McDonald’s and Subway. A critical comparison of their organisational structures and fit to the chosen corporate strategy


Term Paper, 2019
34 Pages, Grade: 2,0

Excerpt

Table of contents

1. Introduction

2. Company backgrounds
2.1. McDonald’s company background
2.2. Subway’s company background

3. Corporate strategies
3.1. McDonald’s corporate strategy
3.2. Subway’s corporate strategy

4. Organisational structures
4.1. McDonald’s organisational structure
4.2. Subway’s organisational structure
4.3. Comparison of the competitors organisational structure

5. How good do the structures reflect the corporate strategies of the competitors?

6. Conclusion and Outlook

References

ITM Checklist

Declaration in lieu of oath

Table of figures

Figure 1: McDonald’s strategy mix of different approaches (strength of green colouring reflects the weighting; Ansoff Matrix, based on Mintzberg et al.)

Figure 2: Subway’s strategy mix of different approaches (strength of green colouring reflects the weighting; Ansoff Matrix, based on Mintzberg et al.)

Figure 3: Number of Subway stores worldwide from 2011 to 2018

A critical comparison of the organisational structures of McDonalds and Subway and their fit to the chosen corporate strategy.

1. Introduction

The organisational structure of any company can be understood as a vehicle that depicts the activities and connections of various divisions, business units and functions of that company.1 It helps managers to comprehend and to control the flow of activities. The organisational structure is highly important to be established appropriately because it presets the paths on which a company can create value and ultimately determines the efficiency of the value chain.2 There are various problems that can come up especially in large companies like a lack of coordination, information distortion and motivational problems. The weaknesses of a organisational structure are to be kept in mind when set ting up a corporate strategy or else the structure needs to undergo changes in order to follow the strategy.3 The fit between a chosen corporate strategy and the structure of an organisation has an important influence on how smooth the different organs of a com panys can work together to fulfil the corporates objectives.4

This assignment is answering the task to "compare the organisational structure of two direct competitors in an industry of your choice. To what extent and how does the cho sen organisational structure reflect the specific corporate strategy of these companies? Discuss the respective structures critically". The assignment is comparing two main competitor in the fast food industry: One is McDonald's and the other one is Subway. The chosen companies are the two market leaders in the fast food industry. Since Hill and Jones point out that a corporate strategy formulation comes first followed by desi gning the organisational structure,5 the following sections will describe the corporate strategies of both companies first. Later on, it will be evaluated critically what kind of organisational structure each of the competitors are built on and which one has the bet ter fit with regard to their strategy. In the end, concluding remarks and an outlook will be provided.

2. Company backgrounds

One of the main questions when formulating a strategy is how much this strategy fol lows the given structures of a company and to what extend management is able to de sign these structures in order to follow the corporate strategy.6 To understand the chal lenge of restructuring an organisation it is important to look at the history of this organi sation. It can be assumed that the structure of a company that has evolved over decades from a small business to a global corporation is much harder or even impossible to over throw.7 The following sections will give an overview of the history and background of McDonald’s and Subway.

2.1. McDonald’s company background

In 1940 Richard and Maurice McDonald open their first McDonalds’s Bar-B-Q restau rant in San Bernadino, California. The restaurant had a large menu and a car hop service (i.e. people stay in their car in a parking lot and get served by waiters pending between the parking lot and the restaurant). In 1948 they reopened their restaurant with a much smaller menu and a self service concept.8 Also at this point they started to optimise va rious work steps in the kitchen to maximise the efficiency of their restaurant.9 Until 1954 when Ray Kroc joined the company to be a nationwide franchising agent, the McDonald brothers had already managed to open two franchise restaurants. After Ray Kroc joined, McDonald’s scaled fast. In 1958 they achieved selling 100 million ham burgers in 34 restaurant, one year later they had over 100 restaurants.10 From then, the main aim of the company was to limit the menu and focus on the quality of the product. Kroc wanted to establish the same taste of food in different parts of the World by the name of McDonald's. Today, the company is serving 68 million people Worldwide and is present in 119 countries around the globe providing quick fast food service. 36,000 restaurants have been established worldwide and the company still aims to grow more.11 McDonalds does not provide a clear vision statement, but has a section von their web site that points out the mission quite clearly as "McDonald's brand mission is to be our customers' favorite place and way to eat and drink. Our worldwide operations are ali gned around a global strategy called the Plan to Win, which center on an exceptional customer experience – People, Products, Place, Price and Promotion. We are committed to continuously improving our operations and enhancing our customers' experience."12 While the first part of this statement can be seen more as a mission with a rather vague objective, the second part looks as like it was taken directly from a marketing textbook while it focuses on the four Ps13 and a generic statement on improving the customers’ experience (vision).

