Lecture 2( January 18, 2003)

Strategic Thinking

Case AnalysisFast-food industry: McDonald’s

Strategic Thinking• Technology is rapidly changing what we

do in society, in business and at work• Continual improvements and advances in

IT are encouraging even more changes to business and society

• Example of change affecting us most :

Example of Change

old economy

work diligently be loyal

secure life time employment

new economy

specific skillssolve specific problemscomplete special projects

move on toother assignments

Technology & Industrial Trends

• Identifying certain trends• Understanding their roles in the

industry• Implementing them to assist you in

your endeavors to position yourself for career growth and expansion

Trends• Standardization• Leverage• Mass customization• Franchise• Methodology• Modularization• Liquid assets• Client/servers• Knowledge, information or expertise driven

workers

StandardizationStandardization

The Conscious Effort to Make all Jobs Similar, Routinized, and Interchangeable

- enforces rules set - saves in economies - preserves continuity - prevents irregularity

LeverageLeverage

Move all tasks to the lowest possible individual in terms of level and cost

- role & budgetary requirements force tasks to - role & budgetary requirements force tasks to be accomplished at an appropriate lower be accomplished at an appropriate lower

levellevel - billing structure ensures tasks are - billing structure ensures tasks are

accomplished accomplished

Mass CustomizationMass Customization

focus all products and services on the specific customer

- not only specific market segments - tailored to specific individuals - no contradictions to standardization - examples: discount coupons special promotion mailers

Franchise

The Organization has become a small central office with many autonomous, but identically structured units

- strict guidelines in cost & output for each

location - reporting to HQ in structured format - reduces middle management layers, for example no regional offices to evaluate & interpret

information received

MethodologyMethodology

Methodology tells the user the steps to take in the process

- simple step-by-step cookbook like approach - available across the whole organization - easy to learn & train, minimum skills required - example: systems development

ModularizationModularization

Rather than be constructed at the most granular level, projects are completed using sections of code

- easier and faster to put modules together than to work with individual lines of code every time

- example, Microsoft Office Suite, the ability to fit together Word, Excel, Access, PowerPoint and

FrontPage

Liquid vs Fixed Assets

Focus on Liquid Assets, Reducing Fixed Assets

- reduce cost by reducing reliance on fixed assets

- provide direct link of cost to expenditure - examples, outsourcing of human resources,

technology departments, lease rather than purchase of fixed assets

Client/Server

Enables data to be stored at organizational, group, and individual levels.

- decentralization of the technology tools - stored and accessed efficiently at local level

while being maintained across the organization

Knowledge, Information, or Knowledge, Information, or Expertise-DrivenExpertise-Driven

Rather than work in a hierarchy, workers develop a particular expertise and are constantly reassembled to provide their expertise to a project

- constant reassembly keeps workers fresh and focused

- sharpness of expertise keeps the job rather than longevity in the organization

- example, projects requiring a cross-section of knowledge-driven skills

Data vs Information

• Importance of input• Knowledge and exposure• Life long learning• Technology advances and changes

DATA

• raw numbers• bare text• sound• video• images• factual elements/opinions/comments

describing some object or event• application value -- little

INFORMATION

• processed, organized and integrated data to provide more inside

• precise, timely and specific• supplied voluntarily or on demand• of strategic value to decision makers

Data Processing vs

Information Systems

• DP - Data Processing• IS - Information Systems Information Services

• TOO MUCH DATA• TOO LITTLE INFORMATION

Analyzing and Building Systems• evaluate existing operations• explore new alternatives• simple projects

– problems that can be solved by yourself, as users– calling IS professionals is a waste of time and money

• complex projects– need analysis and design by IS professionals– need communication between yourself and IS

professionals to develop systems that meet your needs

– solving yourself can lead to costly mistakes

Management and Decisions• traditional roles of management

– organizing– planning– control

• job activities– attending meetings– talking over the phone– reading/preparing reports– discussing projects with colleagues– explaining procedures

• decisions and decision process

Decision process• Collecting data• Identifying problems• Making choices• Persuading others to accept a decision• Implementing the solution

Methodology and Franchises• Decisions need input• Anticipation of data/information needed• Design of information systems to solve future problems• Reduction of management tasks to smaller problems• Smaller problems can be addressed with a standard

methodology• Daily operating decisions reduced to a set of rules and

procedures• Reduction of middle-level managers• Franchises -- financial performance of individual units

Fast-food Industrycase analysis

• Franchising• Fast-food industry• McDonald’s

franchising• Franchising is a system in which a producer or

marketer of a service, the franchisor, sells others, the franchisees, the right to duplicate a concept and use the trade name

• Franchisor: provides sales and other support within a specific territory for an agreed period of time

• Franchisees: order supplies from designated sources, receive training at corporate sponsored institutes

franchising types• Simple franchising

– exclusiveness• Product-trade name franchising

– selling products to distributors who resell them

• Package (prototype) franchising– products, services, inventory system, sales

and marketing methods, record-keeping procedures etc.

advantages of franchising• easy start to a business• minimum or no knowledge required• less risk to success• proven business• quick and higher market penetration• economy of scale• survival rate much higher than other

start-up business

Fast-food industry

• financial analysis • stock/investment outlook• competition and growth• technological impact• recommendations

financial analysis• In the US, franchise restaurants

– $800 billion industry– 8 million employer– one-third of food services spending

• Revenues and profits– start-up fees can range from $10,000 to $600,000– profit levels of 10% to 20% for the past decade

• More health-conscious– pizza and chicken enjoy faster growth than burger

stock/investment outlook• National trend toward two-income

household contributes to more dining out• Larger franchises have positioned

themselves to take advantage of the trend• Smaller franchises are being acquired by

the giants due to the mergers and acquisitions frenzy

• Long term prospects are favourable

competition and growth• Domestic market has matured• Competition is tight

– fast-food industry itself– non fast-food industry such as grocery stores cooked

foods, deli counters, eat-in dining areas• Search for new area of growth

– niche marketing– mergers and consolidations– dual-branding– non-traditional operations– international development– value offerings

technological impact• Technological investments stimulate growth• Information systems tracking inventories and sales• Use of internet in the study of demographic and

market research reports in search of key locations• Use web pages to advertise to prospective owners• Training and support systems• Global exchange of information• Monitoring of the required uniformity of the

franchisee• Research and development to keep ahead of

competition

recommendations• Sales will lag in domestic market but can

grow internationally• To increase or even keep the market share

will be increasingly difficult• Focus on non-traditional markets and niche

markets, dual branding• Service improvements like timeliness and

delivery speed• Watch out for more merger and acquisitions

McDonald’s• Read case p.6-18 from textbook• Give the case questions some thought• Discuss them among yourselves• Are you aware of the first possible loss

announcement since McDonald’s went public in 1965?

• Bring up during the tutorials• Enjoy your weekend

Reading Materials & Resources

• chapter 1 of textbook

• http://www.mcdonalds.com

• http://www.dietclub.com.au/createameal/?menu=1

• http://www.spring.gov.sg