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Business Structure of Mcdonald’s Corporation Essay

The organizational structure of a business is a unique relationship formed when functional areas, defined by purpose and specific roles, are associated. Proficient organizations are capable of success because of fluent operations between stable functional areas. This portion of our business project will provide insight on the business structure of McDonald’s Corporation by analyzing the functional areas of business, taking into consideration factors like technology, the basic laws of economics, and some key aspects of management. McDonald’s Corporation runs its business in a similar manner to nearly all fast food restaurant chains, so its creative bubble for abstract business terminology is not necessarily inventive. Throughout the MGT101 course and researching this business, many terms (and/or their definitions) have been mentioned that I consider new to my vocabulary.

To name a few: Franchise — “the right or license granted to an individual or group to market a company’s goods or services in a particular territory; also: a business granted such a right or license”. (“Franchise”, n.d.) Sustainability — “of, relating to, or being a method of harvesting or using a resource so that the resource is not depleted or permanently damaged”. (“Sustainability”, n.d.) Segment — “one of the constituent parts into which a body, entity, or quantity is divided or marked off by or as if by natural boundaries”. (“Segment”, n.d.) Corporation — “an association of employers and employees in a basic industry or of members of a profession organized as an organ of political representation in a corporative state”. (“Corporation”, n.d.)

Overhead — “business expenses (as rent, insurance, or heating) not chargeable to a particular part of the work or product”. (“Overhead”, n.d.) Capitalism – “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market”. (“Capitalism”, n.d.) Capital Expenditure — “expenditure on acquisitions of or improvements to fixed assets”. (“Capital Expenditure”, n.d.)

Revenue – “the return or yield from any kind of property, patent, service, etc.; income”. (“Revenue, n.d.) Quality Control – “a system for verifying and maintaining a desired level of quality in a product or process by careful planning, use of proper equipment, continued inspection, and corrective action as required”. (“Quality Control”, n.d.) Hamburger University – “the company’s global center of excellence for McDonald’s operations training and leadership development”. (McDonald’s Corporation, n.d.)

The organizational structure of McDonald’s relative to the functional areas of marketing, human resources, accounting, finance, and operations can be summarized by investigating each individually. For McDonald’s Corporation, marketing and advertising are what make sales. Whether directed towards children, adults, families, or people managing time restraints, McDonald’s has a goal to make their food fun and affordable. Marketing is conducted not only by television, billboard, radio, newsprint, and internet advertising, but also through sponsorships and promotions. A prime example of McDonald’s sponsorship is evident with the upcoming 2012 Olympics, where McDonald’s is labeled the “Official Restaurant” of the games, targeting an audience seeking assurance that McDonald’s food is a healthy option.

Beyond reigning over the entire games, McDonald’s takes it a step further by getting prominent athletes to promote products and drive influence deeper into the general public. Marketing tactics targeted at children include persuasion based on fun by using toys in Happy Meals. For the thrifty and penny conscience, McDonald’s promotes their dollar menu and offers coupons. By changing their menu options, McDonald’s can promote seasonal and holiday options like milkshake flavors. The organizational structure of McDonald’s Corporation is considered divisional, separated by geography. The business is managed as distinct geographic segments that include: The United States, Europe, APMEA (Asia/Pacific, Middle East and Africa), and Other Countries & Corporate (OCC) including Canada, Latin America and Corporate. (McDonald’s Corp, n.d.) McDonald’s corporate website provided a financial highlights spreadsheet for 2011 that offer insight into the accounting of its organization.

The most significant costs and expenses associated with McDonald’s are generally referred to as “Company Operated Restaurant Expenses”. Breaking that down further, the C.O.R.E. can be identified as food and paper, payroll and employee benefits, and occupancy and other operating expenses. In 2011, the C.O.R.E. costs totaled over $14 billion globally. The most significant source of revenue for McDonald’s was through sales at company operated restaurants. Although McDonald’s Corporation receives revenues form franchised store locations, its 1,552 company operated locations totaled over $18 billion in sales, while revenues from franchised stores brought in only $8 billion. The most profitable segment of McDonald’s Corporation in 2011 was Europe, slighting the United States in revenue by about $2 billion. (McDonald’s, 2011) Financing the operations within this organization come mostly from retained profits and bank loans.

Although McDonald’s offers stock to be traded publically, the revenues generated do not provide the primary source of financing for franchised and company operated store locations. (McDonald’s, 2011) The operations of McDonald’s restaurants are supported by a system that involves three main components, what Ray Kroc titled the three legged stool. The first leg is McDonald’s and its core values of quality, service, cleanliness and value. The second leg is franchisees. Each encouraged to be innovative, but also required to operate within the core values established by McDonald’s. The third leg being McDonald’s suppliers, consistently supply products across business segments in order to recreate the McDonald’s experience at every location. Creating an operating system based on the three legged stool philosophy, Kroc was able to invent the most integrated, efficient and innovative supply system in the food service industry, thus controlling inventory, quality and repetitive production within each business segment. (McDonald’s Corporation, n.d.)

Much like any major corporation, McDonald’s utilizes its functional areas to create compatibility within its infrastructure. As described in our text (Chapter 5 of Exploring Business), the success of a business lies in the ability to manage and grow. McDonald’s Corporation has established a system where the core areas work together to manage operations, money, people, sales, and the competition. The roles of the functional areas and how they work together give McDonald’s the ability to know their business, know their product, and know their competition. (Collins, 2009) McDonald’s management has established goals and values by which they operate. Focus on the employees, customers, suppliers, and brand image has placed McDonald’s Corporation on the cutting edge of franchised restaurant chains. Its values encourage employee development, environmental and supply chain sustainability, and continuous improvement on every level.

