CASE STUDY

McDonalds Corporation McDonalds has worked hard to be more than a restaurant chain. It has become a marketing icon and is part of the routines of millions of people. Its success is so far reaching that it has developed its own culture and identity. It has become a symbol of the success and desirability of American popular culture. McDonalds operates more than 24,000 restaurants in 114 countries. It has a 21 percent share of the very competitive US fast food industry. Overseas restaurants now account for half of the companys profits. McDonalds plans to open 10,000 new restaurants by the year 2005. It has been the forerunner in the recent industry trend of co-branding and satellite locations. What has set McDonalds apart from the average hamburger restaurant is its ability to recognise customers needs and desires. It seems customers want fast, friendly service in a clean and orderly environment. McDonalds sees this as its main objective and addresses it as its primary business function. One of McDonalds most important critical success factors has been the ability to apply manufacturing functions to service activities. McDonalds has used this approval to bridge the dichotomy between service and manufacturing. The McDonald brothers identified simplicity as being important. Dick McDonald explained, We said lets get rid of it all. Out went dishes, glasses and silverware. Out went service, the dishwashers and the long menu. We decided to serve just hamburgers, drinks, and French fries on paper plates. Everything prepared in advance, everything uniform. All geared to heavy volume in a short amount of time. This simple system was felt to be ideal for franchising as it was ideal to duplicate. A strong system of operations was conceived. The system consists of four distinct parts: 1. Develop supplier relationships. 2. Train and monitor franchises. 3. Improve products. 4. Improve equipment through technology. Networks are particularly important to McDonalds because they provide a mechanism to manage the franchises spread over large geographic areas. Networks reinforce the centralisation of power by enabling headquarters to communicate with the franchises. This ensures standardisation and quality control through the analysis of inventories and franchises. Networks achieve these functions at a comparatively low cost and without the time constraints of more mainframe-based communications. Both McDonalds and Burger King are testing smart card technology in selected markets. The cash value of each card is stored on a computer chip or a magnetic strip on the back of each card. Value can be added to the card through machines that accept cash or through ATM-like machines that add value by transferring funds out of a customers bank account. Customers can use the cards, instead of cash to make their food purchases. Corporate goals for smart card implementation include cost savings in relation to money handling, reduced

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shrinkage, and increased loyalty through incentives and premiums. Smart cards eliminate the need for merchants to communicate with banks for the authorisation of purchases. McDonalds is testing this technology at 870 restaurants across Germany. McDonalds Deutschland continues to use smart card terminals in 55 stores. During the first 10 weeks of the trial, 30 thousand transactions were conducted, using Hewlett-Packard Co.s VeriFone unit, which provides the terminals. McDonalds is hoping to lead a trend toward the widescale acceptance of smart cards in Germany. Technologically, smart cards were designed to function in place of credit cards in the fast-food environment. Historically, credit card transactions were too slow. Their associated costs were too high in the face of small margins. Smart cards are an important step in resolving these issues. They enable restaurants to leverage sales and enhance the ease of credit card use. Authorisation and settlement technology are rapidly improving. The costs of network connectivity are decreasing. McDonalds first announced a web presence in 1994 with McDonalds interactive, an area in NBC Online on America Online. In 1995, the company developed and implemented a web site called McFamily (www.mcdonalds.com). It is aimed at families, perceived by McDonalds as its most important target market. The site features seasonal ideas for fun family activities such as block parties, travel games, and household safety information. The Auditorium sponsors monthly guest speakers, including celebrities and parenting experts, and a Hey Kids area houses a gallery with McArt submitted by children with downloadable games and contests. The goal of all these web pages is to enhance the brand image that McDonalds is for families. McFamily includes a section on helping others. This section features information on Ronald McDonald House and other related childrens charities. This section also features information on McDonalds efforts to preserve the environment. The McDonalds web site cannot be used to sell food. However, it can capture revenue through sales of merchandise related to McDonalds sponsorships. The McStuff for You section offers gear from McDonalds racing teams and the Olympic Games. The web site is used to collect customer information and profiles through on-line surveys. Decision makers at McDonalds Corporation realise that customer preference is paramount. The chain is implementing a restaurant-level planning system, dubbed Made For You. This enables each restaurant to eliminate its inventory of foods prepared in advance. Instead, workers make sandwiches based on actual demand without sacrificing any of the efficiency. About 800 McDonalds restaurants use the system, which consists of PC-based cash registers running in-house software. Orders are routed to monitors at different food preparation tables to balance the workload among employees. In McDonalds restaurants without the new system, workers must anticipate demand for each type of sandwich in advance and place them in bins. When a customer wants a sandwich that is not ready-made or one with a different topping, the person at the register shouts out the order and workers move out of the assembly line for the special request. This slows the process and extends the customers wait. McDonalds introduced the new system in March at a meeting for its franchisees. The company is encouraging its 12,400 US restaurants to incorporate the system, but the actual decision is left to each franchise. The technology eases the workload and could add up to a percentage point to the companys profit margin because it enables it to sell more food faster.

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Wal-Mart and McDonalds have jointed together to share retail space. These two companies have been partners since 1993, with over 800 restaurants in Wal-Mart stores around the US. Now, McDonalds has taken this one step further. It actually uses Wal-Mart clerks and registers to sell McDonalds food. In several test locations, when Wal-Mart shoppers pull their carts up to the checkout, there is a mat on the counter displaying the McDonalds products, much like what you would see at one of the restaurants. Each product, from hamburgers to Happy Meals, has a code number that the clerk scans into the Wal-Mart system while ringing up the customers purchases. The orders are automatically relayed from the register to the kitchen using software jointly developed by McDonalds and Wal-Mart. The food is brought to the customers as they leave the store. Since the food appears on WalMarts registers and receipts, customers can pay for it with a single credit card purchase. At the end of the day, the companies balance McDonalds portion of the proceeds. Individual organisations are starting to use one anothers environments and skills to reach as many potential customers as possible. To better manage its inventory, McDonalds has implemented supply-chain software that enables better management of inventory by sharing demand and supply information among its restaurants, suppliers and distributors. McDonalds appears to be at a crossroad. The company can continue on its traditional (and very successful) path of consistency and quality through standardisation, or it can alter the basic strategies by allowing franchisee autonomy and continuing to provide a variety of offerings and service. As a company noted for standardisation, emphasis on flexibility is quite a feat. This new outlook includes granting more freedom for franchisees to experiment with food and marketing, test new venues, such as satellite locations and co-branding, and develop new menu items. These changes are innovative and risky. Current management is not considering minor adjustments. Experimenting with the much copied system of operations is a gamble. The system is a precisely organised machine; by introducing flexibility, the machine is in danger of becoming mired down with complexity. The danger lies in straying too far from what McDonalds has done in the past.
(Source: Adapted and condensed from Anderson, D. 2000, Managing Information Systems, Prentice Hall, NJ)