McDonald’s Company Performance Measurement

Introduction

Performance management is an essential tool when it comes to the evaluation of the ability of an organisation to remain in business in the short and long term. According to Beechler and Woodward, profit-making organisations deploy profitability levels as measures of their performance (275). In this extent, profitability encompasses a desired organisational output. Performance measurement entails “three specific areas of a firm’s outcomes: financial performance (profits, return on assets and return on investment); product market performance (sales and market share); and shareholder return (total shareholder return and economic value added” (Devinney and Yip 529). The standard approach of measuring performance involves setting targets for the desired outputs and then measuring the actual outputs against the targets.

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This paper recognises that organisations have different desired outcomes. Hence, a discussion of the measurement of organisational performance cannot be accomplished through a debate on performance measurement in general organisations. Consequently, the paper limits its discussion to multinational organisations, specifically the McDonald’s Company. The organisation stands out as one of the biggest global fast-food retailer offering fast foods in more than119 customers all over the globe. McDonald’s restaurants and franchises, which stand at about 33, 500 continue to grow as the organisation penetrates new markets in Asia. This immense success of McDonald’s is attributed to a number of factors among them being the incredible emphasis on engagement of consumers, appropriate leadership that fits well the business of the organisation, and the exceptional investments of the organisational resources to enhance its performance. The purpose of the paper is to investigate how performance is measured at McDonald’s Company with the objective of prescribing solutions to the problems encountered in the performance management systems of the organisations once the challenges of the systems are identified.

To realise the above objective and purpose, this research paper collects data and information through interviews, documentary analysis, and internet search. This approach uses the mixed methodology of the study. The data collected is deployed to develop background information of McDonald’s. This section gives a thorough description and explanation of McDonald’s performance measurement system, its current problems, and/or successes in delivering high-quality products or services. In the last section, recommendations on how McDonald’s can improve its performance measurement systems are offered.

Methodology

A research can be designed as one of four main approaches: qualitative, quantitative, mixed methods (pragmatic approach), and emancipator approach (participatory or advocacy approach). This research adopts the pragmatic research methodology. The freedom of choice of a research method depends on the researchers’ perception and evaluation of methods that best suit the particular kind of research to be conducted. The best choice is the one that utilises methodologies that complement one another. This aspect forms the basic logic for designing this research to use the pragmatic research methodology that deploys aspects of both quantitative and qualitative research.

Searching the internet and library is conducted to identify various secondary sources of data that discuss the mechanisms deployed by McDonald’s to measure its performance. While this data may be important in helping achieve the objective and purpose of this research, performance management is a discipline that is controlled by changes in technology and the operational environment of an organisation. This suggests that secondary data may fail to meet the current performance measurement analysis needs of McDonald’s. To help resolve this challenge, primary methods, specifically interviews on supervisors and line managers for McDonald’s in California are conducted. The goal is to determine how supervisors and managers of McDonald’s Company measure the company’s performance regionally, nationally, and internationally.

Literature Review Background

Evidence for the Need to measure Organisational Performance

Several scholars have gone ahead to investigate the role of assessing the performance of any organisation. Their driving force has been the fact that no organisation can remain vibrant in this competitive market if it does not perform to the satisfaction of its clientele. As such, it suffices for all organisational managers and/or stakeholders to be on the lookout in terms of how their businesses are performing at all levels including the global level. Although much has been put in place to boost performance of employee such as training, it is quite vital to determine the level at which this intervention has gone in relation to organisational performance.

Companies employ individuals with the required experience and education to perform the job at hand. In addition to this strategy, they proceed to invest in continued training at the workplace. Organisations carry out continuous training programs to ensure that employees are aware of the means of tackling any problems that are related to their line of work. The training also ends up being a tool for motivation in the organisation. As firms carry out the process of training, it is hoped that such employees will notice the importance of their contribution to the organisation, with this move enabling them work towards achieving the set organisational goals. All these strategies call for a mechanism of assessing their impact on performance.

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Organisational performance may be measured from different dimensions. They include financial performance, employee satisfaction with their jobs as reflected by rates of turnover, customer service, and social responsibility among other aspects (Devinney and Yip 827). McDonald’s utilises people as one of its most important sources of success in terms of delivering value to customers. In this quest, the organisation ensures that it does not create situations, which give rise to employee-work conflicts, which subsequently lead to high labour turnover. These concerns of the organisation link well with the existing literature on the impacts of work-life balance on performance of employees.

