MCDONALD’S CORPORATION: FIRING ON ALL CYLINDERS WHILE

PREPARING FOR THE FUTURE

Currently on a “tear,” McDonald’s ability to create value for its stakeholders (such as
customers, shareholders, and employees) during the challenging times of the global
recession that started roughly in early 2008 and continued throughout 2009 is indeed impressive.
As one indicator of the quality of its performance, consider the fact that during 2008,
McDonald’s and Wal-Mart were the only two Dow Jones Industrial Average stocks to end the
year with a gain. With one of the world’s most recognized brand names, mid-2009 found
McDonald’s operating roughly 32,000 restaurants in 118 countries. The largest fast-food
restaurant chain in the world, McDonald’s sales revenue was $70.7 billion in 2008, up from
$64.1 billion the year before. The chain serves over 58 million customers daily. McDonald’s
dominates the quick-service restaurant industry in the United States, where its revenue is several
times larger than Burger King and Wendy’s, its closest competitors.

McDonald’s impressive performance as the first decade of the twenty-first

century came to a close suggests that the firm is effectively implementing its
strategy. (We define strategy in this chapter as an integrated and coordinated
set of commitments and actions designed to exploit core competencies and gain a competitive
advantage.) However, the picture for McDonald’s was much less positive in 2003. In that year,
some analysts concluded that McDonald’s “looked obsolete” as it failed to
notice changes in its customers’ interests and needs. The fact that the company
reported its first-ever quarterly loss in 2003 and the decline in its stock price from roughly $48
per share to $13 per share suggested that McDonald’s was becoming less competitive. However,
by mid-2009 things had changed dramatically for McDonald’s. Its “stock was trading at nearly
$60, same-store sales (had) grown for the 56th straight month and the company (could) boast of
having achieved double-digit operating-income growth during the onset of the financial crisis.”
How was this dramatic turnaround achieved? After examining their firm’s deteriorating situation
in 2003, McDonald’s strategic leaders decided to change its corporate-level strategy and to take
different actions to implement its business-level strategy. From a business-level strategy
perspective (we discuss business-level strategies in Chapter 4), McDonald’s decided to focus on
product innovations and upgrades of its existing properties instead of continuing to rapidly
expand the number of units while relying almost exclusively on the core products it had sold for
many years as the source of its sales revenue. From a corporate-level perspective (corporate-level
strategies are discussed in Chapter 6), McDonald’s decided to become less diversified. To reach
this objective, the firm disposed of its interests in the Chipotle Mexican Grill restaurant concept
and the Boston Market chain and sold its minority interest in Prêt a Manger as well.
Operationally, McDonald’s starting listening carefully to its customers, who were demanding
value for their dollars and convenience as well as healthier products. One analyst describes
McDonald’s responses to what it was hearing from its customers this way: “McDonald’s
eliminated the super size option, offered more premium salads and chicken sandwiches and
provided greater value options. It also initiated better training for employees, extended
hours of service and redesigned stores to appeal to younger consumers.” In part, these
actions were taken to capitalize on an ever-increasing number of consumers who were
becoming and remain today very conscious about their budgets.

However, as McDonald’s experiences in the early 2000s indicate, corporate success is

never guaranteed. The likelihood of a company being successful in the long term increases
when strategic leaders continually evaluate the appropriateness of their firm’s strategies
as well as actions being taken to implement them. Given this, and in light of its decision in
2003 to continuously offer innovative food items to customers, McDonald’s added McCafe
coffee bars to all of its U.S. locations in 2009. McDonald’s coffee drinks create value for
customers by giving them high-quality drinks at prices that often are lower than those of
competitors such as Starbucks. A Southern-style chicken sandwich was also added to the
firm’s line of chicken-based offerings. Allowing customers to order from in-store kiosks is
an example of an action the firm recently took to create more convenience for customers.
The firm continues upgrading its existing stores and in anticipation of a global economic
recovery, is buying prime real estate in Europe “… on the cheap as a result of the overall
downturn in construction spending.” This real estate is the foundation for McDonald’s
commitment to add 1,000 new European locations in the near future. Thus, McDonald’s
strategic leaders appear to be committed to making decisions today to increase the
likelihood that the firm will be as successful in the future as it was in the last years of the
twenty-first century’s first decade.

Q1. In the context of McDonald explain the importance of innovation for sustainable success in
dynamic environment?

Q2. Describe strategies adopted by Mc Donald to earn above average returns. Classify these
strategies as corporate level, business level and functional strategies.

Q3. Identify the environmental factors that influenced the strategies of the organization along
with evidence from case study.