Value Chain Analysis

2. Literature Review

This section provides a broad picture of the dissertation that includes setting up the arameters and limits to the field of inquiry going into the research. Its aim is to identify key ideas, marketing theories applicable and marketing case studies that impinge upon the area of this investigation. It makes an effective starting point leading into the introduction and the background of the dissertation.

2.1 Macro Environment Analysis of McDonald's

The analysis is done using a top down approach where first the Macro Environment and then the Micro environment has been examined, in which McDonald's operates.

2.1.2 Internal Anlaysis

Internal Analysis is done using Value Chain analysis. The term ‘value chain' was used by Michael Porter (1985) in his book “competitive advantage; creating and sustaining superior performance”. Brown (1997),“described value chain as a tool to disaggregate a business in to strategically relevant activities”.

In McDonald's case, the key value adding activities are inbound logistics, operation, outbound logistics, marketing & sales and service. McDonald's logistics function is to buy food on behalf of its operator (franchisee) and arrange delivery in to their restaurants. McDonald's logistics includes; the procurement and shipment of raw materials in to suppliers, the procurement and shipment of finished goods between the suppliers and the distribution centres, together with the warehousing at each distribution centre, the ordering and the delivery to restaurants of all food, packaging and operating supplies. To improve its logistics operation, McDonald's combines a number of food-processing plants dedicated to its operation only. The establishment of “food towns” consisting of a distribution centre and a bakery, a meat plant, a sauce plant and a chicken plant, gives McDonald's competitive advantage.

The supporting activities that can be identified are procurement, human resources development and technology. McDonald's uses electronic procurement system. It had set logistics trends for restaurants with its online ordering system. It was noted that more than 12% of McDonald's franchisees ordered food supplier electronically. Revamping its supply chain with software and technology made it easy to respond quickly and efficiently to customers' needs. With the online ordering system, McDonald's had a return on investment of 23.2% in 2008. However, the human resource development at McDonald's is excellent. McDonald's uses a high-engagement approach to improving both their operations, leadership pipeline and employee satisfaction with their career growth. Every management staff at McDonald's receives training at one of the regional training centres and at the national centre, Hamburger University in East Finchley. Training all employees to work in one best way (quick-service culture) made McDonald's to gain customer's loyalty continuously leading to a competitive advantage.

2.1.3 External Anlaysis

PEST analysis is applied for an in depth understanding of macro environment in fast food industry where McDonald's operated. Kotler (1998) claims that PEST analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.

POLITICAL
The operations of McDonalds are affected by the government policies on the regulations of fast food operation. Currently government are controlling the marketing of fast food restaurant because of health concern such as cardiovascular and cholesterol issue and obesity among the young and children in the country. Governments also control the license given for open the fast food restaurant and other business regulation need to follow such as for a franchise business. Good relationship with government in giving mutual benefits such as employment and tax is a must for the company to succeed in any foreign market. McDonalds should also protect its workers by ensuring all the hiring, compensation, training or repatriation is according to UK and European Labour Law and the Middle Eastern Labour Laws as stipulated.

ECONOMICS
As a business entity, McDonalds need to face a lot of economic variables outside its company or its macro environment. Dealing with international sourcing for its material McDonalds should be aware on the global supply and currencies exchange. Remember, McDonalds import most of its raw material such as beef and potatoes due to local market cannot supply in abundant to meet the demand of its product. Any upside of currencies especially dollar will be impacting its cost of purchase.

Working on the local country, McDonalds must face government regulations on tax of profit where it gains from the operation and other tax such as entertainment and restaurant service tax. Each country may have different scale or types of tax available and McDonalds should follow the regulation if it wants to continue the operation. As a franchise, McDonalds should also pay certain percentage of the revenue to the parent company in United States. The economic condition and growth of the country also is an important indicator to the demand of products that McDonalds offered. As the food priced slightly above normal foods, not many people will have the income range to consume the products. Moreover if the economy is bad and income percapita is affected, the demand of McDonalds product will certainly going down. On the other hand the good economy also means disposable income is more and people can spend more on more expensive food at fast food restaurant.

SOCIAL/CULTURAL
The changing lifestyles of Malaysia due to development of Malaysian economy should be also taking into consideration. While more people are able financially to eat at more expensive outlet such as fast food restaurant, they have higher expectation. They want to have quality in services and more conveniences that can differentiate one restaurant from another. Young urban consumers want technology in their life and facilities such as credit card payment, wireless internet, cozy and relaxing ambient place, and other attraction for their hangout and eating. All these needs should also be taken into consideration. There is not much difference between cultural and the purchase of products in a single country but for different countries cultural sensitivity should be upheld. For example in India people (Hindu) do not take beef, Muslim countries do not take pork, German like beers, Finnish like fish type of food menu, Chinese like to associate food with something good (for example prosperity), Asian like rice and Americans eat in big-sized menu. So far McDonalds has shown good efforts in localization of its menu to suit local taste but it should constantly survey and learn about local culture to better understand and design the best product for them.

