Harvard Business School
Rev. September 23, 1996
Whether in Moscow or Massachusetts, the same experience would greet a customer in any of the 12,611 McDonald’s quick-service restaurants worldwide. McDonald’s had distinguished itself in the quick-service industry through its remarkable consistency across all units. To competitors and customers alike, the Golden Arches—the corporate emblem that adorned every restaurant— symbolized pleasant, fast service and tasty, inexpensive food. In the United States alone, McDonald’s served over 20 million customers every day.1 Although such a number testified to the restaurant chain’s success, it also suggested a troubling question for management. With McDonald’s already serving so many customers, how could it possibly attract more business? External pressures reinforced the dilemma. Demographic trends were reshaping American eating habits while competitors were attacking the quick-service giant from all sides. From chains specializing in speed and service, to those offering wider variety and those that featured deeply discounted menus, McDonald’s faced competitors poised to challenge the industry leader on all fronts. McDonald’s had built its success on a legendary operating system that amazed competitors and the financial community by generating an average annual return on equity of 25.2% from 1965 through 1991, and an average annual earnings growth of 24.1%. However, sales per unit had slowed between 1990 and 1991, causing management to wonder whether the company’s operating system, so vital in guaranteeing uniform quality and service at every McDonald’s outlet, was suited to the new circumstances the company faced. Consumers were changing: in addition to an increasing, yet variable, concern for ‘healthy’ food, there was a growing concern for the environment among consumers. A study of Americans in the summer of 1989 had found that 53% of those questioned had declined to buy a product in the previous year because they were worried about the effects the product or its packaging might have on the environment.2 Aware of the growing importance of environmental stewardship, McDonald’s had recently undertaken a bold collaboration with the Environmental Defense Fund, which seemed to offer some concrete methods by which operations could adapt to the benefit of the environment.
1 With 250 million people living in the United States, McDonald’s was serving roughly 8% of the U.S.
2 Frances Cairncross, “Costing the Earth,” pp.190-191. Harvard Business School Press, 1992.
The information presented in this case does not necessarily represent the opinion of McDonald’s Corporation. Thanks are due to Terri Capatosto and Shelby Yastrow of McDonald’s along with Jackie Prince and Fred Krupp of the EDF. The following provided background material for this case: John F. Love, McDonald’s: Behind the Arches (New York: Bantam Books, 1986) and Lois Therrien, “McRisky,” Business Week, October 21, 1991. Professor David Upton and Doctoral Candidate Joshua Margolis prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Data have been disguised. Copyright © 1992 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
Top managers considered three vexing challenges: • To what extent should McDonald’s change its operations strategy to accommodate the growing need for flexibility and variety in products. Was it merely...
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