Strategic Management for the Service Sector Report (Assessment)

Abstract

Hospitality and Service businesses like fast food restaurants of McDonald’ are all relatively commonplace in most developed economies. McDonald’s, for example, is a US company that produces and markets fast food products nationally and in overseas markets. In needs-based positioning the firm will try to serve all the needs of a particular group of customers. The threefold categorization of the role that politics and nation states have played in formulation of Business Strategies of the organization like McDonald’s. 2. Strategic management—including especially studies that consider firm-state interactions in the context of firm strategy and industry structure.

McDonald’s uses the franchise form of business structure in their domestic operations, such as restaurants and specialty food shops; it is typical to use this form of structure in foreign operations, as well. As firms increase their levels of international activity, their organizational structures and HRM responsibilities become increasingly complex. An example of how even mass-market suppliers are heeding cultural diversity is illustrated by McDonald’s.

It is interesting to know that how could McDonald’s sell a hamburger to the Irish who resented McDonald’s nonunion stance for service workers? How could McDonald’s “naturalize” eating out?

Firms such as McDonald’s typically sell franchises to local individuals, but often have to first prepare an infrastructure in foreign locations in order to provide their foreign businesses with the quality and types of inputs needed before they establish their local outlets.

Introduction

Hospitality and Service businesses like fast food restaurants such as KFC, McDonald’s and Pizza Hut are all relatively commonplace in most developed economies. Whatever views you hold as to their worth, they satisfy a demand and employ a large number of people. McDonald’s, for example, is a US company that produces and markets fast food products nationally and in overseas markets. It consists of many outlets in the USA, UK and other countries worldwide. Its corporate strategy is set at HQ level with various business strategies for particular regions.

It is interesting to note that very few of the writers who use the concept of strategy most regularly ever bother to define the term. Sometimes they employ it simply as a synonym for ‘chosen course of action’; while in other cases they use it to signal that some particular decision is of crucial importance. The rational action approach clearly implies that some decisions are more important than others, and indicates why this is the case. There is now a ‘critical mass’ of rational action technique that can be used to analyze strategic issues. Firms such as McDonald’s typically sell franchises to local individuals, but often have to first prepare an infrastructure in foreign locations in order to provide their foreign businesses with the quality and types of inputs needed before they establish their local outlets. A competitive strategy is about difference, the choice of activities that will deliver a unique mix of value. The essence of strategy is in the activities choosing to perform activities differently or to perform different activities than rivals. A successful industry should rely on adaptation and change to survive. Choices have to be made concerning strategic positioning (conceptual and actual) and the use of particular competencies, capabilities and processes. In making these choices firms will, according to Porter, adopt certain strategic positions that emerge from three distinct sources.

Theoretical Perspective of Strategic Management

Various types of approaches are being adopted by various scholars for describing strategic theories. Some of the theories are quite relevant to the topic under discussion i-e- hospitality businesses. The following approaches are a used according to the requirements.

Variety-based positioning is based on producing a subset of an industry’s products or services using a distinctive set of activities. These are focused on competitors with a value chain designed to serve a wide variety of customers but satisfying only a subset of their needs. In needs-based positioning the firm will try to serve all the needs of a particular group of customers. The customers will be grouped by differing needs and the firm’s activities are tailored to serve all those needs – different price requirements, product features, information, support services, or even the same customer group having different needs on different occasions. The point is that an organization operating using this positioning has to configure different sets of activities to cater for the various needs, because the same value system cannot meet the needs of all groups.

In access-based positioning, the segmenting of customers is done who are accessible in different ways. Although their needs may be similar to other customer groups, the configuration of activities to reach them is different. These techniques address strategic complexity through clarification and simplification of the decision problem.

Another theoretical approach is adopted in hospitality business for making strategies by analyzing the various factors and actors relevant to the particular area and culture. These analyses are done by keeping in view the following factors:

• Information Costs. This type analysis is made by keeping in view the decision theory, options of rational choice under uncertainty, sequential analysis of relevant factors.
• Dynamic Optimization. In this type of analysis the optimal timing of investment is analyzed and in case of failure irreversibility and switching costs are also analyzed.

There is insufficient space to review all of the relevant techniques at this stage. The simplest way of introducing a new strategy into the rational action approach is to assume that decision-makers partition the state of the environment into a number of different categories, or ‘states of the world’, and then assign a subjective probability to each. A sophisticated decision-maker may distinguish a large number of different states, whereas a naïve decision-maker may distinguish just a few. Suppose that the firm is already committed to serving the market, and that market size is fixed, so that the revenue obtained is the same for either strategy. Thus only the costs of the two strategies are different.