TECHNOLOGY
For a fast food restaurant, technology does not give a very high impact on the company and it is not a significant macro environment variables. However McDonalds should be looking to competitors innovation and improve itself in term of integrating technology in managing its operation. For example in inventory system, supply chain management system to manage its supply, easy payment and ordering systems for its customers and wireless internet technology. Implementation of technology can make the management more effective and cost saving in the long term. This will also make customer happy if cost savings results in price reduction or promotional campaign discount which will benefits them from time to time.

LEGAL
As a certified fast food operator, there are many regulations and procedures that McDonalds should follow. For example is the Halal certification that becomes a concern to Muslim consumers. McDonalds should protect its integrity and consumer confidence by ensuring all materials and process are as claimed or must followed. Other legal requirement that the business owner should follow as stipulated in laws are such as operating hours, business registration, tax requirement, labor and employment laws and quality & environment certification (such as ISO) in which the outlet has been certified. The legal requirement is important because the offenders will be fined or have their business prohibited from operating which can be disastrous.

ENVIRONMENT
As one of world largest consumer of beef, potatoes and chicken, McDonalds always had been critics for world environmentalist. This is because high consumption of beef causing the green house effect by methane gasses coming from the cow's ranch. Large scale plantation has effect the environment and lost of green forest opening for plantation activities. Vegetarian environmentalist criticizes the fast-food giant for cruelty to animals and slaughtering. In Japan, once McDonalds want to introduce whale burger causing uproar because whales are endangered species. Before using paper packaging, once McDonalds also had been criticized for being insensitive to pollution because using polystyrene based packaging for its foods. Imagine millions of people purchase from fast food operator and how is the impact to world environment by throwing away those hard to recycle packaging. Our world is getting concern on environment issue and business operating here should not just care for profit, but careful usage of world resources for sustainable development and care for environment safety and health for our future generation. Critics and concern from all public or activist should be review and support if necessary to ensure we play our social responsibility better.

2.2 Market Position

McDonald's is operating in a very competitive market. In order to maintain on the top position of the competition, it is important to understand the company's industry environment to be prepared for actions. Porter's 5 Forces is a useful model for analysing the industry environment, it identifies five competitive forces that shape every single industry and market.

Supplier Power

If suppliers have strong bargaining power, competitive pressure will be greater (Pearce and Robinson, 2004). McDonald's works in partnership with most of their suppliers to protect the quality of their foods and minimise the bargaining power of suppliers.

Buyer Power

Consumer's buying power in the food market is high. With the continuously changes in tastes and the increased concern in healthy eating, companies in the food market has to make changes and improvements to satisfy its customers. Otherwise there is a high possibility in getting bad publicity and lost in profit.

Threat of Substitute

The threat of substitute is high in the fast food market due to the strong competition and the increasing amount of ready to eat foods. Customers have many choices other than McDonald's, and ready to eat meals are cheaper and convenient.

Competition

The competition in the fast food market is very high. McDonald's has to compete with strong competitors like Burger King, Pizza Hut, Wendy and KFC.

Threat of Entry

The threat of new entrant is low in the fast food industry because of the amount of competition with the big players in the market. New entrants will not likely to win due to lack ok economic of scale. The fast food industry is highly competitive. Taking one step further from the internal analysis, in this chapter, external analysis was done so as to determine where McDonald's I positioned in the market, given the intensive rivalry. PESTLE is used to gather data for completion of this analysis. From the data using PESTLE, swot analysis is done to determine how McDonald's strong market position as the largest foodservice and fast-food retailing chain in the world is bolstered by robust all-round growth witnessed by the company. By analyzing PEST and SWOT an understanding of overall of the company's power and how it can grow, is established. This was done keeping the focus on Western European Market and the Middle east. Hence the impact of European Regulations and turbulence caused by terrorism and Iraq war is also taken as a significant point as part of analysis.

Porter's five forces model is used as the tool to analyse the market competition in the European and the middle east market. The existing rivalry in the industry is already strong although McDonalds is in a dominant market position.

The above analysis helps to conclude MCDonald's competitive advantage and its uniqueness to gain broad target in the aforementioned markets.

