Case analysis

Your Case Project is based on McDonald’s Company it was developed by Professor Jamal Shamsie, Pace University and published by Dess, Lumpkin and Eisner “Strategic Management: Text and Cases” Textbook 4th edition, McGraw Hill, 2009. The Case represents real facts experienced by McDonald’s Restaurant turnaround strategy that was working but the firm still faced a rapidly fragmenting market where changes in the tastes of consumers have made once-exotic foods like sushi and burritos everyday options…

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The case should be approached and written in a “Case Analysis” format..Attached is a link called “Case Analysis Process” which will guide you as to how to prepare and write this case study.

Your case should include:

A- Introduction of the Case

B- Statement of the Problem / Identify Problem

C- Conduct Strategic Analysis

      – Issues related to the case

D- Propose Alternatives Solutions

E- Make Recommendation / Select Appropriate Solution

 

This case should be written in APA Style of Writing and no less than 5 pages in length. Not including cover page and reference pages. The elements for your case analysis and development from A to E should be titled and underlined throughout your paper.

  
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Case 40

On January 24, 2007, McDonalds CEO Jim Skinner stated that the total revenue for the fast food chain had risen by 11 percent during 2006 to $21.6 billion. Net profits had climbed by 36 percent to $3.6 billion. These results indicated that the firm had managed to make signi­ficant improvements to its performance since announc­ing its first quarterly loss ever in early 2003. The stock for McDonald’s had risen to almost $45, representing a threefold increase in value since pulling out of a nosedive three years ago. “To state the obvious, McDonald’s is on a bit of a roll,” the firm’s chief financial officer Matthew Paull told analysts’ (see Exhibits 1 and 2 for income statements and balance sheets).

Skinner was the second person to take over the com­pany since James R. Cantalupo had died unexpectedly of a heart attack in 2004. Cantalupo had been replaced by Charlie Bell, who also resigned a few months later in order to fight his recently discovered cancer. In spite of these changes in leadership, the firm has continued to push on the turnaround strategy that had been initiated by Cantalupo in order to ad­dress McDonald’s lackluster performance. The strategy, commonly refereed to as the “Plan to Win” tried to target various critical areas that needed to be addressed.

In fact, Skinner attributed the firm’s consistent growth in sales and profits to the successful development of Cantalupo’s early turnaround efforts. As a result of these, McDonald’s has managed to achieve 44 straight months of higher same-store sales. Much of the momentum has been generated in the United States, the firm’s single largest market, where new menu items, refurbished outlets, late-night hours and cash­less payments have boosted sales. The firm has also shown some improvement in its sales hi Europe, where it had failed to show much growth for several years.

But Skinner was acutely aware that the problems at McDonald’s went way beyond cleaning up restaurants and revamping the menu. The chain has been squeezed by long-term trends that are threatening to leave it marginal­ized. McDonald’s is facing a rapidly fragmenting market, where changes in the tastes of consumers have made once-exotic foods like sushi and burritos everyday options. Many of its fast-food customers are also looking for food that is healthier and better tasting. Furthermore, competi­tion has been coming from quick meals of all sorts that can be found in supermarkets, convenience stores, and even vending machines.

Many analysts believe that McDonald’s must con­tinue to work on its turnaround strategy in order to meet these challenges. But they acknowledge that the firm has pushed hard to transform itself, and they are encouraged

* This case was developed by Professor Jamal Shamsie. Michigan State
University, with the assistance of Professor Alan B. Eisner. Pace University.
Material has been drawn from published sources to be used for class discussion-
Copyright
© 2007 Jamal Shamsie & Alan B. Eisner.

by the results that it has achieved over the last three years.
“They have experienced a comeback the likes of which
has been pretty unprecedented,” said Bob Golden, execu­tive vice-president of Technomic, a food service consul­tancy. “When restaurants start to slide, it really takes a lot
to turn them around.”
2

Experiencing a Downward Spiral

Since it was founded more than 50 years ago, McDonald’s
has been defining the fast food business. It provided mil­
lions of Americans their first jobs even as it changed their
eating habits. It rose from a single outlet in a nondescript
Chicago suburb to become one of the largest chains of outlets spread around the globe. But it had been stum­
bling over the past decade (see Exhibit 3).