Methodology

As our research question was to explore relationships between resources and strategies in organization. A secondary research method was adopted to gather information about the selected firms and then that information was analyzed to achieve the research objectives:

1. To evaluate and analyze the concepts of both corporate strategy and the strategic management process.
2. To analyze the processes involved in strategic development.
3. To identify the elements within the operating environment and determinants of globalization / multinational approach and to evaluate that to what extent an organization’s culture and power structure influence strategy.

Business Strategy

The threefold categorization of the role that politics and nation states have played in formulation of Business Strategies of the organization like McDonald’s. The categories are:

1. Firm-state interaction—including political risk, Multi National Entrepreneurs MNE-government bargaining, and the role of FDI in development.
2. Strategic management—including especially studies that consider firm-state interactions in the context of firm strategy and industry structure.
3. International political economy—including the impact of MNEs on the nation-state system.

Selected Organization (McDonald’s)

The main purpose of this paper is to investigate and analyze the development of business strategy of the selected firm. The selected firm is McDonald’s. For firms like McDonald’s that use the franchise form of business structure in their domestic operations, such as restaurants and specialty food shops, it is typical to use this form of structure in foreign operations, as well. Because franchises, such as McDonald’s, are usually owned locally, the impact on HR, other than a role in training local franchisees in staffing and other HR practices and skill training of new employees, is pretty minimal. (Ritzer, 2000).

The businesses typically pass through a number of stages as they increase their degree of internationalization, although this pattern is changing with the increase of service businesses and the development of internet-based and dot.com businesses that can follow different patterns and because of the increased use of cross-border partnerships and alliances. Not all businesses pass through all of these stages as they progress from being purely domestic firms to global ones. In general, though, most companies experience most of these stages.

The Human Resource Management HRM function in a firm just beginning to internationalize faces very different responsibilities and challenges than does the IHRM department in a multinational, global, or transnational firm. As firms increase their levels of international activity, their organizational structures and HRM responsibilities become increasingly complex. Many older, large multinational (particularly manufacturing) firms that now have numerous subsidiaries all over the world began their foreign activities by exporting. As this stage became successful for them, they typically proceeded to establish sales offices overseas to market their exports. These overseas operations typically mimicked the firm’s domestic operations. Eventually, then, these firms moved toward the global integration of their international operations. (Ritzer, 2000).

An example of how even mass-market suppliers are heeding cultural diversity is illustrated by McDonald’s. The Big Mac is so quintessentially American that “McWorld” has become an epithet for the homogenization of world tastes by the US. But the chairman of McDonald’s discovered that the global popularity of the McDonald’s product was increasingly qualified by exceptions. The international division sustained McDonald’s throughout much of the 1990s. Domestic sales were in trouble and it was the company’s local adaptations, introduced by franchisees and national coordinators, which showed the most sales success, registering fifteen years of sustained revenue growth. More important, the autonomy first ceded to foreign operators now has become the policy of the whole corporation.

For example when the Indonesian currency collapsed in 1998, potato imports became too expensive. Rice was substituted and later maintained. In Korea, roast pork was substituted for beef, while soy sauce and garlic were added to the bun in much of Southeast Asia. Austria introduced “McCafes”, a variety of local coffee blends. And there are many other adaptations, as well, such as beer in Germany and soy- and lamb-based burgers in India. Yet in key respects of quality, cleanliness, speed, and branding, McDonald’s will remain uniform. “Decentralization does not mean anarchy,” says Greenberg. “Those things aren’t negotiable. (Ritzer, 2000).

Expansion Strategy

The McDonald’s Company is on course to be turned into a global brand rivaling Coca Cola. By the year 2000, the company had hit two key benchmarks: first, the opening of a restaurant in February of 1999 in Tbilisi, Georgia. This event marked the 115th country to play host to the Golden Arches. The second major achievement was the inauguration in August 1999, of the company’s 25,000th restaurant in Chicago. Since then McDonald’s has added more outlets and countries. It is estimated that at the beginning of the 2000, McDonald’s had 29,000 restaurants in 120 countries. (Ritzer, 2000).

McDonald’s success in world markets has been attributed to its tradition of adapting to the conditions of local demand. For instance, it serves a non-beef hamburger in India and Saudi Arabia, while offering a teriyaki burger in Japan, and falafel in Egypt. In Switzerland, it cancelled its breakfast service to avoid conflicting with “cultural nuances.” Another important aspect of McDonald’s strategy in world markets is its program to develop local suppliers. For instance, in Brazil invested a significant amount of resources into helping farmers master the cultivation of potatoes.