2.3 : Marketing Strategy and Mix

Every organisations need to identify their strategic aims to be able to have a direct focus of what and when to achieve it within a given time. This is usually based on the organisation's limited resources and capabilities. As (Barney 1991), “stated an organisation could extend their limited resources and capabilities through organisational learning, sharing, generation of knowledge, redeployment of existing resources in an effective and efficient ways”.

In this section, the strategic aim of McDonald's is discussed. This is used for evaluating the way it has implemented its objectives and the effectiveness of the global and local marketing strategies. This was important to fully understand its market and environment in order to evaluate its right marketing plans and the adopted strategies.

After analysing the market and environment of McDonald's, this chapter focuses on the plans and strategies adopted by the company to overcome its weaknesses and avoid the threats. It uses various survey results to determine the effectiveness of its marketing mix. In the year 2003, when, McDonald's had been having problems on losing market share, reducing profit and bad publicity, the company started aligning their global system around a common mission with a common set of customer focused goal oriented actions. It was called “McDonald's Plan to Win” which was to put the company's concentration on the five drivers of exceptional customer experiences - Product, People, Place, Promotion and Price. This plan was aimed to increase profits by improving its services to increase customers. These 5 variables are also known as the Retail Marketing Mix or the 5 P's. They are the variables that marketing managers can control in order to best satisfy customers in the target market. This chapter discusses and evaluates the way McDonalds has established its revitalisation plan in the European and the Middle East markets.

While doing the research on the five Ps, McDonald's relationship marketing is also examined, that is viewed as an asset and the company's marketing goal is to attract, maintain, and enhance customer relationships. Then there is an argument on whether the combination of five P's with the relationship marketing is enough to stay on the competition or is there any other areas to be focussed as well.

In the aspect of marketing & sales McDonald's adopted the concept of 7ps of marketing mix formulated by McCarthy (1975) and Gilligan & Fifield (1996). These 7ps includes; product, place, price, promotion, people, process, physical. With these 7ps McDonald's was able to create a uniformity of items that taste the same in different countries. McDonald's realises that although there is cost savings in standardisation but success can be achieved by being able to adapt to a specific environment. It has a pricing strategy that enables it to cope with a particular market. In setting price, McDonald's looks at the elasticity of demand for its product in response to price. Considering the diverse range of culture, custom in different countries, McDonald's has localised its marketing communication strategy using different promotion and advertisement. For instance McDonald's uses the England footballer Alan Shearer as a logo to advertise its hamburgers in the UK and in France its uses Fabien Barthez, the French international goalkeeper. Obviously, McDonald's uses a number of styles to attract customers.

After analysing the market and environment of McDonald's, this chapter will be focusing on the plans and strategies adopted by the company to overcome its weaknesses and avoid the threats. In the past few years, McDonald's has been having problems on losing market share, reducing profit and bad publicity. In the year 2003, the company have aligned their global system around a common mission with a common set of customer focused goal oriented actions. It is called “McDonald's Plan to Win” which was to put the company's concentration on the five drivers of exceptional customer experiences - Product, People, Place, Promotion and Price. This plan was aimed to increase profits by improving its services to increase customers. These 5 variables are also known as the Retail Marketing Mix or the 5 P's. They are the variables that marketing managers can control in order to best satisfy customers in the target market. (Please refer to appendix 2 for further information on the 5 P's)

Product

The following are the strategies applied by McDonald's on their Products:

• To satisfy customers' desire for premium products at affordable prices.
• More choices on the Happy Meal such as fruit options and milk for the kids.
• To address the desire for foods that fit into today's lifestyle. McDonald's has added new choices like meal-size salads, fruit options and sandwiches in order to fit the increased concern on health eating.

McDonald's is controlling the quality of the foods by working in partnership with its suppliers and to work closely with food experts to ensure the quality is in the highest standard.

People

The following are the marketing strategies adopted by McDonald's on its People:

• Speeding up service by simplifying the restaurant environment for their staff and customers.
• Ensuring the restaurant staffs are focused on being friendly, as well as fast with hospitality training.
• Providing cost-efficient, relevant training for their world-wide workforce. There are more than 1.6 million people worldwide working for McDonald's. McDonald's has placed emphasis on the training and development of its employees, aiming to provide career opportunities for people to achieve their potential.