The decline in McDonald’s once-vaunted service and
quality can be traced to its expansion of the 1990s, when
headquarters stopped grading franchises for cleanliness,
speed, and service. By the end of the decade, the chain ran
into more problems because of the tighter labor market.
McDonald’s began to cut back on training as it struggled hard to find new recruits, leading to a dramatic falloff in
the skills of its employees. According to a 2002 survey by
market researcher Global Growth Group, McDonald’s
came in third in average service time behind Wendy’s and
sandwich shop Chick-fil-A Inc.

McDonald’s also began to fail consistently with its new product introductions, such as the low-fat McLean
Deluxe and Arch Deluxe burgers, both of which were
meant to appeal to adults. It did no better with its attempts
to diversify beyond burgers, often because of problems
with the product development process. Consultant Michael
Seid, who manages a franchise consulting firm in West
Hartford, pointed out that McDonald’s offered a pizza that
didn’t fit through the drive-through window and salad
shakers that were packed so tightly that dressing couldn’t
flow through them.

In 1998, after McDonald’s posted its first-ever decline
in annual earnings, CEO Michael R. Quinlan was forced out and replaced by Jack M. Greenberg, a 16-year veteran of the
firm. Greenberg did try to cut back on McDonald’s expan­
sion as he tried to deal with some of the growing problems. But his efforts to deal with the decline of McDonald’s were
slowed down by his acquisition of other fast food chains
such as Chipotle Mexican Grill and Boston Market.

On December 5, 2002, after watching McDonald’s
stock slide 60 percent in three years, the board ousted
Greenberg. He had lasted little more than two years. His
short tenure had been marked by the introduction of
40 new menu items, none of which caught on big, and the purchase of a handful of nonburger chains, none of which
helped the firm to sell more burgers. Indeed, his critics say that by trying so many different things and executing them poorly, Greenberg allowed the burger business to continue

Case 40:: McDonald’s C387

Exhibit 1 Income Statement
1 : “~^~T~^^^^^^^

. ••

‘
Years Ended December 31 , . 1
1
2006
2005
2004
Revenues

^fplSf^y*’ ‘ • }
ISiil^v-. •••’.:;
Sales by Company operated restaurants
$16,082.7
$14,726.6
$13,755.2
Revenues from f ranchised and affiliated restaurants
5,503.7
5,105.9
4,838.8
Total revenues
21,586.4
19,832.5
18,594.0
Operating Costs and Expenses

Company-operated restaurant expenses

Food & paper
5,349.7
5,004.9
4,698.2
Payroll & employee benefits
4,185.4
3,860.4
3,586.;
Occupancy & other operating expenses
4,006.6
3,709.2
3,403.2
Franchised restaurants — occupancy expenses
1,060.4
1,021.5
1,002,7
Selling, general, & administrative expenses
2,337.9
2,167.1
1,939J
Impairment and other charges (credits), net
134.2
(28.4)
281.4
Other operating expense net
67.1
105.3
145,0
Total operating costs and expenses
17,141.3
15,840.0
15,056.1
Operating income
4,445.1
3,992.5
3,537.2
Interest expense — net of capitalized interest of $5.4, $4.9 and $4.1
402.0
356.1
358-
Nonoperating income, net
(123.3)
(38.0)
(21,2
Income from continuing operations before provision for income taxes
4,166.4
3,674.4
3,200.7
Provision for income taxes
1,293.4
1,088.0
9232
Income from continuing operations
2,873.0
2,586.4
2,277.5
Income from discontinued operations (net of taxes of $96.8, $0.4 and $0.7)
671.2
15.8
1 0
Net income
$ 3,544.2
$ 2,602.2
$ 2,278.5
Per common share — basic:

Continuing operations
$ 2.33
$ 2.05
$ 1.81
Discontinued operations
0.54
0.01
—
Net income
$ 2.87
$ 2.06
$ 1.81
Per common share — diluted:

Continuing operations
$ 2.30
$ 2.03
$ 1.79
Discontinued operations
0.53
0.01
—
Net income
$ 2.83
$ 2.04
$ 1.79
Dividends per common share
$ 1.00
$ 0.67
$ 0.5:
Weighted-average shares outstanding — basic
1,234.0
1,260.4
1,259,7
Weighted-average shares outstanding — diluted
1,251.7
1,274.2
1,2737
Source: McDonald’s.

