Your case analysis should be no longer than 500 words, not counting headers and any exhibits. Please indicate the word count on the first page. Case analysis must be submitted in Word file format.
1. Your case write-up should begin with a short executive summary that highlights your stand on the case. This summary should be no longer than two sentences. The remainder of the case write-up should present in greater detail the analyses that support your conclusions.
2. The case is designed to get you to think about issues. In analyzing and writing up the case, adopt the perspective of a consultant who has been hired by the company to succinctly advise it on the critical issues at hand. Stitch together the arguments in a smooth way in your write-up.
3. Be sure to use the data in the case when appropriate. Write-ups that ignore relevant data are incomplete. However, note that just because some data are presented in the case, it does not necessarily mean that the data are crucial or relevant to the solution you propose. Good strategists know what data to use, and how that data must be used.
McDonald’s Corporation FRANK T. ROTHAERMEL JOHN KIM McDonald’s Corporation Monday, November 4, 2019, 5:48 am. Chris Kempczinski walks into the new corporate headquarters for McDonald’s located in the trendy west-loop section of downtown Chicago. This is his first day as the newly appointed CEO of McDonald’s. Less than 24 hours ago, McDonald’s board of directors announced the termi- nation of his predecessor Steve Easterbrook with immediate effect after disclosure of a relationship with a staff member in violation of company policy. McDonald’s nine-story building is modern and symbolizes the company’s future, not its suburban past. With open workspaces, modular furniture, and floor-to-ceiling glass, it looks more like a WeWork location than a stodgy corporate headquarters. Yet, there is also an operational efficiency to the place; each level has a specific purpose, ranging from a live restaurant on the ground floor with menu items from Australia, Hong Kong, and France, to the test kitchens used for new product development, to the famous training facility for managers called Hamburger University. Just four years ago, Chris Kempczinski had joined McDonald’s to be part of its global strategy team after leaving Kraft Foods. Just six months prior, in the spring of 2015, his predecessor Steve Easterbrook was appointed CEO of McDonald’s. Easterbrook had promoted Kempczinski to president of McDonald’s USA in October 2016. Jointly, they had worked hard to turn McDonald’s around. As Chris Kempczinski pushed the elevator button to the CEO suite, he reflected on his last four years with McDonald’s. In many ways, 2015 was the low point. Customers were confused by the complex menu offerings, distrustful of the quality of ingredients, frustrated at how long it took to get their food, and angry at the company’s “exploitative” labor policies.1,2 According to analysts, “[then-CEO Thompson] got fatally behind the last couple of years” and “wasn’t inspiring people the way he needed to be.”3 The financial results painted the same picture. Net income in 2015 was at $4.53 billion, representing the company’s second annual drop in “same-store” sales since 2002.4 By early 2015, McDonald’s shares had dropped below their 2012 price point, while the overall market was up by 50 percent. Yet, with some $21 billion in sales (in 2019) and some 45,000 restaurants globally (thereof 27,000 in the United States), McDonald’s remains the largest quick-service restaurant (QSR) chain. Chris knew that early results from the strategic initiatives that Easterbrook and he put in place were promising. As of the of fall 2019, McDonald’s (normalized) share price had appreciated roughly double since March 2015, outperforming the Dow Jones Industrial index. However, traffic to restaurants in the United States continued to Professors Frank T. Rothaermel and John Kim prepared this case from public sources. This case is developed for the purpose of class discussion. This case is not intended to be used for any kind of endorsement, source of data, or depiction of efficient or inefficient management. All opinions expressed, and all errors and omissions, are entirely the authors’. © Rothaermel and Kim, 2019. MH0065 126026128X REV: NOVEMBER 4, 2019 For the exclusive use of M. Joseph, 2022. This document is authorized for use only by Michael Joseph in KSB-612 2022 taught by SALLY FOWLER, American University from Dec 2021 to Jun 2022. 2 McDonald’s Corporation Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction, distribution, or posting online without the prior written consent of McGraw-Hill Education. stagnate (Exhibits 1 and 2). Things were moving fast … Chris Kempczinski sat down in the corner office, booting up his laptop, and took a sip from a low-calorie Monster energy drink. He had a busy ahead of him. . . A Brief History of McDonald’s (1940–2002) McDonald’s was started by the McDonald brothers in 1940 in San Bernardino, California.5 By limiting the menu to burgers, fries, and drinks, Dick and Mac McDonald could emphasize quality and streamline their opera- tions, resulting in a value-for-money menu. As a result, the popularity of the restaurant grew quickly, and the brothers started franchising McDonald’s to nearby locations. Alerted to their success when the McDonalds placed a large order for eight multi-mixers, Ray Kroc joined the brothers in 1954. Together, they founded the McDonald’s Corporation in 1955, with the vision of establishing McDonald’s franchises throughout the United States. Kroc bought out the brothers’ shares in 1961, the same year that he founded the Hamburger University (graduates receive a bachelor’s degree in Hamburgerology). He continued his plans for rapid expansion throughout the 1960s and 1970s, establishing more than 700 new McDonald’s restaurants. In 1965, the company held its first public offering, debuting at $22.50 per share. The company opened its first international locations in 1967 in Canada. The first McDonald’s stores in Japan and Europe followed shortly thereafter in 1971. Meanwhile, Kroc continued to add new items to the restaurant’s menu. After the success of the Big Mac® (1968), the Quarter Pounder® debuted in 1973, and the Egg McMuffin® in 1975. A full breakfast menu was available by 1977. The first Happy Meals® arrived in 1979. The company’s first drive-through opened in Sierra Vista, Arizona in 1975 to serve soldiers stationed at a nearby post, and the idea quickly spread to other locations. Competition heated up in the “burger wars” of the 1980s as Burger King and Wendy’s tried to steal market share from McDonald’s. Despite their advances, McDonald’s continued to expand globally into more than 30 countries. Even more new products were introduced, such as Chicken McNuggets® in 1983 and fresh salads in 1987. At the same time, McDonald’s used efficiency and technological advances such as microwaves to gain operational advantages over its competitors. McDonald’s diversified into different restaurant chains such as Chipotle Mexican Grill, Donatos Pizza, Boston Market, and Aroma Café coffee shops.6 These acquisitions were later divested when McDonald’s strategy shifted yet again in the early 2000s. McDonald’s Leadership (2003–2015) From 2003 to 2004, leadership at McDonald’s underwent a rapid string of CEO successions (due to untimely deaths) that would have crippled a company with a less talented executive bench. In 2004, Jim Skinner, previously the vice chairman in charge of introducing and implementing the company’s “Plan to Win,” was appointed CEO.7 In a saturated market, the main thrust of Skinner’s plan was to shift from acquiring real estate to generating increased sales from existing restaurants.8 In the early 2000s, McDonald’s was opening a new store somewhere in the world every 4.5 hours; under Skinner’s watch, the pace slowed to just 50 to 100 new U.S. sites per year. To compensate, existing stores started to stay open longer, extending their hours into the late night and early morn- ing. By 2007, roughly 40 percent of McDonald’s’ locations were open nonstop, and some even experimented with staying open on holidays.9,10 Skinner used the money saved on fewer new openings to revamp existing restaurants. The “new” McDonald’s look utilized a gentler color scheme, replaced fiberglass and steel chairs with leather seating, eliminated fluorescent lighting, and added such amenities as flat-screen TVs, free Wi-Fi, live plants, piped-in music, and the occasional For the exclusive use of M. Joseph, 2022. This document is authorized for use only by Michael Joseph in KSB-612 2022 taught by SALLY FOWLER, American University from Dec 2021 to Jun 2022. McDonald’s Corporation 3Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction, distribution, or posting online without the prior written consent of McGraw-Hill Education. fireplace.11 Headquarters provided grants of up to $600,000 per site, with some projects costing as much as $1.5 million.12 By the time all of the renovations were completed, the company had invested over $1 billion in upgrading its stores. Skinner also refocused the company on cost cutting by improving operational efficiency, with the help of Don Thompson, McDonald’s COO. In this role, Thompson spearheaded the successful McCafé campaign and seemed a natural selection to produce the next “McHit.”13 By the time Don Thompson became CEO in 2012, most of the low-hanging fruit had already been plucked. Thompson graduated from Purdue University with a degree in electrical engineering, and was recruited to McDonald’s to design robotics for food transport and control circuits for cooking equipment. His career focus changed from engineering to operations, working a wide range of jobs from fry cook to regional manager to under- stand the company’s day-to-day activities.14 McDonald’s struggled with weakening sales under Thompson’s reign (see Exhibit 2) despite his efforts to optimize the menu, improve the customer experience, and make McDonald’s more accessible to a broader market base. Unable to produce the desired turnaround, Thompson retired in January 2015 to make room for new leadership.15 McDonald’s Leadership (since 2015) Hailing from the United Kingdom, Steve Easterbrook was appointed as the CEO of McDonald’s on March 1, 2015. Easterbrook came to the top spot having turned around the McDonald’s UK and European operations, which were now among the best performing in the company. He had worked his way up to McDonald’s top brand officer by 2010, then left to head two British restaurants (PizzaExpress Ltd. and Wagamama Ltd.), before returning to his former position in June 2013. Under Thompson, he subsequently assumed responsibility for corporate strat- egy and the restaurant solutions group. Exhibit 3 shows McDonald’s’ revenues by regions and market segments, (2013–2018). Given his low-key profile, observers were surprised when Steve Easterbrook also announced that McDonald’s would move its headquarters from Oak Brook, where it resided in a custom-built campus for some four decades, to Chicago’s West Town neighborhood in 2018. Easterbrook explained that McDonald’s HQ was moving to be closer to the millennials they want as employees and as customers.16 In November 2019, Easterbrook was terminated by McDonald’s board of directors after a relationship with a staff member in violation of company policy. The board appointed Chris Kempczinski as new CEO; previously serving as president of McDonald’s USA since the fall of 2016. Strategic Initiatives since 2015 In 2015, then-CEO Easterbrook announced a turnaround plan to “reset and rebuild the business” with three priorities: driving operational growth, returning the brand excitement, and unlocking financial value. The company started refranchising its operations in an effort to drive more local accountability, ownership