McDonald's has five commitments to their employees, which are:

• Respect and Recognition
• Values and Leadership Behaviours
• Competitive Pay and Benefits
• Learning, Development and Personal Growth
• Resources to Get the Job Done

Place

McDonald's has over 30,000 restaurants in 119 countries. It opens in places where has high consumer flows such as high street, shopping malls, train station, airports, retail parks, gas stations, and even schools. Freestanding restaurants are positioned so that customers are never more than a few minutes away by foot in the city or by car. The following are McDonalds' strategies on Place:

• To make the environment the gold standard for cleanliness. They have recalibrated their standards and are consistently enforcing them.
• McDonald's has added additional service to customers by providing Wi-Fi accessibility in some of the restaurants so customers can stay connected to the internet while enjoying their foods.
• Giving customers more reasons to visit McDonald's by adding more products offering such as coffee and to locate in the right place.
• Relocating, renovating and rebuilding some of the restaurants to give McDonald's a fresh edge.

Promotion

Every year McDonald's spent huge amount of money on promotion. The company has been trying to maximise the impact of the advertising spending and broaden their reach through public relations and by placing adverts in media well beyond the traditional prime-time network television format. The objective of spending so much money on promotion is to build brand loyalty and bonds of trust. The following are the strategies:

• The new creative brand direction “I'm Lovin' It!” is designed to connect with customers around the world, especially young adults, moms and kids. It has became McDonald's signature brand voice in 119 countries, generating awareness figures as high as 96% in some parts of the world.
• Appealing to young adults with relevant advertising. McDonald's is bringing top creative teams from around the world to gather ideas, study trends and find inspiration to create world-class advertising.

Price

McDonald's has a rigorous pricing process that is used to determine the price for that particular market in each country. The reason is to be able to offer affordable prices to customers and also to be profitable for the company. The following are the process which sets out the basic framework that allows the company to set localised pricing:

• Selecting the price objective
• Determining demand
• Estimating costs
• Analysing competitors' costs, prices and offers
• Selecting a pricing method
• Selecting a final price (www.mcdonalds.com)

2.4 : Performance Measurement

Quality is an important issue in services due to the features of inseparability, intangibility and perishability. That which can not be stored and is intangible cannot be checked for defects before ‘delivery' to customers. In addition each individual involved in the exchange process brings with them varying levels of expectations and levels of satisfaction in addition to the unpredictable nature of human beings. It is this dominant role of human interaction in services that shape customers expectations and create difficulties in understanding and implementing quality initiatives (Behara & Gundersen (2001)).

Officially McDonalds names three elements in their strategy to be the world's best quick service restaurant: People (being the best employer), Customers (providing them excellence) and System Growth (for owners/operators, suppliers and company).

‘McDonalds has always been a franchising Company and has relied on its franchisees to play a major role in its success. McDonalds remains committed to franchising as a predominant way of doing business. Approximately 70% of McDonalds worldwide restaurant businesses are owned and operated by independent businessmen and women, our franchisees'. Usually, McDonalds offers franchises to poor performing restaurants in order to sustain profitability.

Advertising is used to differentiate McDonalds' products from competitors and as a means of branding: Advertising Spend in 2001 amounted to A£39m (KFC: A£14m, Burger King: A£8.6m, Pizza Hut: A£7.4m).

Furthermore, McDonalds is involved in various high profile sponsorship schemes (e.g. major Sponsor of FIFA World Cup, ‘gold' sponsor and official restaurant of the Olympic Games) that secures them favourable PR.

Recently McDonalds acquired Boston Market Chicken restaurants, the Donatos pizza chain and Chipotle Mexican Grill. In the UK, it purchased the Aroma coffee chain and 33% of Pret A Manger. This demonstrates that McDonalds has diversified into other segments of the fast food/ convenience /take away market.

McDonalds is the world's largest food service organisation. It has the greatest market share of the breakfast, lunch and dinner market and holds 67% of the UK Burger Market.

McDonalds' golden arches are the world's biggest brand with higher awareness than Coca-Cola.

McDonalds is constantly introducing new products, usually for a limited period of time. This is because management recognise that consumers like variety as well as a continuation of good products such as Big Macs and Cheeseburgers. Also, they are well aware that if McDonalds has too many products running at the same time then the speed of customer service will deteriorate.

However, McDonalds has not introduced healthier products in response to growing concerns about obesity.

It is difficult to evaluate the extent to which McDonalds fulfils customers' demands. In the 2001 consumer survey conducted by Sandelman & Associates, McDonald's was ranked as last out of 60 chains for taste. Statistics that describe McDonalds cleanliness are not available and therefore the achievement of this objective is difficult to examine, but anecdotal evidence suggests that suitable policies are in place to meet that objective. Customer service quality is difficult to assess but it is renowned for being quick.