Exhibit 2 Balance Sheets
Years Ended December 31,

Assets
Current assets
Cash and equivalents Accounts and notes receivable Inventories at cost, not in excess of market Prepaid expenses and other current assets Discontinued operations
Total current assets Other assets
Investment in and advances to affiliates Goodwill net Miscellaneous
Total other assets Property and equipment Property and equipment, at cost Accumulated depreciation and amortization Net property and equipment

Total assets

Liabilities and Shareholders’ Equity
Current liabilities Notes payable Accounts payable Income taxes Other taxes Accrued interest
Accrued payroll and other liabilities Current maturities of long-term debt Discontinued operations
Total current liabilities
Long-term debt
Other long-term liabilities Deferred income taxes
Shareholders’ equity Preferred stock, no par value, authorized—165.0 million shares
‘issued—none
Common stock, $.01 par value authorized—3.5 billion shares; issued—1,660.6 million shares Additional paid-in capital Retained earnings
Accumulated other comprehensive income (loss) Common stock in treasury at cost 456.9 and 397.4 million shares
Total shareholders’ equity Total liabilities and shareholders’ equity
Source: McDonald’s.
$ 2,136.4 904.2 149.0 435.7
3,625.3
1,036.2 2,209.2 1,307.4 4,552.8
31,810.2
(10,964.5)
20,845.7
$29,023.8
$ —
834.1
250.9
251.4
135.1
1,518.9
17.7
3,008.1 8,416.5 1,074.9 1,066.0
16.6 3,445.0 25,845.6 (296.7) (13,552.2) 15,458.3 $29,023.8
$ 4,260.6 793.9 144.3 640.2 380.0 6,219.0
1,035.4 1,924.4 1,236.7 4,196.5
29,482.5
(9,909.2)
19,573.3
$29,988.8
544.0
678.0
569.6
233.1
158.5
1,158.1
658.5
107.9
4,107.7
8,934.3
851.5
949.2
16.6 2,720.2 23,516.0 (733.1) (10,373.6) 15,146.1 $29,988.8
Exhibit 3 McDonald’s Milestones
1948 Brothers Richard and Maurice McDonald open the first restaurant in San Bernadino, California that sells hamburgers, fries, and milk shakes.
1955 Ray A. Kroc, 52, opens his first McDonald’s in Des Plaines, Illinois. Kroc, a distributor of milk shake mixers, figures he can sell a bundle of them if he franchises the McDonalds’ business and installs his mixers in the new stores.
1961 Six years later, Kroc buys out the McDonald brothers for $2.7 million.
1963 Ronald McDonald makes his debut as corporate spokesclown using future NBC-TV weatherman Willard Scott. During the year, the company also sells its 1 billionth burger.
1965 McDonald’s stock goes public at $22.50 a share. It will split 12 times in the next 35 years.
f 967 Trie first McDonald’s restaurant outside the United States opens in Richmond, British Columbia. Today there are 31,108 McDonald’s in 118 countries.
1968 The Big Mac, the first extension of McDonald’s basic burger, makes its debut and is an immediate hit. 1972 McDonald’s switches to the frozen variety for its successful french fries.
1974 Fred L. Turner succeeds Kroc as CEO. In the midst of a recession, the minimum wage rises to $2 per hour, a
big cost increase for McDonald’s, which is built around a model of young, low-wage workers.
1975 The first drive-through window is opened in Sierra Vista, Arizona.
1979 McDonald’s responds to the needs of working women by introducing Happy Meals. A burger, some fries, a soda, and a toy give working moms a break.
1987 Michael R. Quinlan become chief executive.
1991 Responding to the public’s desire for healthier foods, McDonald’s introduces the low-fat McLean Deluxe
burger. It flops and is withdrawn from the market. Over the next few years, the chain will stumble several
times trying to spruce up its menu.
1992 The company sells its 90 billionth burger, and stops counting.
1996 In order to attract more adult customers, the company launches its Arch Deluxe, a “grownup” burger with
an idiosyncratic taste. Like the low-fat burger, it also falls flat.
1997 McDonald’s launches Campaign 55, which cuts the cost of a Big Mac to $0.55. It is a response to
discounting by Burger King and Taco Bell. The move, which prefigures similar price wars in 2002, is
widely considered a failure.
1998 Jack M. Greenberg becomes McDonald’s fourth chief executive. A 16-year company veteran, he vows to
spruce up the restaurants and their menu.
1999 For the first time, sales from international operations outstrip domestic revenues. In search of other concepts
the company acquires Aroma Cafe, Chipotle, Donates, and later, Boston Market.
2000 McDonald’s sales in the United States peak at an average of $1.6 million annually per restaurant, a figure
that has not changed since. It is, however, still more than at any other fast-food chain.
2001 Subway surpasses McDonald’s as the fast-food chain with the most U.S. outlets. At the end of the year it
had 13,247 stores, 148 more than McDonald’s.
2002 McDonald’s posts its first-ever quarterly loss, of $343.8 million. The stock drops to around $13.50, dow
40 percent from five years ago.
2003 James R. Cantalupo returns to McDonald’s in January as CEO. He immediately pulls back from the
company’s 10to 15 percent forecast for per-share earnings growth.
2004 Charles H. Bell takes over the firm after the sudden death of Cantalupo. He states he will continue with r-?