McDonald’s however, has hit some walls. It has been targeted by environmentalists in Europe where it has been battered by the upsurge of mad-cow disease, and his growth has slowed down considerably in the United States. Unlike McDonald’s the promotional marketing abroad for Wendy’s has been rather limited due to lack of economies of scale in advertising. The minimum scale required to launch a national advertising program is 25 stores per country. So far, in the global market only Canada (324), Japan (100), Indonesia (27), Philippines (49), Venezuela (47), and Puerto Rico (35) are meeting the Wendy’s standard required to launch national advertising campaigns. 16 While McDonald’s, expanded one store at a time, Wendy’s preferred to unfold in blocks. In 1995, it entered into a strategic alliance with Tim Horton, a Canadian fast food retailer, which gave Wendy’s access to more than 1,323 restaurants in the North American Country. 17 This number had grown to 1,980 restaurants at the end of the year 2000. Recently, however, the franchise industry reached maturity. To respond to this new market reality, Wendy’s decided to grant new franchises both in the United States and foreign countries on unit-by-unit basis. (Ritzer, 2000).

McDonald’s unique contribution is to apply Fordist or Taylorist assembly-line production techniques wholeheartedly to the fast-food industry. The application of standardized dehumanizing technologies lowers costs and increases profits. Ritzer discerns four shibboleths of the McDonald’s strategy – efficiency, calculability, predictability and control. Franchising enables a global firm to shape and retain ownership of the cultural capital, advertising and marketing the brand label, but permit others to busy themselves with its material production. Such strategies maximize the profits of giant corporations, while distancing them from exploitative work practices and environmental despoliation.

The insight driving Ritzer’s polemical analysis is how such rationalization of production and consumption styles has permeated other areas of social life – education, health care, politics, and travel and work in general (Rojek, 1989). However, McDonald’s rationality also produces irrationalities, unintended negative consequences such as environmental impacts and dehumanized labor. It all means disenchantment, false friendliness and, importantly, junk food at high cost. The consumer provides the necessary labor power to realize consumption. Traditional service staff, such as waiters and waitresses, are no longer required. By offering flexible family-eating times and fun styles and promotions, these new forms of individualized self-service can rely upon the consumer to wait, queue and work in his/ her free time. Examples elsewhere include microwaves, vending machines, and drink dispensers; EPOS (electronic point of sale) and EPOT bar-coding; scanners, copiers and self-service ticket machines.

Ritzer (2000) somewhat romantically counterpoises the relaxed and interactive traditional family meal with the harassed and self-absorbed consumption of eating at McDonald’s. Yet fast-food can be seen as complementing changing eating patterns and family lifestyles, especially the enormous marketing effort directed at children as consumers. For adults, too, American styles of eating such as ‘snacking’, ‘grazing’ or ‘refueling’ are increasingly popular, also reflecting the erosion of shared tea and lunch breaks. People simply do not have the time to shop, to prepare ingredients, to cook food, often even time to sit down together and then clear up afterwards. The feminization of paid employment and changing expectations in the sexual division of labor have resulted in ‘eating out’ becoming the major item of leisure spending in the United Kingdom.

But it is not just the money-rich, time-poor niche markets that constitute McDonald’s customers. Rather than being locked in the iron cage of McDonaldisation, Bauman’s (1992) contention is that the majority of the population in postmodern times are seduced into consumer culture; the excluded minority yearn to consume too. The nation-state is no longer interested in seeking legitimation, in binding producers into work, in socializing citizens into homogenous national culture. Politicians have relinquished the task of social integration to the market and the media. People are engaged in society as consumers not producers: spending therefore becomes a duty and political partisanship an irrelevance. The current hegemonic project is to produce willing consumers rather than obedient citizens immersed in national culture. Market inequalities may produce flawed consumers – poor, homeless and unemployed people – but they can be controlled and supervised. The whole culture is now impossible to escape and we may not even want to.

This myth is what hails one into McDonald’s, and this myth has intertextuality with other myths that are part of an American consumer culture. But how does this myth travel with the globalization of McDonald’s? McDonald’s success abroad is well known at one level and at the same time one of the best-kept secrets of American business. As Love points out.

When McDonald’s began expanding internationally most countries had no locally based fast-food outlets, either. Indeed, eating out – an increasingly routine experience for Americans–was an uncommon experience in most foreign markets. In Europe particularly, restaurants were still locked into traditions of full linen service, waiters in black tie, wine stewards and multicourse meals. There were virtually no family restaurants, and thus for the middle class eating out was always a special occasion.

