Strategic issues in organizational management

McDonald's strategic issue is a fundamental policy question or challenge affecting an organization's mandates, mission, and values; product or service level and mix; clients, users, or payers; or costs, financing, structure, or management (Bryson, 1995). This paper describes a strategic issue faced by fast food giant McDonald's, which is fighting to maintain its position as a market leader.

McDonald's has built one of the most successful fast food franchises in the world, with incredible growth for over three decades. The company's long-term strategy has focused on uniformity in its product, service, and the consistency of its information systems. However, with a slew of recent challenges, McDonald's learning that times are changing. The company's main new concern is portraying their sense of healthy eating habits and staying ahead of the competition.

McDonald's reached a low point in 2001, when customer-satisfaction surveys revealed that the company was falling well behind its competitors, Wendy's and Burger King (Green, 2004). Customers stated that they preferred healthier offerings, such as Subway's fresh and healthy sandwiches. McDonald's was spending a great deal of money opening new stores but its profit margins were dropping, as was customer satisfaction.

The firm's philosophy of QSC&V -- quality, service, cleanliness and value -- simply wasn't working any more (Green, 2004). In 2002, McDonald's experienced its first quarterly loss since 1954, the year when Ray Kroc convinced the McDonald brothers to let him franchise their new "Speedee" self-service restaurant system.

McDonald's had lost more than strategic direction. A wave of anti-American feeling overseas had turned its famous "golden arches" from an asset into a liability (Green, 2004). In addition, as concerns about obesity and junk food escalated, the company lost more and more business. McDonald's was even sued for making people fat. While the plaintiffs of such cases did not win, the bad publicity hurt the company. To make matters worse for the company, Morgan Spurlock's film "Super Size Me" showed how he made himself sick and gained 25 pounds by eating only McDonald's food for 30 days.

Strategic action was necessary. In 2003, Jim Cantalupo, a McDonald's veteran, who was former head of international operations, was urged back from retirement to replace Jack Greenberg, forced out as chief executive by concerned shareholders (Green, 2004). The "Plan to Win," as the company's recovery strategy was known, was Cantalupo's strategy. However, months later, while attending a McDonald's convention in Florida, the 60-year-old died after having a heart attack.

The loss of a leader was a major setback for the company (Green, 2004). However, MacDoanld's team quickly executed a succession strategy already in place. Within hours, Charlie Bell, a 43-year-old Australian promoted to chief operating officer, took the reins. Unfortunately, he was diagnosed with cancer in May. However, even while recovering from treatment, he remained at the forefront of the company's strategic action.

Bell did not sugarcoat what went wrong in the company. He said that many companies today "get fat, dumb and happy and take their eye off the ball (Green, 2004)." People thought McDonald's was no longer capable of good results, but Ball was convinced that they were wrong. For the first half of 2004, sales were up 13% to $9.1 billion, and net profits rose 38% to $1.1 billion, compared with the same period a year earlier.

The changes were simple yet seem to be effective (Green, 2004). Rather than focusing on opening more restaurants, the company has refocused its efforts on improving its old ones.

And, most importantly, McDonald's will focus on what is on the menu. The average sale in a McDonald's restaurant is just under $5. In many cases, a parent will come in, buy her children a Happy Meal, and order just a coffee for herself. Now that salads and other healthy options have been added to the menu, many of those parents now buy themselves a meal too, increasing the order value to approximately $12. The lighter options also encourage existing customers to visit more often because there are a greater variety of food choices.

McDonald's has also scrapped the extra-large portions that had become one of its signatures (AP, 2004). The company has eliminated its Supersize fries and drinks, citing the need to trim a menu that has expanded in recent years.

According to company representatives, eliminating super-sizing is only part of the company's effort. "The driving force here was menu simplification," spokesman Walt Riker said after McDonald's disclosed the change in strategy (AP, 2004). "The fact of the matter is not very many Supersize fries are sold."

However, it is more likely that the downsizing of super-sizing comes as fast-food companies are under intense pressure to cater to Americans' increasing preference for healthier food options. The move is part of McDonald's "Eat Smart, Be Active" initiative, which it launched under new CEO Jim Cantalupo and U.S. operations chief Mike Roberts in a strategy to revive sales.

McDonald's added entree salads with much success recently and has been moving to provide more fruit, vegetable and yogurt options with its Happy Meals (AP, 2004). Unfortunately, the fast-food giant remains a major target for public criticism, and legal action, when it comes to obesity and other health concerns.

The documentary, which chronicles the deterioration of filmmaker Morgan Spurlock's health during a month long experiment eating nothing but McDonald's food, won a directing prize at the Sundance Film Festival and is set for wide release this spring (AP, 2004).

The company describes the documentary "a super-sized distortion of the quality, choice and variety available at McDonald's (AP, 2004)." It says the film is not about McDonald's but about Spurlock's decision to behave irresponsibly by eating 5,000 calories per day.