2.5 : Ethical Criticism

Ethical behaviour has come up as one of the most important aspect of any organisation. By ‘Doing the right thing' internally and externally, businesses created a good working atmosphere, while also benefiting society and the environment. However many ethical issues are subjective and based on one's values and beliefs. As a result, they are often difficult to enforce and easy to neglect. The result of this is that ‘when the costs are added up, the social balance sheet contains enormous debts to society' (McEwan, 2001).

This chapter discusses the ethical issues that McDonalds have been facing over a period of time and how effectively it addressing its corporate social responsibility. The 2008 corporate social responsibility report has been critically evaluated and based on that it is determined, whether much of its efforts are just descriptive or has been realistic. It uses various results from the data set based on the primary and secondary research to determine the effectives.

It is the notion of an organization's ‘debts to society', which led to the branch of ethics known as ‘corporate social responsibility'. This refers to ‘the economic, legal, ethical, and philanthropic expectations placed on organizations by society at a given point in time' (Carroll and Buchholtz, 2000). This theory of responsibility to society is based around two headings, stated by Wells (1998). Social Responsibility deals with ‘the purposes for which companies should act' (Wells, 1998), and Corporate Responsibility is the ‘liability attached to a company for actions done in its name' (Wells, 1998).

On 2002, McDonald's published its first Corporate Responsibility Report and this was followed up with an updated version in 2004. Neverthless many critics of McDonald's still believe that this, like many Corporate Responsibility Reports, is simply a medley of generalities and assumptions, that do not provide hard metrics of the company, its activities or its impacts on society and the environment' (Hawken, 2002), and is ‘peripheral to the core interests of an organization' (Strategic Direction, 2002). Consequentially, there is a need to analyse the claims made towards McDonalds, and whether they have been resolved within the two Corporate Responsibility Report. The incident which has done the most damage to McDonald's ethical reputation was the ‘McLibel' trial, where the company expected a quick conclusion to its action against activists who had distributed a pamphlet, What's Wrong with McDonald's?'. Instead it ran for two and a half years and became the longest ever English trial, upon its completion in June 1997 (McSpotlight.org: The McLibel Trial, 2005).

One of the main ethical criticisms consistently faced by McDonald's over the last 30 years relates to the food offered in its stores. Critics claim that McDonald's is a major contributing factor to the ver-increasing levels of obesity in the UK and European countries. Medical studies show that ‘waistlines are expanding faster in the UK than in any other European country…with 1 in 5 adults dangerously overweight' (Walsh, 2003), while in 2001 it was reported that 300,000 deaths a year in the U.S. are related to obesity compared to 400,000 through cigarette smoking' (McMans Depression and Bipolar Weekly, 2004). McDonald's contribution is a result of the unhealthy nature of fast food. For example, a meal of a Big Mac and medium fries would provide you with ‘910 calories, as well as 46g of fat, 13g of which are saturated' (McDonald's.com, 2005). Considering the fact that this is half the Recommended Daily Allowance for a female adult, it is clear that McDonald's does not meet U.S. dietary requirements. Apart from obesity, ‘diabetes, high blood pressure, heart disease and some forms of cancer are related to a diet high in fat, saturated fat, salt and sugar' (Inside the McLibel trial, 1995). The impacts of a McDonald's diet were clearly shown in Morgan Spurlock's controversial film ‘Super Size Me', where he ate nothing but McDonald's for one month. Although this was an extreme example, the impacts on Spurlock were dramatic. ‘Spurlock gained 25 pounds, raised his cholesterol by 60 points, dropped his libido and turned his liver into pate' (McMans Depression and Bipolar Weekly, 2004). He also experienced headaches and depression, and actually became addicted to the products. The impact of a McDonald's diet on children is also a major ethical concern, as an increasing number of children are faced with obesity problems. ‘Every month, 90 percent of the children between 3 and 9 in America visit a McDonald's' (Schlosser, 2001). McDonald's has been criticised for exploiting children with advertising. They have traditionally aimed themselves towards children with collectable toys in ‘Happy Meals', as well as colorful advertising campaigns and promotions in schools. Most criticized is the use of the Ronald McDonald clown character, which has been seen as a ‘cynical exploitation of children to use a clown to drum up business' (Inside the McLibel trial, 1995). These marketing tactics contribute to the increasing unhealthy diet of many children. Stakeholders in a corporation may not only be human because animals are also seen as an important part of society and deserve the same treatment as humans. McDonald's has been criticized for the way it treats animals before they are killed and turned into fast food. ‘The corporation is the world's largest promoter of meat-based products, the largest user of beef and the second largest user of chicken' (McSpotlight.org: McDonald's and Animals, 2005), and thus is faced with the usual claims aimed at slaughterhouses. It is claimed that ‘chickens were crammed into sheds with less than one square foot of space per bird and no daylight' (Inside the McLibel trial, 1995). As a result, ‘44% had leg abnormalities and other health problems' (Inside the McLibel trial, 1995). This treatment was not just reserved for chicken but also other animals involved in McDonald's fast food products. 40% of piglets were held in indoor breeding units, and half had tails docked for no apparent reason' (Inside the McLibel trial, 1995). Ethical criticism is also aimed at the methods for killing the animals. ‘14% of chickens received pre-stun shocks, which caused undue stress, while 1% (1,350 per day) were decapitated before being stunned' (Inside the McLibel trial, 1995).

