Organisational Behaviour

EBHM02

Dr. Mike Geppert

Course Work

Prepared by:

Sinu .M. Peter

230419
MBA 2002
European Business Management School
University of Wales, Swansea
SA2 8PP
United Kingdom
December 2nd, 2002
Number of words: 1481
 CONTENTS
Page No.

1. Terms of Reference …………………………………………………………….…... 1

2. Summary …………………………………………………………………….….….. 1

3. Introduction
a) History ……………………………………………………………………….. 2
b) Franchising …………………………………………………………………... 2
c) Mission & Vision ………………………………………………………….… 2

4. Structure of McDonalds …………………………………………………………….. 3

5. Culture of McDonalds ………………………………………………………………. 4

6. Business Strategy of McDonalds

a) Strategic Approach …………………….………………………………… 5
b) Links to culture and structure …………………………………………….... 6

7. Human Resource Management in McDonalds ……………………………………. 7

8. Conclusion ………………………………….…………………………………..….. 8
9. Bibliography ……………………………………………………………………….. 9
 Terms of Reference

This report has been commissioned by Mr. Mike Geppert in order to explain the business strategy
of McDonalds and discuss how this strategic approach can be linked to the company’s structure and
culture. Also, special focus is put on McDonalds’ Human Resource Management strategy and how
this issue corresponds with its rigid employment relation system in recent times. The report was to
be submitted by December 6th, 2002.

Summary
McDonald’s is now the international market leader for fast food, and has been ever since its
pioneering first restaurant was launched in San Bernardino, California in 1948. McDonalds is an
almost perfect industrial system: a conveyor belt in an environment, which is inadvertently
designed as a blueprint of the traditional manufacturing organization in the factory as F. W. Taylor
conceived it and his successors (Hussey 1992). Its geographical structure along with the
bureaucratic culture supplements its low-cost leadership and analyzer business strategy. As a
development strategy, franchising has become a major catalyst in the expansion of the McDonalds
business throughout the world. The success of McDonalds is based on a simple and effective
strategic formula: standardization of service into a package of the smallest detail, strict quality
control and cost-effective production by young, cheap, unskilled workers supervised by managers
on the shop-floor. The growth comes from franchising out this concept and the brand name to
entrepreneurs. Its human resource management policies are tightly and strictly controlled giving an
anarchical power over the employees and dissuading them from becoming anti-organizational at
anytime. This is evident from their history of anti-unionist stand (Royle 2002). The McDonalds
HRM concept is so successful that it can handle a personnel turnover of more than 100 % a year, a
rate that would grind any car manufacturer to a halt. At McDonalds the system is greater than the
individual, the tasks of the employees simplistic.
 Introduction
History

The original founders of McDonald’s, and the fast-food concept, were brothers Dick and
Mac McDonald. In 1948, they modified their drive-in restaurant, creating the standard for the
contemporary fast-food restaurant of modern times. From the introduction of a limited menu of just
nine items, and by focusing on efficient production and service, the brothers were able to halve the
price of their hamburgers to 15 cents. In 1962, the golden arches were adopted as its corporate logo,
with the introduction of Ronald McDonald as its mascot arriving the following year. In 1965,
McDonald’s Corporation went public, and by 1966 was listed on the New York Stock Exchange. In
1967, its first restaurants outside of the United States were opened in Canada and Puerto Rico.
From then on it expanded rapidly.

Franchises

The McDonald’s Corporation is the largest worldwide franchised food service organization.
In the 1960’s, Ray Kroc franchised restaurants for the low sum of $950, demanding 1.9% of sales.
McDonald's are able to overcome cultural barriers that have previously hindered other
organizations. Because the local people immediately translate both the product and service, there is
little hint of what may be construed as US brand culture. McDonald's is simultaneously global and
local. Clearly, an increase in the number of franchised restaurants leads to the direct effect of an
increase in McDonalds’ revenues. McDonald’s can also boast that it is the largest retail property
owner in the world.

Mission and Vision

To serve people with good quality food, fast and at low cost. McDonald's vision is to
dominate the global food-service industry. Global dominance means setting the performance
standard for customer satisfaction and increases market share and profitability through successfully
implementing our convenience, value and execution strategies.
 Structure of McDonalds

Organizational structure refers to the relationship between the tasks performed by the
members of the organization and can be seen in the forms of division of labour, departments,
hierarchy, policies and rules, and coordination and control mechanisms.

Considering the structural grouping at the corporation level and the popularity of franchising
which is having a dramatic effect on the business strategy, a geographical structure can also be
assimilated into the framework of McDonalds. The franchises cater to the distinct tastes and needs
of the particular region and allow McDonalds to focus on the needs of the customers in a
geographical area.

McDonalds falls into mechanistic organization for the reason that in its production activities,
tasks are likely to be highly repetitive at the local shop level. The division of labor will be extreme;
the work activities will be standard, relatively small, and simple. There is a very clear definition of
responsibility and authority. The management structure will be more rigid and hierarchical. Much
of the communication is vertical, flowing from the top to the bottom. Decision-making in
mechanistic organizations tends to be highly centralized toward the top of the organization.
 Culture of McDonalds

Sometimes norms are not the result of shared values among organizational members, rather
they are determined by organizational rules and practices. Accordingly, cultural norms are
determined by both values and organizational practices.

The core beliefs of the company culture - Quality, Service, Convenience and Value - are
drummed into managers at Hamburger University to bond the far-flung franchisees together.
Counter staff have to follow a checklist of standardized behaviors in performing each task - right
down to when to make eye contact and at what points to smile at a customer during a transaction.
The old idea of 'culture' as a bounded entity with a fixed identity and checklist of characteristics is
deployed in a centralized system of command and control.