strategies that have been developed by his predecessor. Jim Skinner subsequently takes over from Char-.:
H. Bell, as Bell resigns to fight a bout with cancer.
Source: McDonald’s.
with its decline. According to Los Angeles franchisee Reggie Webb “We would have been better off trying fewer things
Exhibits Distribution of Outlets
f
and making them work. 3
IC’^ 2006 2000 2004 2003 1
Pinning Hopes on a New Leader
By the beginning of 2003, consumer surveys were indicating that McDonald’s was headed for serious trouble. Measures for the service and quality of the chain were continuing to fall, dropping far behind those of its rivals. In order deal with its deteriorating performance, the firm decided to bring back retired Vice-Chairman James R. Cantalupo, 59, who had overseen McDonald’s successful international expan­sion in the 1980s and 1990s. Cantalupo, who had retired
United States 13,774 13,727 13,673 13,609 Europe 6,403 6,352 6,287 6,186 Asia Pacific 7,822 7,692 7,567 7,475 Latin America 1,656 1,617 1,607 1,578 Canada 1,391 1,378 1,362 1,339
Source: McDonald’s.
with the necessary qualifications, despite shareholder senti­ment for an outsider. The board had felt that it needed someone who knew the company well and could move quickly to turn things around
Exhibit 6 Breakdown of Revenues
•—–“I
Cantalupo realized that McDonald’s often tended to
i 2006 2005 2004 2003 1
tent, fast, and friendly service and an all-around enjoyable experience for the whole family. He understood that its franchisees and employees alike needed to be inspired as well as retrained on their role of putting the smile back into McDonald’s experience. When Cantalupo and his team laid out their plan for McDonald’s in the spring of 2003, they stressed getting the basics of service and quality right, in part by reinstituting a tough “up or out” grading system that would kick out underperforming franchisees. “We have to rebuild the foundation. It’s fruitless to add growth if the foundation is weak,” said Cantalupo.4
United States $7,464 $6,955 $6,525 $6,039 I Europe 7,638 7,072 6,737 5,875 j Asia Pacific 3,053 2,815 2,721 2,447 ! Latin America 1,659 1,327 1,008 859 Canada 1,081 948 898 778
Source: McDonald’s.
To begin with, Cantalupo cut back on the opening of new outlets, focusing instead on generating more sales from its existing outlets. In fact, he shifted his emphasis to obtaining most of the growth in revenues to come from an
Exhibit 7 Breakdown of Operating Income
increase in sales in the over 30,000 outlets that are already
operating around the world (see Exhibits 4 through 7). in
1 2006 2005 2004 2003 1
Exhibit 4 Number of Outlets
• – ” ‘ ” ” “‘ v”
United Mates 2,657 2,422 2,181 1,982
«
Company 1 Total Owned Franchised Affiliated 1
Europe 1,610 1,449 1,471 1,339 Asia Pacifir ^R4 “W\ 7flfl ?7fi
2006 31,667 8,785 18,687 4,195 2005 31,397 8,802 18,326 4,269 2004 31,152 8,811 18,240 4,101
Latin America 55 30 (20) (171) Canada 198 156 178 163
Source: McDonald’s.
/Duo JU,oZ4 8,001 18,125 4,038 2002 30,876 8,773 17,859 4,244 2001 29,916 8,204 17,392 4,320 2000 28,603 7,548 16,795 4,260 1999 26,272 6,022 15,949 4,301 j
Source: McDonald’s. \
part, McDonalds tried to draw more customers through the introduction of new products. The chain has had a positive response to its increased emphasis on healthier foods, lead by a revamped line of fancier salads. The revamped menu was promoted through a new worldwide ad slogan, “I’m loving it,” which was delivered by pop idol Justin Timber-lake thrnncrh a spf nf* MTV_«tv1p nnmmf>tvii>lc
Case 40:: McDonald’s C391
But the biggest success for the firm came in the form of McGriddles breakfast sandwich which was launched na­tionwide in June 2003. The popular new offering consisted of a couple of syrup-drenched pancakes, stamped with the Golden Arches, which acted as the top and bottom of the sandwich to hold eggs, cheese, sausage and bacon in three different combinations. McDonald’s has estimated that the new breakfast addition has been bringing in about 1 million new customers every day. In 2006 the firm also launched its Premium Roast Coffee with considerable fanfare to en­hance its breakfast offerings.
With his efforts largely directed at a turnaround strat­egy for McDonald’s, Cantalupo was thinking of divesting the nonburger chains that his predecessor had acquired. Collectively lumped under the Partner Brands, these have consisted of Chipotle Mexican Grill and Boston Market. The purpose of these acquisitions had been to find new growth and to offer the best franchises new expansion op­portunities. But these acquired businesses had not fueled much growth and had actually posted considerable losses in recent years. Skinner was finally able to dispose of the firm’s investment in Chipotle Mexican Grill in 2006.
Striving for Healthier Offerings