How could McDonald’s sell a hamburger to the Japanese whose diet consisted primarily of fish and rice? How could McDonald’s sell a hamburger to the Australians who would instead want their fish and chips? Or to the Germans who love their beer, but not children? “The German public is not a kid-loving public. There are restaurants where a dog is more welcome than a kid”. How could McDonald’s sell a hamburger to the Swedes who were proud of their traditional foods, and even questioned the need for bulk food in plastic environments? How could McDonald’s sell a hamburger to the Irish who resented McDonald’s nonunion stance for service workers? How could McDonald’s sell a hamburger to the English, who knew hamburgers (or I should say beef burgers) tasted so much like cardboard, and already had low-cost food service available at fish and chips shops, Wimpy (hamburger) bars, and pubs with family gardens? How could McDonald’s “naturalize” eating out?

In recent years, many MNEs have reached the state of internationalization where their operations are becoming blind to national borders. Even though most businesses still organize on a regional basis and adaptation to local customer preferences may still be necessary, products and services are increasingly designed for and marketed to customers all over the world. This is particularly true for industrial products, that is, for products sold from business to business, such as computer chips. The best technology and innovative ideas are sought everywhere and applied to markets throughout the world. Products and services are created where costs are the lowest, quality is the highest, and time to delivery is the shortest, and delivered wherever demand is sufficient. And resources (money, material and parts, insurance, even people) are sought from wherever the best quality for cost can be found.

These firms are increasingly referred to as “global.” 13 Reaching this stage of development is not merely a matter of company size or experience in internationalization. Sometimes it is a reflection of the nature of the pressures of the particular industry.

Findings

There are several different approaches to, and perspectives on, this subject. The economic case for multilateral investment liberalization which parallels that for multilateral trade liberalization; basically the equivalent of the gains from trade argument. The application of unilateral policies to achieve this goal is not optimal, hence the requirement for multilateral cooperation and a multilateral investment regime.

In keeping with the business strategy focus the principles revolve around investment liberalization, there is considerable synergy with the requirements of multinationals. However, MNEs benefit from discrimination where it leads to incentive bidding among host countries to attract their inward investments. In a similar manner, new investors tend to favor the banning of performance requirements (as is partially undertaken in the Trade Related Investment Measures (TRIMs) agreement in the WTO) which may require high cost local sourcing; whereas existing investors may oppose their removal, which could place them at a competitive disadvantage.

Modal neutrality is an important principle which leaves firms to decide the optimal method of market servicing. Thus, for example, investment decisions become more a function of efficiency considerations stemming from countries’ comparative advantages, and less a function of market access considerations created by host countries’ import substitution policies.

From a public policy standpoint, however, there are additional issues which are of major significance, where economic efficiency and equity conditions would necessitate regulation of multinationals, and which are high on the agenda. These include the potentially anti-competitive behavior of large MNEs operating in oligopolistic industries, which would require international competition policy; and issues pertaining to country economic development including environmental protection, and corporate social responsibility.

Discussion

We have tried, here, to confine our argument within clear boundaries, those of understanding the key changes in work, family and leisure in Britain since the mid-1970s. We considered the McDonaldisation thesis, less because we are necessarily persuaded by it but because it offered one coherent (not to say accessible and amusing) rendering of the connections across work, family and leisure. Accounts of this kind seem to us to be one way forward for considering the future of work and leisure. However, it is not easy to restrict the scope of the discussion. For one of the problems we posed at the beginning – how we conceptualize these changes – ultimately demands some engagement with new kinds of theories which purport to encapsulate the nature of recent societal change.

This is not the place to evaluate these perspectives but we must note that some of them would not only dispute the particulars of our analysis but its initial assumption: that work, family and leisure provide the basic framework for understanding everyday life. In this view, our social activity in all these spheres cannot be divorced from ‘how contemporary consciousness is structured by the global economy of signs’ (Rojek 1995:147). It is no longer the case, as sociology traditionally assumed, that society produces culture; rather, culture parades a ‘hyper reality’ of signs from which we construct our apprehension of daily experience. The symbolic activities of the mass media and communication technologies suffuse all areas of life – work, family, leisure, politics, consumption – which are now essentially postmodern in nature.

The implication is that what we call ‘leisure’ is where the new social consciousness finds its most powerful expression. Its modes of consumption and symbolic plenitude become the defining characteristics of the culture as a whole. While it is quite true, and something our own account may have under-stressed, that the leisure and media industries do occupy an ever more central role in the economic structures and cultural sign systems of contemporary society, they have yet to dislodge the fundamental sociological proposition that all societies must have – and it is an imperative – systems or structures of production, reproduction and consumption. If some traditional accounts have over-privileged production, it would seem equally erroneous to place excessive emphasis on consumption. Neither may take reproduction, biological and cultural, seriously enough. We hold to the project that the purpose of understanding any particular element of the social order is to connect – to understand the ways in which one particular element is shaped by other structures and ways in which that one area affects and contributes to the development of the rest.