As well as social ethical issues, corporations must also consider environmental ethics, which means treating natural resources not just as commodities, but as part of the ecological whole. It is important because it affects the image of the company and consumer's perceptions. For example, ‘a Wall Street Journal poll in 1991 claimed that 53% of people avoided purchasing a product because of environmental concerns about a product or manufacturer' (Hawken, 2002). The most famous environmental issue is the suggestion that McDonald's has destroyed hundreds of acres of Brazilian rainforest to make way for large-scale cattle ranching. This not only removes a valuable natural resource, but also has an impact on global warming, as the rainforest is an essential mechanism for the absorption of Carbon Dioxide in the atmosphere.

McDonald's also ‘annually produces over a million tons of packaging used for just a few minutes before being discarded' (McSpotlight.org: Environment, 2005). Traditionally a number of ozone depleting gasses were used in polystyrene foam packaging. In the 21st century, McDonald's uses almost all recycled packaging. However, the company still faces criticism due to the amount of waste it produces. ‘Each of McDonald's US restaurants produces 238 pounds of waste per day and each of its U.S. regional distribution centres disposes of another 900 pounds of waste per day' (Svoboda and Hart, 1995). This is not only expensive to dispose of, but also difficult when considering that similar quantities of waste are being produced around the world. McDonald's also experiences internal ethical issues related to the working conditions and treatment of employees. ‘McDonald's employs over 1 and a half million people worldwide, over half of them under 21 years old' (McSpotlight.org: McDonald's and Employment). McDonald's has adopted ‘age differentials between adult and younger workers, meaning that they pay most of their employees less than the normal adult minimum wage' (Transport and General Workers Union, 2004). For example, McDonald's pays some 16-year olds as little as $6.80 an hour. McDonald's employees also experience poor working conditions with discrimination, illegal working hours, and poor safety conditions. There is little that can be done about this due to the absence of trade unions, within McDonald's, to represent staff. If Milton Freeman's theory of stakeholders is adopted, the needs and expectations of staff are just as important as those of customers.

The range of ethical criticisms leveled at McDonald's throughout the world has been well-publicized. However, many of these issues were first raised in the 1970's before tighter regulation was imposed and unethical behavior became a hot topic. After 30 years of criticism, it is important to look at what measures McDonald's has taken to improve its ethical conduct and how far this has been successful. McDonald's claims that ‘being a good citizen has been inherent in the company since its inception' (Schlosser, 2001). Ray Kroc believed McDonald's had an ‘obligation to give back to the community that gives so much to us'. This was rooted in his founding principles of Quality, Service, Cleanliness and Value. Since 1955, McDonald's has continually made statements about its conduct to try and reassure shareholders and stakeholders. However, nothing was said or published about what attempts were actually being made to ‘do the right thing'. This finally changed in 2002 with the release of McDonald's first Social Responsibility Report. The report was composed of 46 pages, which began with McDonald's core values and then looked at the impact of McDonald's in different areas, such as community and the environment. It showed that McDonald's has invested in the Ronald McDonald housing program to house families with seriously ill children, and documented the efforts made to reduce McDonald's impact on the environment. For example, there was ‘a commitment to spend $100 million annually on the use of recycled materials, especially in the building and renovation of its restaurants' (Svoboda and Hart, 1995). Overall, the report was ‘a clear statement of intent about its future works in this area' (Wood, 2002).

