978-1259278211 Case 25 Solution Manual Part 1

Unlock access to all the studying documents.

View Full Document

Teaching Note: Case 25 – McDonald’s

Case Objectives

1. To investigate the key external environmental issues that can affect a firm’s strategy.

2. To examine how a reevaluation of strategy involves assessment of internal activities and

resources.

See the table below to determine where to use this case:

NOTE: There are both PRIMARY and Secondary chapters that can be used for this case. The

Teaching Note gives guidance for the PRIMARY use chapters, and provides suggestions if the

instructor wants to use the case to illustrate concepts from the optional Secondary chapters.

Chapter Use Key Concepts Additional Readings or

Exercises

PRIMARY

Strategic management; vision,

Visit McDonald’s website to

2: External

External environmental forces;

Visit investor commentary on

3: Internal

Value chain; tangible vs. intangible

4: Intellectual

Assets

Human capital; intellectual capital

5: Business-

Level Strategy

Generic strategies

SECONDARY

6: Corporate-

Level Strategy

Corporate strategy; diversification;

7: International

Strategy

International expansion

Case Synopsis

McDonald’s announced on January 28, 2015, that Don Thompson would retire as president and

chief executive at the end of February. He would be replaced by Steve Easterbrook, the firm’s

This was frustrating to many analysts, because McDonald’s had managed to show consistent

growth in performance up to 2013, riding a surge in operating profits and stock price for almost a

decade. Most of this could be attributed to the “Plan to Win,” which was first outlined by James

In spite of management changes, McDonald’s had remained committed to pushing on various

aspects of this plan. The chain had continued to expand its menu over the years, with more

sandwiches and salads. It also started to add snacks and drinks, two of the few areas where

Nevertheless, McDonald’s was aware that it was facing a rapidly fragmenting market, where

consumers were looking for healthier and even more exotic foods. The chain was facing tougher

competition from Burger King and Wendy’s, both of which had been adding to their menus and

The prevailing belief was that when restaurants started to slide, it really took a lot to turn them

around. Would McDonald’s be the exception? With the recent addition of the McCafe coffee line,

fruit-based smoothies, and healthier offerings across the menu, McDonald’s was stretching its

brand beyond its traditional money making burgers and fries. Would this allow McDonald’s to

successfully compete against all of its rivals, since, especially in America, people just love their

burgers?

Teaching Plan

This is a case that is well suited for a full investigation of strategic analysis and formulation.

Especially since most students are well aware of McDonald’s strategic challenges, the case can

be placed in the course at the point where the instructor is ready to lead into a discussion of

strategy formulation. By building a sound foundation in external and internal environmental

analysis, a discussion of McDonald’s can provide an intro for the challenges of competition in a

changing environment. As such, this case is best positioned mid way through the course, after

students have had an introduction to the concepts of strategy analysis and formulation.

Regarding a competitive strategy, McDonald’s is now moving into the drinks segment (with

McCafe coffee and smoothies), which pits it against the likes of Starbucks and Jamba Juice. The

instructor might want to assign the Jamba Juice case as well to provide another view of this part

of the industry.

ICEBREAKER

This case can start with an icebreaker. Starting from the perspective of a customer may make it

easier for students to transition to a strategic analysis.

Have you ever eaten at McDonalds? Over the last few years, have you seen any changes in

either the menu or the restaurant décor? What do you think of these changes?

It is safe to say that McDonald’s is an American icon. Chances are that almost every student has

visited McDonald’s at least once. A good way to start the discussion of this case is to ask

The instructor may want to put a chart on the board: what students Like, what they Don’t Like

about McDonald’s and then what they think McDonald’s should Do Differently. There may be

some disagreements about the likes and dislikes: some people really like the taste of the fries,

Before engaging in discussion, you might want to test student’s basic knowledge regarding the

Which of these statements is the most true?

a. McDonald’s recently had the lowest rank in food quality of all rated hamburger chains.

b. McDonalds’s dollar menu has worked well.

c. McDonald’s doesn’t have to worry about restaurants such as Panera Bread, since these

d. Because of its bulk purchasing agreements, McDonald’s never has to worry about

ANSWER: a

In 2014 a survey in Consumer Reports showed that McDonald’s customers ranked its burgers

significantly below those of 20 competitors. McDonald’s also had the lowest rank in food quality

of all rated hamburger chains in the Nation’s Restaurant News Consumer Picks survey. It

In recent years, the only fast-food burger chain with consistent growth has been Wendy’s.

a. Yes

b. No

ANSWER: b See Exhibit 4. Both Whataburger and Five Guys are the only fast-food burger

Summary of Discussion Questions

Here is a list of the suggested discussion questions. You can decide which questions to assign,

and also which additional readings or exercises to include to augment each discussion. Refer

back to the Case Objectives Table to identify any additional readings and/or exercises so they can

be assigned in advance.

Discussion Questions:

1. What situation did Easterbrook inherit when he became CEO? What are the current

forces in the external environment that might affect the new CEO?

2. What source of competitive advantage does McDonald’s have, and is that position

supported by its value chain and other internal resources? What steps could Easterbrook

take to fix the problems McDonald’s faced?

3. OPTIONAL QUESTION: What other strategies did McDonald’s formulate to achieve a

competitive advantage?

Discussion Questions and Responses

1. What situation did Easterbrook inherit when he became CEO? What are the current

forces in the external environment that might affect the new CEO?