McDonalds has a Universalistic approach to culture where no relevance is given to it and

standardization and global integration is treated with more importance. McDonalds bureaucratic
culture supports a methodical approach to doing business. It emphasizes in following established
policies and practices as a way to achieve goals.
 Business Strategy of McDonalds

a) Strategic Approach

Considering McDonalds under Porter’s competitive strategies, it can be concluded to have a

low-cost leadership approach. McDonalds uses an overall low-cost leadership strategy to reduce
costs and increase sales.

Using Miles and Snow’s Strategy, McDonalds follows an analyzer type of strategy,
constantly introducing new products while defending their existing products (Daft 2000).

Its business strategy takes an efficiency approach and is associated with strong, centralized
authority and tight control, standard operating procedures, and emphasis on efficient procurement
and distribution systems. Also, employees perform routine tasks under close supervision and
control and are not allowed to make decisions or take actions on their own.

Key elements of McDonald’s business strategy are:

- Adding 700-900 restaurants annually.

- Using new menu items, low price specials, ‘Extra‘ offers.

- Value Meals to promote frequent customer visits.

- Being highly selective in granting franchises.

- Choosing sites convenient to customers.

- Focusing on limited product line & consistent quality.

- Careful attention to store efficency.

- Extensive advertising & use of Mc prefix.

- Hiring courteous personnel; paying an equitable wage & providing good training.
b) Links to culture and structure - Globalization versus Internationalization

McDonald's business growth strategy is based on three elements; i) adding restaurants, ii)
maximising sales and profits at existing restaurants, iii) improving international profitability.
Maximizing sales and profits at existing restaurants will be accomplished through better operations,
reinvestment, product development and refinement, effective marketing and lower development and
operating costs. Improved international profitability will be realised as economies of scale are
achieved in individual markets and as the company benefits from the global infrastructure.

Globalization means developing strategies on the premise that the world is a single entity
and so can be marketed in the same way. Internationalization, on the other hand, involves
customizing your strategies depending upon the people you wish to market to. As opposed to
standardizing, this approach involves grouping countries according to their culture, economy,
politics and so on.

According to Taylor, the answer to success of McDonalds lies in the maxim of "think
global, act local". In other words, ensure that your structure fits in with the international
environment, but also have internal flexibility. This concept has become a key phrase in the
twentieth-century business world and is embodied in the marketing strategy of McDonald's. The
procedure for making food is identical in each of the 25,000 restaurants - the epitome of
globalization. Standards must be met across the world and are highly specific. For example, one out
of every two fries must measure 75mm. Hence the bureaucratic culture and geographical structure
is highly efficient for its low-cost and analyzer business strategy.
 Human Resource Management in McDonalds

With an average of 50 new restaurants opening annually, McDonalds is creating 3,250 new
jobs a year. McDonalds cultural hegemony is evidently professed in the HRM policies. McDonalds
experiences a high labor turnover but regards this as acceptable because it acknowledges the low
level of skill required by most employees in its restaurants. Much of the work is molecularised into
short job-cycles and routine and repetitive activities. After a while, the majority of human beings
would become disenchanted with such work; from the McDonalds viewpoint, it is preferable that
disenchanted employees depart to be replaced by more idealistic new ones, because disenchanted
employees can adversely affect business if their disenchantment communicates itself to customers.

The bureaucratic approach makes the employees working in the restaurant behave as they do
because of tightly controlled organizational practices. Even in cases where employees do not share
the dominant values of the company (they don't believe that following the strict work processes
required by the organization is a desirable behavior), they have no choice but to adhere to these
norms, given the high degree of regulation in their jobs. McDonalds has a perfect match between
personnel idea and business idea and this is probably one of the cornerstones of its success
(Normann 1983).
 Conclusion

McDonalds lowers consumer search costs by marketing a familiar range of products in a

wide range of accessible locations at steady prices. Brand awareness is created and sustained by
nation-wide advertising on a scale unobtainable by smaller firms (Porter, 1980). Nation-wide
buying power also ensures that margins are healthier than smaller competitors or that savings are
passed on in the form of lower prices. In the process of establishing a global presence, McDonalds
has also gained a reputation for convenient and reliable service that helps to retain customers and
gain new business. A bureaucratic culture and structure which supports its business strategy that can
be classified to gain Operational excellence where the aim is to create the process, minimize cost,
maximize efficiency, and quality is evident in McDonalds.

McDonalds is just another company and it does exactly the same thing, has exactly the same
motivation, as companies all over the world- it aims to make money. There is no room for emotions
because the agenda of profit is absolutely total.
 Bibliography

Curin Donna B. (2002). McDonald’s International : Strategies for Cloning a Golden Egg, IBEC,
St. Norbert’s College.

Daft Richard L. (2000). Organization theory and design, South Western College Publishing, 7th
Edition.

Daniels J. L. (1993). McDonaldisation revisited. Critical essays on consumer culture, Westport,

Praeger Publishers.

Hussey D. E. (1992). International Review of Strategic Management, John Wiley & Sons Ltd,
Volume 3.

McDonald's Corporation (1996). Crew Handbook, London.

Normann, R. (1983). Service Management, Liber, Malmo.

Porter Michael E. (1980). Competitive strategy : techniques for analyzing industries and
competitors, Free Press London : Collier Macmillan.

Ritzer G. (1996). The McDonaldisation of Society, California, Pine Forge Press.

Ritzer George (1995). The McDonaldization of society : an investigation into the changing
character of contemporary social life, Pine Forge Press, London.

Shook C. / Shook R. (1993). Franchising: the business strategy that changed the world, London,
Prentice Hall.