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McDonald’s

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

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McDonald’sIce Breaker Question

Do you like McDonald’s? In your opinion, what changes have

occurred at McDonald’s since the first time you went there?

Are these changes good?

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McDonald’s

1. What situation did Cantalupo inherit when he became CEO?

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McDonald’s

2. What sources of competitive advantage does McDonald’s have?

Its position by its value chain?

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McDonald’s

3. What steps did Cantalupo take to fix the problems that McDonald’s faced?

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Q1. Strategy Issues

For decades, McDonald’s had a clear strategy; it stumbled as it tried to reevaluate its position.

Growing interest in healthier foods (and the success of chains such as Panera Bread) caused it to rethink its strategy.

Its new healthier offerings did not succeed. Cantalupo brought in from retirement when

Greenberg did poorly. Greenberg’s strategic missteps:

Acquiring Chipotle Mexican Grill, Boston Market, etc. Rapid introduction of 40 new menu items Poor franchisee relationship and turnover

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Q2: McDonald’s Value Chain

Value Chain Activity

Primary:

Inbound logistics

Operations Drop in quality of food; slowdown in service; outlets not always clean; lack of consistency across chain

Outbound logistics

Marketing and sales

Price cuts have not increased profits: franchisee problems with $1 menu; new product introductions failed; serious product missteps (pizza, salad shaker)

Service Decline in speed and quality of service; delays after implementing Greenberg’s kitchen changes

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Q2: McDonald’s Value Chain (contd.)

Value Chain Activity

Secondary:

Procurement

Technology development

Expensive cooking process failed to get desired results; lack of success with new product introductions (McLean Deluxe, Arch Deluxe burgers)

Human resource management

Growth pressures leading to lower hiring standards; less training time; deterioration in service quality

General administration

Poor franchisee relationship due to top-down decision making; franchisee margin declined from 15% to 4%; turnover in franchisees

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Q3. Cantalupo’s Steps

Management Infrastructure New hires and promotions

Franchisee Relations Listening to franchisees for new ideas

(Irwin Kruger in New York City) Adapting store front to meet different

needs Toughing up grading system for

franchisees

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Q3. Cantalupo’s Steps (contd.)

Marketing New product introductions (McGriddles

breakfast sandwich) New slogan (“I’m loving it”) promoted in

MTV style Relaunching McKids line (interactive

videos and books) to keep brand prominent among kids