Referencing Chapter 1: Introduction and Analyzing Goals and Objectives

Strategy is all about the ideas, decisions, and actions that enable a firm to succeed. See Chapter

1, Exhibit 01: Strategic management consists of the analyses, decisions, and actions an

organization undertakes in order to create and sustain competitive advantages:

●strategy directs the organization toward overall goals and objectives;

●includes multiple stakeholders in decision making;

Leaders face a large number of complex challenges. Leaders must be proactive, anticipate

change, and continually refine changes to their strategies. This requires a certain level of

See Chapter 1, Exhibit 06: The primary role of the organizational leader is to articulate vision,

mission, and strategic objectives. Leaders must communicate their initial vision of the

organization’s purpose. Should McDonald’s evaluate its initial vision? What was the original

goal that evoked a powerful and compelling mental image of a shared future, one that was

massively inspiring, overarching, and long-term, that represented a destination that is driven by

and evokes passion?

Is the original vision still applicable given the present circumstances?

McDonald’s organizational mission needs to be considered: a mission encompasses both the

purpose of the company as well as the basis for competition and competitive advantages. In

writing a mission statement, it is important to understand the definition of the business by

answering these questions: 1) Who are its customers? 2) What customer need is the organization

trying to fulfill? and 3) How does the business create and deliver value to customers and satisfy

their needs?

Organizations must respond to multiple constituencies if they are to survive and prosper, and the

mission provides a means of communicating to diverse organizational stakeholders. Although

Anticipating that things might change, McDonald’s leadership must establish strategic objectives

to operationalize the mission statement with specific yardsticks. That is, objectives help to

McDonald’s original vision was to provide local customers with a quality meal at a fair price

through a quick and convenient service delivery. McDonald’s mission became to deliver this

service consistently, providing an all-around enjoyable experience for the whole family. CEO

Cantalupo’s objective was to inspire employees and franchisees to “put the smile back into the

McDonald’s experience.” External forces had begun pushing for healthier forms of food.

Company-owned and franchisee restaurants had inconsistency in service and décor. New menu

items had to be accepted by loyal customers. Skinner appeared to have continued with the

original vision & mission. Should Easterbrook do the same?

McDonald’s provides an interesting example of a firm that did very well for decades with a clear

strategy and then stumbled as it tried to reevaluate what it wanted to do. It is clear from the case

that McDonald’s had been tremendously successful primarily as a fast-food chain, with particular

emphasis on hamburgers. Should Easterbrook rethink strategy as a result of factors in the

environment?

See Chapter 1, Exhibit 1.3 for a depiction of the strategic management process. During strategic

analysis, the leader does “advance work” to anticipate unforeseen environmental developments,

In strategy implementation, depending on the type of organization structure, the leader might

include key individuals in a discussion around selecting which strategies might be best to

The basic question strategic management tries to answer is: How can we create competitive

advantages in the marketplace that are not only unique and valuable but also difficult for

competitors to copy or substitute?

NOTE – ADDITIONAL EXERCISES AND VIDEO VIEWING:

As stated, in writing a mission statement, it is important to understand the definition of the

business by answering these questions: 1) Who are its customers? 2) What customer need is the

organization trying to fulfill? and 3) How does the business create and deliver value to customers

and satisfy their needs? Visit McDonald’s corporate web site to research its mission and vision

at:

http://www.aboutmcdonalds.com/mcd/our_company/mcd_faq/student_research.html?

DCSext.destination=http://www.aboutmcdonalds.com/mcd/our_company/mcd_faq/student_resea

rch.html#1

Based on your visit to this website, how do you feel about McDonald’s mission and what its

current priorities seem to be?

Here’s a McDonald’s television advertisement from 1967:

http://www.youtube.com/watch?v=RFEkfipbI3Q&feature=related. Compare McDonald’s

positioning of itself within the restaurant industry in 1967 to its positioning today. What are the

similarities and differences? Which one seems truest to the original vision and mission of the

company?

Referencing Chapter 2: Analyzing the External Environment

Organizational leaders must become aware of factors in the overall environment that might affect

their ability to create a competitive advantage. So how do managers become environmentally

Environmental scanning involves surveillance of a firm’s external environment to predict

environmental changes and detect changes already under way. It is a BIG PICTURE viewpoint

of the industry/competition, looking for key indicators of emerging trends – What catches your

What factors or trends might be most important to McDonald’s? To assess how the external

environment might affect McDonald’s strategy, it’s necessary to take a look at the factors in the

general external environment. McDonald’s must consider the political/legal, economic and

global, sociocultural and demographic, and technological forces that might affect the ability of

the firm to deliver its services and sustain its business. See which factors in the general

environment students might pick that have a significant impact on the fast food industry.

Students might respond as follows:

Demographic – customers are now working around the clock, expecting 24-hour access to fast

food. How to please the range of customers from kids to contractors?

Sociocultural – customers preferences have changed to more exotic foods, healthier food with

better taste. However the growth in fast-food burger places such as Five Guys shows that

Economic – the current economic downturn means customers might be trading down to

McDonald’s if they want to eat out. However, this means that the fast-food meals must be

Global – boundaries are disappearing, travelers are more open to global consistency in food

offerings – Golden Arches are accepted, and expected, everywhere. Geography does matter –

To answer the question about the current forces in the general and fast-food industry

environments that affect McDonald’s ongoing strategy, it’s necessary to assess the segments of

the external competitive environment that include competitors, customers, and suppliers,

substitutes and new entrants. Porter’s five forces model allows strategists to anticipate where the

industry might be most vulnerable. Help students apply Porter’s Five Forces of competition by

drawing a diagram on the board similar to the following and having students fill in the details:

Based on the external environmental industry analysis, the fast-food business is not an attractive

Rivalry

High

Substitutes

Threat

Buyers’

Power

Med-High

Suppliers’

Power

Low

Suggested: High – Many

rivals compete in the fast-

food business. Convincing

customers that menu items

Suggested: Low – Suppliers of

beef, eggs, potatoes have

Suggested: Med-High

– Major substitute is

home cooking – it’s