As Skinner took over the reins of McDonald’s in late 2004, he expressed his commitment to Cantalupo’s plans to pur­sue various avenues for growth. But Skinner felt that one of his top priorities was to deal with the growing concerns about the unhealthy image of McDonald’s, given the rise of obesity in the United States. These concerns had recently been highlighted by the release of a popular documentary, Super Size Me, made by Morgan Spurlock. Spurlock vividly displayed the health risks that were posed by a steady diet of food from the fast-food chain. With a rise in awareness of the high fat content of most of the products offered by McDonald’s, the firm was also beginning to face lawsuits from some of its loyal customers.
In response to the growing health concerns, one of the first steps McDonald’s took was to phase out supersizing by the end of 2004. The supersizing option allowed cus­tomers to get a larger order of French fries and a bigger soft drink by paying a little extra. McDonald’s has also an­nounced that it intends to start providing nutrition informa­tion on the packaging of its products. The information will be easy to read and will tell customers about the calories, fat, protein, carbohydrates, and sodium that are in each product. Finally, McDonald’s has also been pledging to gradually remove the artery-clogging trans fatty acids from the oil that it uses to make its french fries.
But Skinner must also try to push out more offerings that are likely to be perceived by customers to be healthier. McDonalds has continued to build upon its chicken offer­ings, using white meat with products such as Chicken Selects. It has also placed a great deal of emphasis upon its new salad offerings. The firm’s latest addition, an Asian style salad with chicken, was added in 2006. Although the firm had failed to attract many customers in the past with
its salads, McDonald’s carried out extensive experiments and tests with its new premium version. It chose higher quality ingredients, from a variety of lettuces and tasty cherry tomatoes to sharper cheeses and better cuts of meat. It offered a choice of Newman’s Own dressings, a well known higher-end brand.
McDonald’s has also been trying to include more fruits and vegetables in its well known and popular Happy Meals. It has been testing Happy Meals for grownups with items such as an entree salad, a bottle of Dasani water, and a “stepometer.” And in many locations, the firm is offering apple slices or carrot sticks in place of French fries in the children’s Happy Meal. The addition of fruits and vegeta­bles has raised the firm’s operating costs, because these are more expensive to ship and store because of their more perishable nature.
But Skinner believes that the firm had to push more heavily on fruits and salads. “Salads have changed the way people think of our brand,” said Wade Thoma, vice presi­dent for menu development in the United States “It tells people that we are very serious about offering things peo­ple feel comfortable eating.”5 The addition of items that are perceived to be healthier makes it easier for people to con­tinue to eat at McDonald’s, even though the vast majority of them still order a hamburger and fries.
Revamping the Outlets
Skinner is also aware that most of McDonald’s outlets are beginning to look and feel outdated. About a quarter of its 1,400 outlets in the United States are, in fact, more than 25 years old. Without any changes to their decor, the firm is likely to be left behind by other more savvy fast-food and drink retailers. Under Skinner, McDonald’s is pushing harder to refurbish, or re-image, all of its outlets around the world. “This is all part of becoming more relevant to our consumers,” said company spokesman Walt Riker. “When a customer enters our restaurant, they enter our brand.”6
The re-imaging concept was first tried in France in 1996, and has been gradually expanded to other European countries. Dennis Hennequin, president of McDonald’s Europe, felt that the effort was essential to revive the firm’s sagging sales. “We were hip 15 years ago, but I think we lost that,” he said.7 McDonald’s is now applying the re-imaging concept to its outlets around the world, with a budget of more than half of its total annual capital expen­ditures. In the United States, the changes cost an average of $150,000 per restaurant, a cost that is shared with the franchisees when the outlet is not company owned.
One of the prototype interiors being tested out by McDonald’s has curved counters with surfaces painted in bright colors. In one corner, a touch-activated screen al­lows customers to punch in orders without queuing. The interiors can feature armchairs and sofas, modern lighting. large television screens, and even wireless Internet access. The firm is also trying to develop new features for its drive-through customers, which account for 65 percent of all transactions in the United States. They include music
C392 Case 40:: McDonald’s
aimed at queuing vehicles and a wall of windows on the drive-through side of the restaurant allowing customers to see meals being prepared from their cars.