2.2. Subway’s company background

Subway’s story began in 1965 when Fred Deluca got an investment of $ 1,000 from Dr. Peter Buck (the company behind Subway was therefore named Doctor’s Associates Inc.) to open the Submarine Sandwich shop.14 Initially, Deluca thought that he is not old enough for business but Peter Buck told him that Deluca would need only a shop on rent where he had to open a counter and bring some food to sell. They both worked hard and established goals to open 32 Subway restaurant within 10 years. By 1974, they had 16 Subway units working in the state of Connecticut. Delucas next step was to expand Subway restaurants. For this reason, they decided to sell franchises. In 1987, Subway took a major step forward and opened its 1,000th market, and in 1998, the company had more than 10,000 stores in the United States alone. That same year, Subway opened its first restaurants in Hong Kong, Italy, Northern Ireland, Norway, Pakistan and the United Arab Emirates.15 In 2010 subway grew to become biggest fast food company in number of stores. According to the Subway website, the company had 44,000 locations around the world in 2015.16

According to their FAQ on the website, Subways mission is "[…] to be ranked the number one Quick Service Restaurant (QSR) worldwide while maintaining the greattasting freshness of our products that is our trademark."17 There cannot be found a visi on statement, but a big part of their web presence is about sustainability, where it is said that the "[…]SUBWAY system is committed to providing a wide range of great tasting food choices, while reducing our environmental footprint and creating a positive influ ence in the communities we serve around the world."18 Subway’s mission statement is quite clear while it mentions a definitive objective which falls in line with the longterm goal formulated in the sustainability statement (vision). Also the mission statement mentions the unique selling proposition of the company, i.e. offering fresh products.

3. Corporate strategies

"A company’s strategy is the set of actions that its managers take to outperform the company’s competitors and achieve superior profitability. The objective of a well crafted strategy is not merely temporary competitive success and profits in the short run, but rather the sort of lasting success that can support growth and secure the company’s future over the long term."19

Even though every textbook and every manager defines corporate strategy differently, Thompson's and his colleagues' definition is just general enough to allow outsiders to assess the success of a corporate structure on the basis of this premise. The following sections will highlight the business strategies of McDonald's and Subway where possible based on available data and sources.

3.1. McDonald’s corporate strategy

McDonald's is committed to an intensive growth strategy to secure its competitive ad vantage. The three pillars of their "velocity growth plan" are to retain, to regain and to convert.20 It is about retaining customers by focusing on the area of strength, regaining customers' trust by improving values, taste, and quality of the food and convert casual customers into committed ones. These three pillars are strongly oriented towards the later stages of the customer life cycle21 and show that McDonald's is aware of its omni present market position, as the acquisition of new customers does not play a role or is taken for granted. Although the company has fallen behind Subway in terms of the number of restaurants,22 the chain still has by far the highest value in the fast food seg ment.23 In the meantime, about 90 percent of restaurants worldwide are owned by fran chisees, and the trend is rising.24

McDonald’s follows a mixed approach on the generic strategies25 as they focus on being competitive for the cost leadership position and also differentiate through their geogra phic expansion strategy and range of services (for example, McCafé or the new Vegan Burger in Scandinavia and Sweden).26 Through their intense market penetration, Mc Donald's is growing by reaching more customers in the markets in which it already ope rates.27 For example, McDonald's opens new restaurants in North America and Europe through franchises or joint ventures. McDonald’s strategy is compatible with their velo city growth plan, as low cost and low prices allow the company to easily penetrate mar kets.28 However, market development has become a secondary strategy of growth, as McDonald's already operates restaurants in most parts of the western world, with the exception of parts of the Middle East and some African countries.29 An objective of this strategy is to establish new restaurants in markets where the company is not currently operating.30

McDonald's uses product development as a strategy for regaining and retaining custom ers in already tapped markets. In order to this strategy, McDonald’s is gradually develo ping new products and services, such as the new McCafé products.31 These new pro ducts can be variants of existing products (for example, McDonald’s offered coffee a long time ago while McCafé allows to compete with Starbucks) or completely new. The strategic objective is to attract more customers by attracting them to new products. It is consistent with McDonald's differentiation strategy by developing products that distin guish the company from its competitors or, when not possible, offer similar products.32 Next to the three pillars of the velocity growth plan, McDonald’s has defined three ma jor accelerators. Those are "Experience of the Future" (EOTF), "Digital" and "Delivery". EOTF means that McDonald’s is thriving to "transform the restaurant ser vice experience" and modernises their restaurants.33 The digital accelerator is designed to strengthen the relationship with customers through technology. These include expan ded ordering and payment options such as the self-service panels and the McDonald's App, which now has over 20 million registered users.34 The third accelerator concentra tes on offering delivery for more restaurants in a broader area and to promote this offer so it is used more often.35 As figure 1 shows, the velocity growth plan is designed to ex pand existing markets by offering customers more service and convenience.

