhere. Operating procedures were specified in minute detail. The first operations manual prescribed rigorous cooking instructions such as temperatures, cooking times and portions. Similarly, operating procedures were defined to ensure the required customer experience, for example no food items were to be held more than 10 minutes in the transfer bin between being cooked and being served. Technology was also automated. Specially designed equipment helped to guarantee consistency using ‘fool-proof’ devices. The operating process was both his passion and the company’s central philosophy. It was also the foundation of learning and improvement. The company’s almost compulsive focus on process detail was not an end in itself. Rather it was to learn what contributed to consistent high-quality service in practice and what did not. McDonald’s always saw learning as important. So, it had invested in research and development laboratory to develop new cooking, freezing, storing and serving methods. Also franchisees and operators were trained in the analytical techniques necessary

to run a successful McDonald’s. Their research helped them develop various methods that helped McDonald’s grew their business to supply around the US business.

3. What are the most important structural and infrastructural decisions in McDonald’s operations strategy, and how do they influence its main performance objectives?

One of the company’s central philosophy was the operating process. It was also the

foundation of learning and improvement. McDonald’s always saw learning as important. It founded ‘Hamburger University’, initially in the basement of a restaurant in Elk Grove Village, Illinois. It had a research and development laboratory to develop new cooking, freezing, storing and serving methods. Also, franchisees and operators were trained in the analytical techniques necessary to run a successful McDonald’s. It awarded degrees in ‘Hamburgerology’. But learning was not just for headquarters. The company also formed a ‘field service’ unit to appraise and help its restaurants by sending field service consultants to review their performance on several ‘dimensions’ including cleanliness, queuing, food quality and customer service. Securing supply has been the strength of the alignment between the company, its franchisees and its suppliers (collectively referred to as the System) that has been the explanation for its success.

Initiating Innovation Ideas for new menu items have often come from franchisees is also one of the main operation strategies that helped grow sales. For example, coming up with an idea for a ‘Filet-o-Fish’, a steamed bun with a shot of tartar sauce, a fish fillet, and cheese on the bottom

Bun for the customers avoided the traditional hamburger which were sold in large number when initially started. Similarly, the Egg McMuffin was introduced by franchisee Herb Peterson, who wanted to attract customers into his McDonald’s stores all through the day, not just at lunch and dinner. They also came up with the idea for the signature McDonald’s breakfast item. Other innovations came from the company itself. When poultry became popular, Fred Turner, then the Chairman of McDonald’s, had an idea for a new meal: a chicken finger- food without bones, about the size of a thumb. After six months of research, the food technicians and scientists managed to reconstitute shreds of white chicken meat into small portions that could be breaded, fried, frozen and then reheated. Test marketing of the new product was positive, and in 1983 they were launched under the name of Chicken McNuggets. These were so successful that within a month McDonald’s became the second largest purchaser of chicken in the USA.

Over recent years the company’s strategy has been to become ‘better, not just bigger’, focusing on ‘restaurant execution’, with the goal of ‘improving the overall experience for our customers’. They redesigned the outlets to make them more modern, introduced coffee and cappuccinos, worked with farmers to raise standards and increased transparency about its supply chain. At the same time, The participated in the debate over fast food health concerns.

References

Slack, N., Brandon-Jones, A. & Johnston, R. (2016). Operations management. 8th ed. Pearson.