Beyond these ideas, Skinner is also looking for new ideas from some of the better performing franchisees. He insists that its franchisees must feel free to respond to their own markets, although they must adhere to specific parameters that are set by corporate headquarters. One of its more innovative franchisees, Irwin Kruger recently opened a 17,000-square-foot showcase unit in New York’s Times Square with video monitors showing movie trail­ers, brick walls, and theatrical lighting. Similarly, Bob and Julie Dobski have been remodeling their outlets around Illinois, trying to create a different atmosphere in each of them. One of their outlets even has a fireplace in the front lobby.
The chain has even been developing McCafes in­side its outlets next to the usual fast food counter. The McCafe concept originated in Australia in 1993 and has been rolled out in many restaurants around the world. McDonald’s has just begun to introduce the concept to the United States as it refurbishes many of its existing outlets. McCafe offers espresso-based coffee, gourmet coffee blends, chicken wraps, fresh baked muffins, and high-end desserts. Customers can consume these while they relax in soft leather chairs listening to jazz, big band, or blues music. Commenting on these types of changes, Marty Brochstein, executive editor of The Licensing Letter said, “McDonald’s wants to be seen as a lifestyle brand, not just a place to go to have a burger.”8
A New and Improved McDonald’s?
Even though Skinner’s efforts to transform McDonald’s have led to improvements in its sales and profits, there are questions about the future of the fast-food chain. The firm is trying out a variety of strategies in order to increase its appeal to different segments of the market. Through the adoption of a mix of outlet decor and menu items, McDonald’s is trying to target young adults, teenagers, children, and families. In so doing, it must ensure that it does not alienate any one of these groups in its efforts to reach out to the other. Its new marketing campaign, an­chored around the catchy phase “I’m loving it,” takes on different forms in order to target each of the groups that it is seeking to attract.
Larry Light, the head of global marketing at McDonald’s since 2002, insists that the firm has to exploit its brand through pushing it in many different directions. The brand can be positioned differently in different locations, at dif­ferent times of the day and to target different customer seg­ments. In large urban centers, McDonald’s can target young adults for breakfast with its gourmet coffee, egg sand­wiches, and fat-free muffins. Light explains the adoption of such as multiformat strategy, “The days of mass-media marketing are over.”9
As McDonald’s expands upon its concept of fast food, it is moving beyond its staple of burgers and fries to
a wider variety of offerings. It is also trying to find a bal­ance between the reliably cheap food for which it has be­come known and the newer items for which it can charge a premium. Many analysts are wondering just how far McDonald’s can stretch its brand while keeping all of its outlets under the traditional symbol of its golden arches. Film maker Spurlock insisted, “People go to McDonald’s to eat burgers.”10
Chief financial officer Paull acknowledged that burg­ers continued to be the main draw for McDonald’s. “There is no question that we make more money from selling ham­burgers and cheeseburgers,” he recently stated.” The chain must make sure that it keeps its established customer base from bolting to the growing number of competitors such as the California-based In-N-Out chain. The long-term success of the firm may well depend on its ability to compete with rival burger chains. “The burger category has great strength,” added David C. Novak, chairman and CEO ofYum! Brands, parent of KFC and Taco Bell. “That’s America’s food. People love hamburgers.”12
Above all, Skinner is aware that McDonald’s may not have many shots at trying to get its strategy working. The recent improvement in performance has taken some of the pressure off to turn things around. It has allowed Skinner to respond to disgruntled shareholders, some of whom have suggested that the firm should spin or sell off its company-owned restaurants in order to raise its stock price. But the firm must figure out what steps it needs to take in order to ensure that it does not encounter another meltdown like the one that it faced a few short years ago. “They are at a critical juncture and what they do today will shape whether they just fade away or recapture some of the magic and greatness again,” said Robert S. Goldin, executive vice-president at food consultant Technomic Incorporated.13
Endnotes
1. Carpenter, D. 2006. McDonald’s stock soars on 4Q earnings.
Associated Press, January 24.
2. Buckley, N. 2004. McDonald’s shares survive resignation.
November 24: 18.
3. Gogoi P., & Michael Arndt, M. 2003. Hamburger hell.
BusinessWeek, March 3: 106.
4.
BusinessWeek, March 3, 2003: 105.
5. Warner, M. 2005. You want any fruit with that Big Mac?
New York Times, February 20: p. 8.
6. Horovitz, B. 2003. You want ambiance with that? USA Today,
October 30: 3B.
7. Grant, J. 2006. McDonald’s to revamp UK outlets. Financial
Times, February 2: 14
8. Horovitz, B. 2003. McDonald’s ventures beyond burgers to
duds, toys. USA Today, November 14: 6B.
9. Big Mac’s makeover. Economist, October 16, 2004: 65.