It remains our view, despite all the genuine difficulties it entails, that British society is still basically a capitalist one. Since capitalism is a dynamic system it has changed but not in its fundamentals. Changes, when set against the basic rules of capitalist accumulation, appear more as shifts in the surface appearance rather than the emergence of some new kind of entirely new post capitalist or even postindustrial society. This does not mean that changes in family life, leisure or even work can simply be ‘read off’ as inevitably and invariably capitalist. The challenge is to demonstrate, not that a theory can immediately and thoroughly explain everything but that it can account in broad terms for the major features of the phenomenon under discussion, in this case the sweep of social change recently undergone by British society. Despite all the real changes, especially in the cultural and leisure industries, the basic contours of daily life – of work, family and leisure – have remained remarkably recognizable. The effort to understand the connections between them continues.

Conclusion

The signs used to construct this narrative carry through the message of commodification. We learn to understand our desires in terms of commodities made to meet them. So the problems of having fun with our children are framed and solved in commodities – clothing, house, car, smiles.

McDonald’s drivethroughs and food, balloons, zoos, and elephants all serve to define the family and fun by middle-class prosperity. This is a commodified family–a family that consumes. And we consume the message as well. Eating at McDonald’s, even when driving through, becomes a “naturalized” event, perhaps even more natural than eating at home.

On one level then this McDonald’s commercial advertisement operates around the McDonald’s strategy of “food, folks, and fun.” On a deeper structural level, however, the essence of this advertisement works to circulate around three main clusters of meanings. And it is these three clusters of meanings that serve to globalize McDonald’s by exporting Americana. The first can be associated with hard work and leisure. Hard work has provided the family with “nice” clothes, a “nice” car, a “nice” home, and a “nice” family. Additionally, the value of work provides the opportunity for leisure and enjoyment with the family. The dad has earned his “break today,” his leisure time to bond with his daughter and just generally have fun. The second is a set of associations around Americana. The aesthetics of the film in lighting, filters, relationships, artifacts, and affluence all portray “the American dream”–a spouse, job, child, house, car, freedom, naturalness, informality, and self-sufficiency. The dad does not even need the mother to go along to the zoo. She can have her own break today, and he can serve as a model to single dads who need to learn how to “bond” with their children. A third set of meanings cluster around American culture and consensus. In this advertisement, the product appears primarily in the bags and cups. In only two of the ten frames are the hamburgers, or French fries, or drinks being consumed. However, the reader of the commercial message already knows that McDonald’s products are the hamburger sandwich, french-fried potatoes, and “cokes” (used to name all types of soda pop flavors). Hamburgers are the United States’ unique contribution to international cuisine. Whereas the American consumption of the hot dog originated from German sausages and the pizza emerged from southern Italian immigrant’s old-world recipes, the hamburger is “all American.” In fact, McDonald’s calls one of their hamburger combinations the “all American meal deal.” Hamburgers are eaten by all social classes, races, genders, and ages. They transcend all social categories by carrying the myth of freedom and equality. In the recent O. J. Simpson trial, O. J. reported that on the evening Nicole Brown Simpson was murdered, he and another person who lived at his residence had taken his Rolls-Royce to the drive-through windows at McDonald’s, for dinner. Here is a multimillionaire, former all-American football player, former all-star professional football player turned actor, driving one of the most expensive cars in the world, going to McDonald’s for dinner. Anyone can go and eat at McDonald’s.

Firms such as McDonald’s typically sell franchises to local individuals, but often have to first prepare an infrastructure in foreign locations in order to provide their foreign businesses with the quality and types of inputs needed before they establish their local outlets. And department store or grocery store chains, such as Wal-Mart, CarreFour, Toys ‘R’ Us, IKEA, or Safeway, may acquire existing similar businesses or enter foreign markets by building new stores similar to those in their home countries.

References

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Porter, M. (1980). Competitive strategy. New York: Free Press.

Ritzer, G. (2000) The McDonaldization of Society. Thousand Oaks, CA: Pine Forge Press.

Rojek, C. (1985) Capitalism and Leisure Theory. London: Tavistock.

Rojek, C. (1989) Leisure and recreation theory. In E. Jackson and T. Burton (eds) Understanding Leisure and Recreation. State College, PA: Venture.