Cegarra-Leiva et al. examined whether initiatives of employee work-life balance have indirect impacts on retention of employees in an organisation through stimulation of high work satisfaction for employees in SME settings. The study recommended improvement of satisfaction of employees in the effort to increase their retention (Cegarra-Leiva et al. 103). “The existence of a work-life balance culture in an organisation increases job satisfaction and for that it is essential for the managerial team to commit itself in supporting a person-friendly organisation” (Cegarra-Leiva et al. 103). This recommendation is essential in establishing the roles played by McDonald’s increased focus on ensuring employees are satisfied with their jobs in the bid to increase performance of the organisation

In the attempt to increase performance, McDonald’s through its human resource management puts in strategies for reduction of the turnover rates and incidences of occurrence of strikes. This effort is consistent with the existing evidence on the roles of HR in enhancing the performance of organisations. Accordingly, effective HR practices “help to foster the employees quality of life and, as a consequence, workers will be more satisfied, motivated and committed to a firm” (Lambert 13). Satisfied employees are more likely to execute their roles within an organisation better in relation to those who are dissatisfied. Indeed, job satisfaction relates to the motivation of employees. Employee motivation and job satisfaction are both essential components for enhancing organisational performance (Lambert 13)

One of the essential paradigms of measuring performance for McDonald’s is its financial performance. Organisations perform better when they make optimal profits. This happens when they are able to reduce their costs of running businesses. In this extent, one of the approaches deployed by McDonald’s to measure financial performance is its capacity to reduce various indirect costs. Through enhancing job satisfaction among its employees, McDonald’s develops the capacity to reduce any costs that influence its financial performance such as turnover costs, absenteeism costs, and task-associated errors.

Strategies for increment of job satisfaction are important since satisfaction leads to good quality of employee life together with good health. These factors are essential in enhancing productivity and hence performance of organisations. In measuring performance for organisations, performance feedback and compensational models are important aspects for consideration.

Performance Feedback Model

Any performance measurement process must possess a mechanism of providing feedback to the developed strategies for success. As Devinney and Yip (828) reveal, “Organisational performance is the most important criterion for evaluating actions and environment of organisations”.

Source: Devinney and Yip (828).
Source: Devinney and Yip (828).

Performance feedback as shown above can be provided by evaluating financial performances of an organisation upon the implementation of a strategy of performance improvement. This includes a return on organisational investments, changes in organisational assets, and evaluation of the changes in the profitability of an organisation. Feedback on the performance management approaches can also be evaluated from the context of increments on the market share of an organisation, changes in sales level, and even changes in the shareholder returns in the form of an increase in the magnitude of dividends.

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Balanced scorecard can capture all the above indicators of success of organisational performance. An important measure of performance of an organisation includes determination of the success of strategies deployed to enhance performance through alteration of managerial approaches to promote employee engagement by ensuring that employee cross-cultural differences that are associated with differences in their diversities are cutely managed to enhance global growth of an organisation. In this extent, the scorecard provides the required feedback of a performance management model.

Compensation Model

In the process of recruitment, contemplation of the available resources to pay a given employee a certain amount of benefits and compensation that are considered maximum offer by an organisation is important. In fact, deliberation of the wages and/or salaries that an employee of a given professional calibre would be willing to take as the start up salary is necessary. It forms the basis of determining the possible future mechanism of enhancing performance and motivation of the employee. Via psychometric evaluation of the person being recruited, organisations are able to identify persons who will fit into an organisation well. Fitting into an organisation implies recruitment of a person who would work to deliver his or her job requirements when paid according to the benefits and compensation packages offered by an organisation. Job requirements are developed consistently with the desired organisational outputs both in the short and long term. Comparisons of these desired outputs and the actual outputs encompass the measure of organisational performance.

Highly performing organisations focus on mechanisms of creating wealth, which is then directed towards the improvement of welfare of the employees. “People are always angered and frustrated by perceived inequality in reward systems” (Bowey 17). This means that if people are managed such that they are motivated through reward systems, it is possible for organisations to improve their performance. This suggests that a direct relationship exists between salaries and welfare benefits awarded to employees and their performance levels in the execution of organisational tasks, which help to improve profitability and hence the performance of an organisation.

Compensation Model.
Compensation Model.

Performance Measurement Systems for McDonald’s

Financial Performance

The main objective of measuring performance of organisations from the basis of their financial performance is akin to the need of ensuring continuous financial growth. McDonald’s expands through franchise model and opening of company-owned stores in different parts of the world. For this growth to occur, financial resources are expedited. Measuring performance of the organisation from this approach gives an indication of McDonald’s anticipated growth levels. The main aim of measuring McDonald’s performance from the basis of its financial performance is anchored on the need to determine the effectiveness and efficiency of the organisation in the conversion of inputs into outputs through an expenditure of financial resources in the form of purchases of the inputs such as raw material and labour.