10.
Economist, October 16, 2004: 65.

11.
Economist, October 16, 2004: 64.

12.
BusinessWeek, March 3, 2003: 108.
13.
BusinessWeek, March 3,2003: 108.

MGT 4670 Management Practices

HOW TO CONDUCT A CASE ANALYSIS

(By Dess, Lumpkin and Eisner,
Strategic Management: text and cases
, 4th edition, 2008. McGraw Hill.)

How to Conduct a Case Analysis

The process of analyzing strategic management cases involves several steps. In this section, we review five steps to follow in preparing a case analysis.

Before beginning, point out that there are two prerequisites for effective case analysis. First, unless students prepare for a case discussion, there is little they can gain from the discussion and even less that they can offer.

Second, to get the most out of case analysis, students need to place themselves “inside” the case in order to think like an actual participant in the case situation. Before beginning the analysis, it may be helpful to envision assuming one of these roles:

1. Strategic Decision-Maker The position of the senior executive responsible for resolving the situation that the case describes. It may be the CEO, the business owner, or a strategic manager in a key executive position.

2. Board of Directors The Board of Directors has a responsibility to step in when a management crisis threatens the company. A board member may be in a unique position to solve problems.

3. Outside Consultant Consultants often have an advantage because they can look at a situation objectively. But they may also be at a disadvantage since they have no power to enforce changes.