Whether franchise owners and operators are enrolled at Hamburger University (a training facility that teaches the McDonald’s business system) or employees are taking advantage of leadership development programs, the management of McDonald’s Corporation has intent to provide support and encourage development from all the people who make McDonald’s stores diverse and successful. (McDonald’s Corporation, n.d.) The impact and evolution of technology has enabled McDonald’s to reach customers, suppliers, employees and restaurants at every corner of the globe. Technology of the times has held a premium value to McDonald’s marketing strategy. The modest beginning of McDonald’s marketing and advertising strategy has evolved since the 1950’s with radio and newsprint ads. 1966 brought the first television commercial to the United States and in 2003 the first global ad campaign (titled “i’m lovin’ it”) is launched in Germany. (McDonald’s Corporation, n.d.) Technology’s impact on marketing and operations has been substantial.

The internet provides an invaluable resource for collecting data points on market segmentation and analyzing global trends. Faster accessibility to critical information has helped optimize supply chain operations and improvements towards sustainability. Global communication capabilities allow business segments to interface “in person” using webcams, saving time and money on travel expenses. Accounting and finance departments use technology to improve error proofing and record keeping. File sharing is quicker and more secure, allowing restaurants within business segments to watch trends in sales and enable adjustment to accommodate profitable operations. McDonald’s restaurant distribution centers rely primarily on regional suppliers for produce, meat, buns, and packaging.

Based on the information I’ve collected about McDonald’s, international trade has little effect on business operations. Unlike companies that rely on foreign made (or mined) textiles and metal ores to make a product, McDonald’s supply chain is strategic to obtain only the freshest ingredients from within each business segment. (McDonald’s Corporation, n.d.) A safe bet could be made in the statement that nearly every McDonald’s customer is either hungry, thirsty, or both. The products served by McDonald’s restaurants are an array of breakfast, lunch, dinner and dessert items ranging from breakfast burritos and hotcakes, to hamburgers, French fries, chicken sandwiches, and ice cream sundaes…and a lot in between. Portioned meals are designed to suffice the appetites of all consumers, including the dainty eaters, mid-day snackers, and the average adult. McDonald’s restaurants solve the problem consumer’s face when seeking fast food at an affordable price and with good quality.

Often found by major roadways and fueling stations, McDonald’s restaurants provide quick and easy dining when traveling. Customers who use the services of McDonald’s stores include all walks of life. Business men and women, health conscience eaters, children, and thrifty shoppers have a niche within the McDonald’s marketing scheme. Finding and identifying every customer starts with good marketing. McDonald’s uses social networking sites like Facebook and Twitter to follow consumer habits and trends. They conduct survey’s to collect data on current customers and research other fast food operations in order to compete. Strong advertising campaigns using television, radio, the internet, billboards, and magazines draw customers through vivid imagery, nutritional statements, and brand recognition. (McDonald’s Corporation, n.d.)

Considering the varied demographics associated with over 33,000 global restaurants, McDonald’s prices fluctuate from store to store. Their pricing strategy is set to accommodate regional business and market segmentation by analyzing the demographics surrounding each restaurant. In the United States, for instance, two McDonald’s store locations will offer the same menu option at different prices based on the economic status of surrounding areas. McDonald’s Corporation researches the areas thoroughly before opening a restaurant to determine the value of their product compared to the value of a community’s dollar. In shopping districts or roadways surrounding exclusive neighborhoods, McDonald’s will charge more for a value meal when compared to a less fortunate area. Why? They know low-income consumers will likely not find their way to a higher-income area. By creating market segments, prices can vary based on the financial capabilities of its customers. (“McDonald’s Pricing Strategy,” 2012) McDonald’s business operations are directly affected by supply and demand.

Factors that play into their success revolve around competition, local economies, and population. Restaurants located in areas with a high number of establishments serving food succumb to consumer choice and face the possibility of fewer sales. Likewise, restaurants in lower income neighborhoods rely on a customer base that faces the decision of quantity or quality. Many lower income families can stretch their dollar into several meals at the grocery where McDonald’s would provide just one. Fluctuations in population can affect the demand for fast food meals, and therefore directly affect sales. (Collins, 2009) McDonald’s has always held an open door to offering a first job, regardless of experience or credentials. From there, McDonald’s Corporation is dedicated to providing an opportunity for a career. Search the web (http://www.mcdonalds.com/us/en/careers/workinghere.html) and see that open positions across the United States are available at either a corporate or restaurant level, on a spectrum that covers all ranges of experience and entry level.

Although McDonald’s corporate website does not provide compensation in the form of dollar amounts for either hourly or salary employees, less reliable internet sites might suggest restaurant employees’ initial wages range from around $7/hr. upwards to $10/hr., depending on position; average management positions can offer in the neighborhood of $30k to $40k annually. According to McDonald’s website, non-financial compensation packages for employees include company assisted health plans, paid holidays and vacations, access to career development opportunities and training, 401(k) contributions, discounted meals, and even the possibility of a company vehicle. (McDonald’s Corporation, n.d.)

In closing, the strategic system McDonald’s Corporation has organized to manage it business involves multiple factors. People that choose to join McDonalds’ team are encouraged to continuously improve their careers, utilize full potential, and assist with innovation to achieve the goals and mission set forth by McDonald’s Corporation. The unique inter-relationship woven by functional areas of this business provide support within the company structure to assist employees at any level; from top executives to restaurant crew members. Optimization of operations using technology and an innovate supply chain allow for the company to adjust constantly in response to trends and social influence.


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