Harvard Case - McDonald's Board of Directors (A)
"McDonald's Board of Directors (A)" Harvard business case study is written by Lynn Sharp Paine, Will Hurwitz. It deals with the challenges in the field of General Management. The case study is 20 page(s) long and it was first published on : Oct 18, 2023
At Fern Fort University, we recommend that the McDonald's Board of Directors implement a multi-pronged strategic plan focused on digital transformation, innovation, and sustainable growth to address the challenges of the evolving fast-food landscape. This plan should prioritize customer experience, operational efficiency, and responsible business practices to ensure long-term success and maintain McDonald's position as a global leader.
2. Background
The case study focuses on the McDonald's Board of Directors in 2015, facing pressure from activist investor Carl Icahn to spin off its real estate holdings. This situation highlights the challenges McDonald's faced, including declining sales, increased competition, and a need to adapt to changing consumer preferences. The case also introduces the new CEO, Steve Easterbrook, who is tasked with revitalizing the company and implementing a new strategic direction.
The main protagonists are:
- Carl Icahn: Activist investor pushing for a spin-off of McDonald's real estate assets.
- Steve Easterbrook: New CEO of McDonald's, responsible for driving change and implementing a new strategic direction.
- McDonald's Board of Directors: Responsible for overseeing the company's strategy and performance.
3. Analysis of the Case Study
Strategic Analysis:
SWOT Analysis:
- Strengths: Strong brand recognition, global reach, efficient operations, and a well-established franchise model.
- Weaknesses: Declining sales, outdated menu, perception of unhealthy food, and a need for digital innovation.
- Opportunities: Growing demand for convenience, focus on healthier options, digital ordering and delivery, and expansion in emerging markets.
- Threats: Increased competition from other fast-food chains, changing consumer preferences, economic downturns, and rising food costs.
Porter's Five Forces:
- Threat of new entrants: Moderate, as entry barriers are high due to brand recognition and economies of scale.
- Bargaining power of buyers: Moderate, as customers have many alternatives and are price-sensitive.
- Bargaining power of suppliers: Low, as McDonald's has a large supply chain and can negotiate favorable terms.
- Threat of substitute products: High, as consumers have many options for fast food, including healthier alternatives.
- Competitive rivalry: High, as the fast-food industry is highly competitive with many established players.
Financial Analysis:
- McDonald's was facing declining sales and profitability, indicating a need for strategic change to improve financial performance.
- The spin-off of real estate assets could potentially unlock value and provide capital for reinvestment in the business.
Marketing Analysis:
- Customer Segmentation: McDonald's needed to adapt its marketing strategy to cater to different customer segments, including millennials, health-conscious consumers, and families.
- Brand Perception: The company faced challenges in maintaining a positive brand image, particularly regarding the perception of unhealthy food.
Operational Analysis:
- Efficiency: McDonald's had a well-established and efficient operational model, but it needed to improve its speed of service and adapt to digital ordering and delivery.
- Supply Chain: The company needed to ensure a reliable and sustainable supply chain to meet growing demand and address concerns about food sourcing.
4. Recommendations
Strategic Planning:
Digital Transformation:
- Invest in technology: Upgrade digital infrastructure, implement mobile ordering and payment, and develop a robust online ordering platform.
- Enhance customer experience: Leverage data analytics to personalize offers, improve customer service, and create a seamless digital experience.
- Expand delivery services: Partner with delivery platforms and invest in in-house delivery infrastructure to reach a wider customer base.
Innovation and Menu Development:
- Focus on healthier options: Introduce new menu items that cater to health-conscious consumers, including salads, wraps, and plant-based alternatives.
- Experiment with new flavors and formats: Introduce limited-time offers, seasonal specials, and innovative menu items to drive excitement and attract new customers.
- Collaborate with food-tech startups: Explore partnerships with innovative food companies to develop new products and technologies.
Sustainable Growth:
- Expand into emerging markets: Target high-growth markets with a focus on local preferences and cultural sensitivities.
- Invest in responsible sourcing: Implement sustainable practices throughout the supply chain, focusing on ethical sourcing and environmental responsibility.
- Promote corporate social responsibility: Engage in community initiatives and support social causes to enhance brand image and build customer loyalty.
Organizational Change:
Leadership and Culture:
- Empower employees: Foster a culture of innovation and empowerment, encouraging employees to contribute ideas and solutions.