A. Become Familiar with the Material

Written cases often include a lot of material. The following technique can enhance comprehension:

1. Read through the case once quickly to get an overall sense of the material.

2. Use the initial read-through to assess possible links to strategic concepts.

3. Read through the case again, in depth. Make written notes as you read.

4. Evaluate how strategic concepts might inform key decisions or suggest alternative solutions.

5. After formulating an initial recommendation, thumb through the case again to assess the consequences of the actions you propose.

B. Identify Problems

One of the main reasons to conduct case analysis is to find solutions. Unless you know the problem, however, it is meaningless to attempt to find an answer. Some cases have more than one problem. Even so, emphasize that the problems are usually related.

When trying to determine the problem, it is easy to get hung up on symptoms. Emphasize the importance of seeing beyond the immediate symptoms to the more fundamental problems.

Another tip when preparing a case analysis is to articulate the problem. Point out that writing down a problem statement provides a reference point to turn to as the case analysis proceeds.

Sometimes, problems are not apparent until after the case has been analyzed.

C. Conduct Strategic Analyses

This textbook has presented numerous analytical tools (such as five forces analysis and value chain analysis), contingency frameworks (such as when to use related rather than unrelated diversification strategies), and other techniques that can be used to evaluate strategic situations. Emphasize that the best way to understand these methods is to apply them by conducting case analyses.

The first step is to determine which strategic issues are involved. Remind students that most real-life case situations involve issues that are highly interrelated. Even in cases where there is just one major problem, the strategic processes required to solve it may involve several parts of the organization.

Once the issues that apply to the case have been identified, conduct the analysis. That means to actually apply the tools of analysis (such as five forces analysis, value chain analysis, etc.).

In this part of the analysis, point out that it is important to test one’s assumptions about the case. First, what assumptions are being made about the case content? Second, what assumptions are being made about the best way to resolve the problems?

Extra Example: How Assumptions Drive the Theory — and Success — of a Business

Peter F. Drucker is a highly notable management expert whose books and articles on management have had an enormous impact on modern management practices. In this article, Drucker describes how important it is for businesses to understand the assumptions that underlie the actions they take.

“The root cause of nearly every [management crisis] is not that things are being done poorly. It is not even that the wrong things are being done. Indeed, in most cases, the right things are being done — but fruitlessly. What accounts for this apparent paradox? The assumptions on which the organization has been built and is being run no longer fit reality. These are the assumptions that shape any organization’s behavior, dictate its decisions about what to do and what not to do, and define what the organization considers meaningful results. These assumptions are about markets. They are about identifying customers and competitors, their values and behavior. They are about technology and its dynamics, about a company’s strengths and weaknesses. These assumptions are about what a company gets paid for. They are what I call a company’s theory of the business.”

“It usually takes years of hard work, thinking and experimenting to reach a clear, consistent, and valid theory of the business. Yet to be successful, every organization must work one out. What are the specifications of a valid theory of the business? There are four:

1. The assumptions about environment, mission, and core competencies must fit reality.

2. The assumption in all three areas [in #1] have to fit one another.

3. The theory of the business must be known and understood throughout the organization.

4. The theory of the business has to be tested constantly.”

Source: Drucker, P. F. 1994. The theory of the business. Harvard Business Review, 72(5): 95-104.

D. Propose Alternative Solutions

Emphasize that in strategic management case analysis there is rarely one right answer or one best way. Therefore, it is helpful to consider several different solutions.

After conducting strategic analysis and identifying the problem(s), develop a list of options. What are the possible solutions? What are the alternatives? Point out that it is during this step of a case analysis that choices and the implications of those choices are evaluated.

The aim of considering the implications of various alternative solutions is to find a solution that both solves the problem and is realistic.

E. Make Recommendations

The basic aim of case analysis is to find solutions. Emphasize that the analysis is not complete until a course of action has been recommended. The task is to make a set of recommendations that is consistent with the analysis and explain why the recommended course of action will solve the problem. The recommendation should also include suggestions for how best to implement the proposed solutions.

Remind students that the proposed solution must solve the problem that was identified. This point cannot be overemphasized — too often students make recommendations that only treat symptoms or fail to tackle the central problems in the case. Encourage students to make a logical argument that shows how the problem led to the analysis and the analysis led to the recommendations.