Although it was an attempt at social reporting, the 2002 report was ‘a low-water mark for the concept of sustainability and the promise of corporate social responsibility' (Hawken, 2002), and its generality, as well as its vague nature meant it was simply a ‘walk around the issues' (Wood, 2002). It was seen by many as a PR stunt, which was created to appear like McDonald's was meeting the requirements of an increasingly demanding society. The content of the report was criticized because it focused on issues and areas where McDonald's had been successful, but did not mention well-publicized issues, such as obesity. Similarly, it neglected to mention a number of the company's major environmental impacts. For example, the report ‘talked about water use at the outlets, but failed to note that every quarter-pounder requires 600 gallons of water' (Schlosser, 2001). This distinct lack of transparency enabled McDonald's to cover up any bad issues and only show what they wanted the public to see. The key problem with the 2002 Responsibility Report was that ‘due to its decentralized nature, McDonald's was unable to provide any of the data that is looked for as core information in their report' (Wood, 2002). In its report, McDonald's stated how much money it had provided for social improvements, but no figures on what impact these improvements had. Similarly, there was very little information related to the measurement of environmental impacts and improvements. This meant that the report was written as a narrative, rather than a social report. The effectiveness of the report was also reduced by the fact that there was ‘no comparative data on past and present performance' (Strategic Direction, 2002). The final nail in the coffin for the report was the fact that ‘there was no independent verification' (Strategic Direction, 2002), which meant that stakeholders could not even have a guarantee of the accuracy of the report. These negative factors meant that the first McDonalds Social Responsibility Report was ‘was an impressive statement of intent, but it recognised that the company was not yet ready to report progress' (Wood, 2002). Despite the criticisms of the report, McDonald's was satisfied with the result, believing it portrayed the company in a good light and showed stakeholders that McDonald's met societies needs. However, in the 2 years following the reports release, McDonald's experienced its worst financial results in almost 20 years. This was a result of increasing criticism from publications and documentary's, such as Super Size Me, as well as an increase in lawsuits from over weight teenagers in America, who blamed McDonald's for health problems. The result was the second McDonald's Social Responsibility Report in 2004, McDonald's current source of ethical information for stakeholders, which ‘introduces a new accountability structure' (Cochran, 1994). The colorful report is double the size of the 2002 edition, with 88 pages, and is a significant improvement, addressing many of the ethical issues which have shadowed McDonalds for the last 30 years. The report says that ‘being responsible is one of our greatest competitive advantages', even though the issues it tackles are growing ever more complex' (Allen, 2004). The 2002 report made little mention of McDonalds food, and failed to recognize the ethical concerns associated with it. However, in the current report, ‘food takes top billing' (Allen, 2004), with the first 12 pages of the main analysis allocated to ‘Food'. The company highlighted efforts to offer healthier options, including salads on its menu, and revealed how they had brought in a full time nutritionist to alter the menu. Possibly the most poignant move was to phase out the ‘Super Size option' in all restaurants. McDonald's have also ‘added new options to Happy Meals for children, so fries can be substituted for healthy alternatives like apple slices' (Allen, 2004), and offers milk, fresh orange and water instead of soda. McDonald's new stance also involved ‘promoting the importance of exercise' (Allen, 2004). On page 8 of the report there is a picture and statement by a professor of exercise at Leeds Metropolitan University, who reinforces McDonald's stance, aimed at helping children lead healthier lives. The section on the environment is also more substantial, with a variety of figures on packaging and waste. For example, ‘McDonald's achieved a 3.2% reduction in packaging during 2003' (McDonalds Corporate Responsibility Report, 2004). This is combined with a section, which shows McDonalds commitment to improving the environmental performance of suppliers. This includes a statement that ‘McDonald's will not purchase beef from rainforests or recently deforested rainforest land' (McDonalds Corporate Responsibility Report, 2004), acknowledging one of the specific ethical criticisms aimed at McDonald's. McDonald's also shows its commitment to reducing animal cruelty from suppliers by increasing supplier accountability and ‘conducting nearly 500 audits at beef, pork and chicken processing facilities around the world' (McDonalds Corporate Responsibility Report, 2004). The content of this report shows that the company is beginning to acknowledge and account for the unethical stories recounted by critics. A key example of this is the website ‘Super Size Me: The Debate', which was set up by McDonald's to show how they have made improvements in their menu and give advice to customers on products.