While measuring effectiveness and efficiency in terms of financial performance in the form of financial ratios such as ROI, ROE, liquidity ratio, and profitability ratios, McDonald’s Company is inspired by the claim that organisations must operate in a manner that ensures they are able to achieve their outcomes. Table1 shows some of the financial performance measurement system for McDonald’s Company based on various financial ratios. From the context of financial performance and in the light of McDonald’s investor interests, financial effectiveness is of great importance. Investors are interested in the capacity of an organisation to deliver value in the form of returns on their investment (Herman and Renz 403). This implies that McDonald’s has a noble responsibility of investing owner’s finances in a manner that ensures profit maximisation by reducing the cost of production.

Financial Performance Ratios for McDonald’s between 2009 and 2012

Period Ending 12/31/2012 12/31/2011 12/312/2010 12/31/2001
Liquidity Ratios
Current Ratio 145% 125% 149% 114%
Cash Ratio 69% 67% 82% 60%
Quick Ratio 141% 122% 146% 111%
Profitability Ratios
Gross Margin Ratio 39% 40% 40% 39%
Operating Margin 311% 32% 31% 30%
Pre-tax Margin 29% 30% 29% 29%
Profit Margin 20% 20% 21% 20%
Pre-tax ROE 53% 56% 48% 46%
After tax ROE 36% 38% 34% 32%

Source: (“Forex Trading: McDonald’s Company Financials” 11)

Employees in an organisation constitute one of the most important resources that are utilisable in achieving the desired outcomes. In the context of increasing the financial performance of an organisation upon taking into account all costs encountered in the bid to enhance employee motivation, remaining committed to the objectives and functions of an organisation requires minimisation of optimal profitability. In this regard, McDonald’s measures its extent of financial performance by evaluation of its degree of establishing compromise for various variables that have to be combined in the right proportions to achieve financial growth.

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These variables include costs of inputs, processing, and the employee welfare benefits. While the claim that organisations should not principally focus on increasing financial effectiveness and efficiency at the expense of welfare benefits and gains of their employees (Herman and Renz 405) is valid, it is important to note that such benefits and gains are funded using financial resources. Such resources would be increased by increasing an organisation’s profit levels. This underlies the reason why McDonald’s is incredibly interested in measuring the variables to determine its capacity of increasing its financial performance.

Another important concept tied within the paradigms of measuring performance of McDonald’s from the basis of financial performance is financial efficiency. McDonald’s operates under intense pressures from stakeholders to ensure it conduct its business in the most efficient manner. In organisations including McDonald’s, such pressures include putting in place policies that will ensure that spending is controlled to reduce incidences of fraud while also “improving services to clients and aggressively pursuing important policy initiatives” (Herman and Renz 411). For McDonald’s, the implication of this pressure encompasses paying enormous attention to improve organisational processes while using little financial resources to curb the problem of overproduction of wastes and abuse of managerial power.

This way, financial resources are only spent in ways, which are productive to the organisation where they are aligned with organisational objectives and goals including the provision of welfare needs of employees to ensure their motivation and committed to an organisation in effect that such a move will not act in a counterproductive way to an organisation. In this regard, McDonald’s measures of financial efficiency are a gauge of how well it spends its financial resources. The better it spends its financial resources, the higher the measure of its financial performance since it manages to maintain high financial reserves for expansion in the global arena.

A bigger measure of financial efficiency implies a higher probability for McDonald’s Company to remain profitable, thus delivering optimal benefits to parties that have stakes in its operations such as employees. The financial efficiency of McDonald’s, which is a publicly traded corporation, is measured from the paradigm of its capacity to optimise profits from the context of the capital acquired in the form of debts and equities. In fact, for publicly traded organisations, the efficiency of financial expenditure is best measured based on the returns on investments ratio. Since efficiency and effectiveness imply more gains to all organisational stakeholders, McDonald’s management cannot negate from emphasising the two aspects while measuring its financial performance if it has to build a highly performing company in the long term.

Customer Service and Needs

McDonald’s considers people the most crucial resources to help in building sustainable relationships with customers. Having the capacity to establish good relationships with customers implies more sales, hence better financial performance of the organisation on the long-term basis. McDonald’s products have come under sharp criticism over the likelihood of foods to cause health challenges that are associated with taking foods with high calories. In the effort to ensure that customers of McDonald’s continue being loyal to the brand of the company, McDonald’s has developed healthy meals, which are provided in the menus. In this end, the capacity to which McDonald’s Company responds to the needs of consumers depending on the emerging lifestyles acts a measure of the performance of the organisation. Table 2 below shows performance measurement to reflect these concerns. The intended outcome for such a performance measurement is ensuring that the company’s brand profile continues to have a competitive advantage through customer satisfaction.