McDonald's has launched the Scale for Good program as a corporate social responsibili ty strategy.36 These are measures that affect the environment, product quality and socie ty. Measures that affect product quality include the use of fiber-based packaging materials, sustainable fishing and palm oil production.37 The problems of factory farming are not mentioned for chicken farming. Instead, it is claimed that breeding is not in McDo nald's hands but that their health and welfare was important to them.38

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: McDonald’s strategy mix of different approaches (strength of green colouring reflects the weighting; Ansoff Matrix, based on Mintzberg et al.)39

3.2. Subway’s corporate strategy

Doctor’s Associates Inc. does not provide any annual or corporate report for Subway. Therefore the following analysis is based on what is stated on the company’s websites which does not contain any information on the corporate strategy. The US-website pro vides "The big picture: Learn how we plan to transform long term goals, values and principles into action"40. Subway has certain policies which can be seen as guidelines for strategic decision making41 and shed a light on the general corporate strategy. Their strategy is entwined about promoting well-being, respecting the planet, their commu nities and general practices and processes. Next to this policies, they have stated in 2014 that a long-term objective is to have 100,000 locations all around the world by 2030.42 In an interview from 2017, Subway CMO, Joe Tripodi, stated that they "[…] will no longer just be adding more and more restaurants in the U.S. and Canada."43 He additionally stated that they "[…] want to make sure those existing restaurants are in the right place and the development agents and franchisees are profitable and their business is sustainable."44 The product development strategy that can be read from this statement is reflected in the launch of three new wraps in July 2018.45 The aim is to expand the exis ting market in order to attract more customers. Nonetheless, Subway still encourages franchisees to open their own restaurant for relatively low costs and is still building on a growth strategy through franchising.46 Figure 2 illustrates how Subway’s focus seems to lie more on maintaining the current markets to prevent cannibalisation, which has been caused by rapid growth.47 The following aspects are significantly responsible for the successful multinational market development of Subway:

1. New restaurants can be built almost everywhere simply and cost-effectively, as the franchisees bear almost the entire economic risk.48
2. Subway products are supposedly fresher and healthier alternative to hamburgers, pizzas, french fries and other popular fast food products.49
3. The basic idea of the Subway business model is based on the customer-specific composition of the product ingredients, which reflects the trend of individualisation within society. This makes it particularly easy for the company to adapt its products to markets where, for example, kosher or halal food is eaten.
4. The franchise model is particularly attractive for franchisees because both the investment costs and the operating costs are lower compared to other franchise models. While it takes about 500,000 euros to open a franchise of McDonald’s or Burger King, Subway franchisees only need 15,000 euros equity to open their own restaurant.50

Despite its aggressive growth strategy through franchising, Subway seems to focus on corporate responsibility and product quality. Above all, its first point, promote wellbeing, shows the strategy's strong focus on adding value for the customer. The formula tion of the strategy seems to be strongly outward-looking and does not focus solely on improving the products, but goes one step further and explains that they are primarily concerned about the health of their customers. The promote well-being policy includes measures to reduce additives, sodium, trans fats and sugars.51 Furthermore, Subway does not allow advertising aimed at children under the age of twelve, even though their products are supposed to be healthy enough to be eaten by children.52 This can be seen as an attempt to distinguish themselves from McDonald's, who still have a strong focus on children, especially in the USA.53 Contrary to their otherwise green attitude, Subway expressly reserves the right to use genetically modified ingredients for their products and to colour many of their products in caramel in order to give them an appealing look.54 McDonald's has very similar arguments and policies on its corporate website to Subway when it comes to sustainability, environmental awareness and caring about the community.55 56

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Subway’s strategy mix of different approaches (strength of green colouring reflects the weighting; Ansoff Matrix, based on Mintzberg et al.)

[...]


1 Hill, C, Jones, G., Essentials of strategic management, 2011, p. 228.

2 Ibid, p. 227.

3 Hunger, J. D, Wheelen, T. L., Essentials of Strategic Management, 2010, p. 107 f.

4 Thompson, A. A. et al., Crafting and executing strategy: the quest for competitive advantage : concepts and cases, 2017, p. 12.