The Corporate Responsibility Report is written by McDonald's Corporate Responsibility Committee, who ensure that all the political and social requirements are met by the corporation. This is supported by a code of business conduct, which has been in place and updated regularly over the last 35 years. This is the main framework for employee ethics and it is used to ensure that the internal ethical requirements are met, such as a safe working environment, equal opportunities and employee rights. There is also a code of conduct for the board of directors, which shows ‘their commitment to ethical practices' (McDonalds Corporate Responsibility Report, 2004). The 2004 Corporate Responsibility Report, and codes of business conduct are all written in a similar style, with emphasis throughout on ‘Responsibility'. This word is used numerous times to show that McDonald's doesn't feel it is an obligation, but that it is their responsibility given to them by virtue of being in a powerful position. This word can be applied not only to show external shareholders that the company appreciates it is responsible for their well being, but also to reinforce the notion to staff internally that they must be responsible for ethical conduct in all aspects of their work.] Despite the marked improvements in ethical conduct, there are still criticisms that can be leveled at McDonald's. The 2004 Corporate Responsibility Report is still limited by the fact that it is qualitative, rather than quantitative. It does have some statistics, but there is a need for more, particularly when looking at improved performance. The employee section is dominated by claims of diversity, but little is said about how conditions have been improved or pay structure and age breakdown of staff. ‘As noted in the Lampe-Finn model, it is little more than a means to maintain the status quo while creating images of ethical behaviour' (Lampe and Finn, 1992).

The report uses bright colors and external partners to emphasize its importance, but really it is merely another piece of corporate propaganda designed to satisfy the majority of stakeholders with minor concerns. It attempts to portray itself as being a corporate citizen, but without the transparency that is necessary to achieve this view. The only parts of the company which society gets to see are those chosen by executives to support their opinion of how the company should be portrayed. There is still an absence of evidence to prove to strong opposition that change is really occurring. This is probably a result of the fact that McDonald's does not have an ethics department or ethics officer. It simply has codes of conduct, which are produced at the top level by directors. The result of this is that because the directors are not experts in ethical conduct, many of the ethical issues are simply covered over by well-publicized, but unsuccessful schemes, and many of the needs of stakeholders are not met. Over the last 10 years, McDonald's appears to have successfully met its social responsibilities. Its vibrant 2004 Corporate Responsibility Report shows that the menu has been enhanced with healthy options, which reinforce McDonald's public aim to increase the healthiness of its customers. The company has increased recycling and reduced waste in stores across the world, while attempts have been made to improve the standards of its suppliers. This has led to McDonald's taking top position in marketing firm GolinHarris's second annual citizenship survey. The most amazing fact is that this has been done in a way that also meets Friedman's requirement of meeting needs of shareholders by increasing profits. However, when looking deeper into McDonald's attempts to improve its ethical conduct, it becomes clear that McDonald's has ‘offered progressive rhetoric but not changed its internal practices or impact on society and the environment' (Hawken, 2002). Much of its attempts are descriptive and based around meeting future goals. This has a lot of potential, but very little is said about what has been achieved at the moment. The absence of statistical figures means that most of McDonald's attempts at ethical behaviour can and will be questioned by numerous books, documentaries and websites. It is important to remember that ‘McDonald's publicly embraces “sustainability” as long as it can make money' (Hawken, 2002) and many of its ethical attempts are aimed at persuading the public that the business is ethical, rather than ensuring that it is. McDonald's success looks set to continue into the future. This has been achieved despite facing constant pressure from critics about its operating practices. As a result, it seems very unlikely that McDonald's methods of publicizing ethical attempts will change, especially considering the money which would be required. If there was a shift towards full corporate social responsibility, there is a need for an ethical officer and ethics department, comprised of experts who can subjectively analyze the performance of the company and set accurate objectives. There is also a need for full transparency so that the public can be assured that the company is ethical. It would need to reveal ‘the externalities born by other people, places and generations' (Hawken, 2002). Until any radical internal changes are made, ‘the poet Henry Thoreau best describes McDonald's corporate initiative: “Improved means to an unimproved end.” (Hawken, 2002).

This also helped in understanding how best McDonalds can work on its feasibility without compromising on the marketing strategies.

2.6 : Developments and Changes for Future

Based on the audit of the environment and competition, recommendations are made for McDonald in the fast-food industry - the maturity market. Recommendation is made based on the analysis carried out on tactical practices to optimize its marketing situation that includes :

1. If the new diversified possible marketing strategy is supposed to be used to support and communicate its brand values, rather than to detract from its original burger business?

2. Can the long-term goal extend the business and brand by leveraging physical assets, retail know-how and brand strength to innovate and develop new business concepts?

3. Should the company better rebuild marketing team, making sure they have the right person to do the right thing?

4. Should the company stop aggressive expansion worldwide, instead, consolidate their burger business by developing more options in their menu?

Satisfying more customers, more often by delivering superior quality, service, cleanliness and value should be the foundation of McDonald's history success and an imperative for capturing growth opportunities in the future.

2.7 : Conclusion

This chapter literally concludes the dissertation, giving a brief account of its main points within each chapters.

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