McDonald’s and Operational Excellence

In their excellent book – The Discipline of Market Leaders (a book you MUST read) – Michael Treacy and Fred Wiersema presented three value disciplines that companies should follow. They argued that while companies should be good in all the three value disciplines, they should be OUTSTANDING in one of them. That is, they must deliberately choose one of the value disciplines to focus on. The three value disciplines are:

  • Operational excellence: A company pursuing operational excellence should aim to provide a standard product/s at a low price.
  • Customer intimacy: A company following customer intimacy should concentrate on the market segment that values customised products and close relationships.
  • Product leadership: A company following product leadership should concentrate on consumers who are looking at innovative products or new features.

According to Michael Treacy and Fred Wiersema, every market divides itself into these three generic segments and if a firm wants to be successful, it should choose one of the three value disciplines.

Looked at another way, any business has three key elements – the business itself, its product/s and its consumers/customers. If a company is looking at operational excellence, it should focus on the organisation itself and its processes; if it wants to follow customer intimacy, it is focus on its customers and if it wants to follow product leadership, it should focus on its products.

If one were to look at a company following one of the value disciplines – operational excellence – in a great way, it is McDonald’s. And this is how the company has done it:

  1. McDonald’s has a very simple menu. When the company started, its menu was really sparse. Over the years, due to dwindling sales in some markets and increased competition, the company has succumbed to the temptation of increasing its menu. I think the company is going wrong by doing this – operational excellence demands a small menu.
  2. McDonald’s tries and maintains consistency in taste. Of course, it changes its menu depending on the country it is operating in; within a country there is remarkable consistency across outlets.
  3. McDonald’s follows a consistency in décor and experience. The service is swift and the environment is extremely friendly.
  4. McDonald’s offers good quality food at very reasonable prices.
  5. McDonald’s offers safe, clean food and is extremely efficient in service.
  6. McDonald’s has superb consistency in branding and marketing.
  7. McDonald’s has maintained great partners in Disney and Coca Cola for a number of years.

The crucial ingredient behind all this is the phenomenal systems that McDonald’s has in place. The most important thing that leads to McDonald’s success is that its managers are willing to do what it takes to follow procedures and implement policies that ensure employees follow them diligently. There are some amazingly simple systems in the McDonald’s programme, and for just about every situation you do encounter, there is a system in place to help you win in that situation, efficiently.

However, like many successful brands, McDonald’s has been making some crucial mistakes over the last few years in the face of increasing competition. One, it has been tempted to offer more expensive items. This is contrary to its strategy of offering great value (good, consistent products at LOW prices). Two, as the menu has become more complex, quick service has taken a beating. Three, it has not handled marketing and PR very well in the face of increasing criticism of its ‘unhealthy’ menu. CEO Don Thompson has admitted to these problems and is working towards going back to what really made McDonald’s such a phenomenal success – a small menu, consistency, quick service and great value. In short, outstanding operational excellence.

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This article was written by Joy

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