5 Hill, C, Jones, G., Essentials of strategic management, 2011, p. 227.

6 Thompson, A. A. et al., Crafting and executing strategy: the quest for competitive advantage : concepts and cases, 2017, p. 291 f.

7 Mintzberg, H. et al., The strategy process: concepts, contexts, cases, 2002, p. 217 f.

8 McDonald’s, Our History, n.d..

9 Encyclopedia Britannica, McDonald’s, n.d..

10 McDonald’s, Our History, n.d..

11 Ibid.

12 McDonald’s, Mission & Values, n.d..

13 Kotler, P. T., Armstrong, G., Principles of Marketing (global edition), 2017, p. 38.

14 Subway, History, n.d..

15 Subway, History, n.d..

16 Subway, Explore our World, n.d..

17 Subway, FAQ, n.d..

18 Subway, Social Responsibility, n.d..

19 Thompson, A. A.,et al., Crafting and executing strategy: the quest for competitive advantage : concepts and cases, 2017, p. 3 f.

20 McDonald’s, Our Growth Strategy, n.d..

21 Kotler, P. T., Armstrong, G., Principles of Marketing (global edition), 2017 , p. 278 ff.

22 QSR magazine, Leading quick service restaurant (QSR) chains in the United States in 2017, by number of units, 2018.

23 Kantar Millward Brown, Brand value of the 10 most valuable fast food brands worldwide in 2018 (in million U.S. dollars), 2018.

24 McDonald’s, McDonald’s Annual Report, 2017, p. 1.

25 Mintzberg, H. et al., The strategy process: concepts, contexts, cases, 2002, p. 119 f.

26 T refis, Here's Why 2018 Could Be A Growth Year For McDonald’s, 2018 .

27 Lawrance. G., McDonald’s Generic Strategy & Intensive Growth Strategies, 2017.

28 McDonald’s, McDonald’s Annual Report, 2017, p. 4 ff.

29 Lawrance. G., McDonald’s Generic Strategy & Intensive Growth Strategies, 2017.

30 McDonald’s, McDonald’s Annual Report, 2017 , p. 3.

31 Ibid, p. 15.

32 Lawrance. G., McDonald’s Generic Strategy & Intensive Growth Strategies, 2017.

33 McDonald’s, McDonald’s Annual Report, 2017, p. 15.

34 Ibid.

35 Ibid.

36 McDonald’s, Scale for Good, n.d..

37 McDonald’s, Our Food, n.d..

38 McDonald’s, Responsibly sourced chicken, n.d..

39 Mintzberg, H. et al., The strategy process: concepts, contexts, cases, 2002, p. 126.

40 Subway, Social Responsibility, n.d..

41 Hunger, J. D, Wheelen, T. L., Essentials of Strategic Management, 2010, p. 4.

42 W ong, V., With 3,000 More Locations, Subway Widens Its Lead Over McDonald’s, 2014.

43 Bennett, J., Exclusive interview with Subway CEO Suzanne Greco, 2017.

44 Ibid.

45 Fleming, M., Subway rethinks loyalty, brand and product in global repositioning, 2018 .

46 Subway, Your next steps, n.d..

47 Bennett, J., Exclusive interview with Subway CEO Suzanne Greco, 2017.

48 Subway, Your next steps, n.d..

49 ZDF, Wer schlägt McDonald’s?, 2016.

50 Für-Gründer.de, McDonald's, Burger King, Subway: Mit einer etablierten Fast-Food-Kette ein Franchise starten, n.d..

51 Subway, Social Responsibility, n.d..

52 Ibid.

53 O’Reilly, L., McDonald's slapped down for focusing its Happy Meal advertising on the toy and not the food, 2015.

54 Subway, Social Responsibility, n.d..

55 McDonald’s, Our Planet, n.d..

56 Mintzberg, H. et al., The strategy process: concepts, contexts, cases, 2002, p. 126.

Excerpt out of 34 pages

Details

Title
McDonald’s and Subway. A critical comparison of their organisational structures and fit to the chosen corporate strategy
College
University of Applied Sciences Essen
Course
Strategic Corporate Management
Grade
2,0
Author
Year
2019
Pages
34
Catalog Number
V464712
ISBN (eBook)
9783668932685
ISBN (Book)
9783668932692
Language
English
Tags
Structure, Franchise, mcdonalds, subway, corporate structure, strategic management, decision making, fast food
Quote paper
Patrick Schneider (Author), 2019, McDonald’s and Subway. A critical comparison of their organisational structures and fit to the chosen corporate strategy, Munich, GRIN Verlag, https://www.grin.com/document/464712

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