Table 2: McDonald’s Products Nutritional Well-being

Year 2005 2006 2007 2008
Average number of items per menu in the market containing at least 1 serving of fruits and/or vegetables N/A 6.1 6.1 6.4
Average number of items per menu in the market containing at least 1 or 2 serving of fruits and or vegetables N/A 9.9 10.9 11.9
Percentage of largest markets that provide nutritional information(tray liners, brochures) 100 100 100 100
Percentage of 9 largest markets that provide nutritional information out of restaurants (websites) 100 100 100 100

Source: (“McDonald’s Corporation Worldwide Corporate Responsibility Online Report: The Values We Bring to the Table” 8)

McDonald’s gauges its performance in terms of customer satisfactions based on creativity and innovation for new products. The actual measure of performance from the paradigms of capacity to address customer needs entails the determination of whether the company will always have an alternative product on offer in case customer tastes and preferences change due to intensive campaigns on the needs for healthy foods. Based on this performance measurement, McDonald’s has established for instance that Chinese prefer chicken to beef. Consequently, the company has designed hamburgers made form chicken as opposed to beef. This current strategy ensures high performance for the McDonald’s products in all markets based on the needs to address proactively the emerging needs of customers.

McDonald’s also measures its performance by determining its ability to maintain its market share together with attracting new customers. In fact, increasing an organisation’s market share is impossible without attracting new potential customers (Herman and Renz 109). In the effort to boost its performance in terms of increasing market share, McDonald’s invests in studying the sources of motives to eat at fast food outlets coupled with the service and products to be found at the fast food stores. McDonald’s corporate philosophy that sales personnel and communications personnel handle clients in a manner that would satisfy their anticipation drives this concern. For this reason, McDonald’s considers its customers and employees the most crucial elements for success in this highly competitive fast food industry.

Customer service satisfaction is qualitatively measured by determining whether customers having first-time experience with McDonald’s products perceive the products as the most favourable ones in comparison with a range of similar products offered in the market. In fact, “getting and keeping customers that are loyal to a particular brand is most useful when they together are gross users of products” (Hill and Ettenson 87).

For McDonald’s Company, depending on various perceptions of brand loyalties for McDonald’s products, the company employs valid strategies to enhance uniqueness, favourability, and awareness of the company’s products and services. In this quest, a major effort entails ensuring high performance in terms of customer service in the restaurants. This performance is measured by the customer service rate depending on arrival and departures rates. Where customers are kept waiting for long before being served, probability exists that an organisation would lose some of its loyal customers to competitors who have quicker service rates. This realisation pushes McDonald’s towards viewing low customer service rates as indicators of low organisational performances.

Social Responsibility

Although financial performance encompasses essential aspects of measuring McDonald’s performance, the company also appreciates performance measurement from the context of its degree of delivering value to its stakeholders. Different stakeholders have different needs to be catered for by an organisation. Consequently, instead of just focusing on maximising profits to increase its financial performance, McDonald’s also considers other alternatives that deliver utmost good to all organisational stakeholders. In this endeavour, McDonald’s measures its performance based on the capacity of managers to make decisions, not necessarily based on optimal profits, but also on ethical rules such as consequential rules, legal, social contract, and moral policies coupled with integration of CSR approaches in the operation of the company across the globe. Table 3 shows how McDonald’s uses sustainable supply chains as an approach for measuring performance in terms of social corporate responsibility.

Table 3: Sustainable Supply Chain Performance

Year 2005 2006 2007 2008
Percentage of food, packaging and tier-1 equipment supplier that have affirmed our code of conduct 89 93.5 92 95
Number of supplier for meat processing plants audited (including beef, pork and poultry) 521 562 513 484
Amount of packaging used, by weight in lbs per transaction count 0.139 0.138 0.35 0.129
Percentage of packaging material that is made from recycled paper 31.5 33.1 29.8 30.8

Source: (“McDonald’s Corporation: Worldwide Corporate Responsibility Online Report: The Values We Bring to the Table” 8)

McDonald’s approach for measuring its financial performance from the perspectives of social corporate responsibility is supported by the existing literature on the value of social corporate responsibility in aiding an organisation to achieve its anticipated performance outcomes. For instance, Schwartz reckons that the first step for increased organisational performance is “for a corporation to consider demands made by society on the enterprise both at present or likely to be made within the near future as it may affect the attainment of the corporation’s objectives” (49). One of the objectives of an organisation is establishing strategic plans that would ensure its long-term performance and existence.