- Develop leadership skills: Invest in leadership development programs to cultivate a pipeline of future leaders who can drive change and innovation.
- Promote diversity and inclusion: Create a diverse and inclusive workplace to attract and retain talent from various backgrounds.
Decision-Making Processes:
- Embrace data-driven decision making: Leverage data analytics to inform strategic decisions and measure the effectiveness of initiatives.
- Encourage collaboration: Foster a collaborative environment where employees from different departments can share ideas and contribute to decision-making.
- Streamline decision-making processes: Implement clear decision-making frameworks and processes to ensure efficient and timely decision-making.
Performance Evaluation:
- Establish clear KPIs: Define key performance indicators to measure the success of strategic initiatives and track progress towards goals.
- Implement regular performance reviews: Conduct regular performance reviews to assess progress, identify areas for improvement, and provide feedback to employees.
- Reward performance: Implement performance-based incentives and recognition programs to motivate employees and drive high performance.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of McDonald's strengths, weaknesses, opportunities, and threats. They address the key challenges facing the company, including declining sales, increased competition, and changing consumer preferences. The recommendations are also aligned with McDonald's mission to provide quality food and service to its customers in a way that is responsible and sustainable.
Key Considerations:
- Core competencies and consistency with mission: The recommendations focus on leveraging McDonald's existing strengths, such as its global reach and efficient operations, while also adapting to changing consumer preferences and embracing innovation.
- External customers and internal clients: The recommendations prioritize customer experience, employee engagement, and stakeholder satisfaction.
- Competitors: The recommendations aim to differentiate McDonald's from its competitors through innovation, digital transformation, and a focus on sustainability.
- Attractiveness: The recommendations are expected to drive long-term growth and profitability by increasing sales, improving efficiency, and enhancing brand image.
6. Conclusion
By implementing these recommendations, McDonald's can address the challenges it faces and position itself for long-term success. The focus on digital transformation, innovation, and sustainable growth will enable the company to adapt to the evolving fast-food landscape, attract new customers, and maintain its position as a global leader.
7. Discussion
Alternative Options:
- Spin-off real estate assets: This option could unlock value and provide capital for reinvestment, but it could also lead to a loss of control and potentially create short-term instability.
- Focus solely on cost-cutting: This option could improve short-term profitability but could also lead to a decline in customer satisfaction and brand image.
Risks and Key Assumptions:
- Execution risk: Successfully implementing these recommendations requires a significant investment in technology, infrastructure, and talent.
- Consumer acceptance: The success of new menu items and digital initiatives depends on consumer acceptance and willingness to adapt to new technologies.
- Competition: The fast-food industry is highly competitive, and competitors may implement similar strategies, making it difficult to maintain a competitive advantage.
8. Next Steps
- Develop a detailed implementation plan: Outline specific timelines, milestones, and resources required to implement each recommendation.
- Communicate the strategic vision: Clearly communicate the new strategic direction to employees, investors, and stakeholders.
- Invest in technology and infrastructure: Allocate resources to upgrade digital infrastructure, implement new technologies, and develop a robust online platform.
- Build a strong leadership team: Recruit and develop leaders who can drive change and innovation.
- Monitor progress and adjust as needed: Regularly track progress towards goals, identify areas for improvement, and adjust the strategy as needed.
By taking these steps, McDonald's can successfully navigate the challenges of the evolving fast-food landscape and position itself for long-term success.
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Case Description
In October 2019, the McDonald's Corporation board of directors, chaired by Enrique Hernandez, Jr., gathered to learn the results of their outside counsel's investigation into the conduct of the CEO. On the surface, the iconic fast-food chain was thriving as growing profits translated into share price gains. But unbeknownst to the public, a drama was unfolding that threatened the company's success and brand value. Hernandez and other directors listened intently as counsel explained their findings that the CEO had engaged in an inappropriate consensual relationship with an employee, in violation of the company's code of conduct. As directors grappled with the situation, they faced a litany of difficult questions. What action should they take with a CEO some were calling McDonald's "savior," credited with revitalizing the business and doubling its share price in under five years? Should they sanction him or possibly even remove him from office? And, if they did remove him, should he receive his potentially substantial severance package? How might shareholders, employees, and customers react-and to what extent should the directors consider stakeholder reactions in their deliberations?
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