From this assertion, McDonald’s channels funds derived from its profits margins towards improvement of the welfare of the community in which the organisation is established through CSR in the bid to improve its performance in terms of delivering value to local communities. Hence, the degree to which the organisation improves the livelihoods of these communities acts as a measure of McDonald’s performance.

Critics have had their say on the roles of paying critical attention to the improvements of welfare of the employees and communities as a measure of organisational performance that is driven by theoretical paradigms of the roles of CSR in enhancing organisational performance. They claim that managers in organisations have the noble task of serving the followers and communities than just focusing on increasing financial performance for an organisation. Kolodinsky, Bowen, and Ferris suggest that servant-leader relationship is significant in enhancing the performance of an organisation (83). The question that emerges here is whether investing only in building good relationships with workers irrespective of the associated costs would translate into direct productivity of McDonald’s Company, with productivity being an essential measure of organisational performance.

Recommendations

Although McDonald’s adopts alternative approaches for measuring performance such as social corporate responsibility and the degree of meeting customer needs together with improved customer service, quantitative performance measures profoundly dwell on traditional financial performance measurement systems such as ROI and ROE. Such approaches are incomplete and inappropriate since they are void of strategic focus especially in highly competitive fast food industry. McDonald’s contends that people are its most important sources of organisational performance.

While social corporate responsibility in the context of its ability to deliver value to people is important, it is recommended for the organisation to adopt a performance measure for determination of the levels of employee engagement with the organisation. More engaged employees are likely to be more productive. Hence, this increases the performance of the organisation. For the purpose of measurement of the system of employees’ performance and engagement, Q12 model is recommended.

Using the model to measure engagement creates confidence that the organisation deploys the employee dedication measurement methodology that is backed by immense empirical evidence. Even though measurement of financial performance gives McDonald’s Company an indication of its financial position together with the expected financial gains in the future, such gains are increased when productivity of employees improves. Having an indication of employee productivity levels forms the basis of determining the appropriate strategies of correcting their negative performances.

Through the above approach, success in engagement of employees can be determined from the manner in which people organise themselves into work teams. In case employees happen to organise themselves into groups based on common characteristics that are driven by individual concerns such as the incapacity to integrate with people with different sets of values as opposed to professional characteristics that are required to complete the allocated task, the measure indicates that McDonald’s performs poorly in terms of employee engagement. This has the effect of making the organisation suffer from inefficiency and ineffectiveness in the realisation of goals and objectives. This effect is a non-desired outcome in performance management systems within any organisation that seeks to exploit people as the source of competitive advantage such as McDonald’s Company.

Works Cited

Beechler, Simon and Charles Woodward. “The Global ‘War for Talent.” Journal of International Management 15.7(2009): 273–285. Print.

Bowey, Arthur. “Motivation: The Art of Putting Theory into Practice.” EBF 20.1(2005): 17-20. Print.

Cegarra-Leiva, Sa´nchez, Douglas Vidal and Gabriel Cegarra-Navarro. “Work life balance and the retention of managers in Spanish SMEs.” The International Journal of Human Resource Management 23.1(2012): 91-108. Print.

Devinney, Richard and Johnson Yip. “Measuring business-unit level: Integrating administrative mechanisms with strategy.” Academy of Management Journal 31.4(2009): 826-853. Print.

Forex Trading: McDonald’s Company Financials. New York, NY: Forex Trading, 2013. Print.

Herman, Raymond and Dickson Renz. “Advancing Organisational Effectiveness Research and Theory.” Management & Leadership 18.4 (2008): 399-415. Print.

Hill, Stephen and Tyson Ettenson. “Achieving the Ideal Brand Portfolio.” Sloan Management Review 2.1(2005): 85-90. Print.

Kolodinsky, Wilberforce, Godfrey Bowen and Richard Ferris. Embracing workplace spirituality and managing organisational politics: servant leadership and political skill for volatile times. Handbook of Workplace Spirituality and Organisational Performance, New York, NY: Armonk, 2003. Print.

Lambert, Johnston. “Added Benefits: The Link between Work Life Benefits and Organisational Citizenship Behaviour.” The Academy of Management Journal 2.1(2007): 7-32. Print.

McDonald’s Corporation: Worldwide Corporate Responsibility Online Report: The Values We Bring to the Table 2009. Web.

Schwartz, Martin. “The “business ethics” of management theory.” Journal of Management History 13.1 (2007): 43-53. Print.

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