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Introduction to McDonald's

Question:

Discuss about the Outcomes of Earnings Guidance and Management.

McDonald's is one of the most popular franchises in the world that serve quick food services to the people. It is a fast food company that is based out of America. It was started in 1940 and since then it has grown and spread to many countries of the world. By 1965, there were more than 700 McDonalds franchise around the world and by 1970 it became a very big international brand that was having operations in every part of the world possible. The stocks of the company are listed on the U.S stock exchange and with the expanding of the franchises the suppliers have also spread to different part of the world. McDonalds is a brand that is synonymous to happiness and people relate it with many fond memories of growing up. 

In 2014, the company faced a very big crisis that was reported worldwide. The company had more than 2000 outlets in China, but in the year of 2014, it faced a meat scandal because of which the company had to bear huge losses and their overall image was also tainted. A video surfaced that showed how contaminated meat was used to process food inside a factory in Shanghai, which was captured secretly by a local reporter. This caused wide scale uproar and it was found that meat processing factory was supplying the same to many international food brands and that raised a question on the quality of food that McDonalds was offering to its customers (Hang, Y. and Wang, M., 2014). The Shanghai Municipal Food and Drug Administration decided to investigate the matter from there on end and found that the suppliers were repacking expired meat products into new valid packets and supplying to many international brands. Most of the companies that were related to this supplier broke all ties with them, however McDonalds continued to keep their relationship with the supplier alive (Li, et al., 2017). It believed that the quality of meat that was produced by the supplier was better then what was produced by many local markets, but later when actions were taken by the food regulation authorities it was found that the quality of meat was terrible and that had banning of many meat products like chicken wings, chicken nuggets that the company was producing. For areas that the company was having different supplier it was unaffected.  But people had lost there confidence in the products and the company and were not very skeptical in buying products from areas other than China and Japan (Kohtamäki, 2017). They were concerned about the health issues and the safety standards that were followed by the company. It was also seen that the company claimed that in areas around Hongkong the company was having different supplier, but it was later found that the raw material was transported from the same supplier. So in that way they lost confidence of the public. Therefore, it led to huge loss of revenue for the company as many of its products were banned and the company was having huge operation in China. McDonalds in Japan was also affected as more than 20 percent of the total supplies were from the same supplier (Mayntz, 2017). Graph showing the effect on the overall sale of Mcdonalds because of the crisis

The Meat Scandal Crisis

There were many regulations and laws that were introduced post this incident and pledge was taken to keep the food safety standards up to the mark. China and Japan accounted for more than 10 percent of the total revenue for the company. However, after this crisis the sale and revenue showed a great fall and the company had to bear huge loss. The company tried to change the flow of wind, by immediately responding to the situation and removing all such contaminated products from the market but the damage was already done and that had caused a huge loss of reputation for the company. The company suffered on many ends not just financially but also as a brand the company was affected. McDonalds China still was quick enough to response; however, the McDonalds japan failed to take the necessary steps. They removed the products from the market only after the news of the crisis suffered. They were not concerned about the health of the general public but were concerned about the financial information of the company. So thus, In Japan there was huge opposition against the company and the company had to suffer very badly.

Thus, this response from the company was criticized from many ends; the public came to know about the crisis from other sources, rather than company announcing the same through a proper channel of network. This created panic situation among the people and they criticized the company and for a long time they abstained from buying McDonalds product even those that were not prepared from meat (Mayntz, 2017). The press conference that the company conducted to address this issue was also a major failure. The speaker failed to address the issue correctly and was unable to convey the McDonalds part of the story. Thus, we see that the overall crisis management by the company was not up to the mark. This was the main reason why the company lost on some very valuable and loyal customer and the overall brand was also affected (Maynard, 2017).

Later the company tried to take the situation in hand by making people aware about the various steps that they were taking to maintain the quality standards and that they have broken all contacts with those suppliers was also communicated. The company tried to improve the overall position that it previously had by introducing new products and carrying out the overall branding and promotion based on the same. But there were many areas where the damage was too high and the company is still trying to recover from the same. It has been three years from that time, the company has taken many steps since then to make sure that they do not face any such situation in future, but there are many changes that the company can bring in its present crisis management system that would eventually help it to avoid such situations in the time to come (Pape, 2017).

Factors affecting crisis management

Problem solving Application Case (PSAC) was applied by McDonalds to address the issue that the customers were facing and something that would eventually help them to roll out new menus as per the demand of the customer. It helped McDonalds to perform really well in situations when the company was facing an economic downturn. When the meat crisis hit the company hard, it tried to give out new menus that consisted to low calories wraps and snacks at affordable prices. It was a challenge for the company to satisfy the need of the customer and provide them food as per their preference. The company also tried to satisfy the need of the customer, and make sure that they have trained professionals who can satisfy their grievances (Tian & Slocum, 2016). There were complaints that the employees of the company were not able to solve their problems, so the company decided that every franchise must employ and train employees who were able to deal with the customer better. Thus we see that the company tried to solve the issues that cropped up because of the crisis that it faced. The major factors that was governing the flow of resources at the time of crisis management on part of the company were-

Technological factors- The company needed a strong communication line that would have helped in making the public aware about the situations that the company was facing with regards to the ban. The necessary steps that they were taking for their consumer should have also been highlighted through those channels. So that would have helped in sustaining the confidence of the public in the company. But what we notice is that the company was not able to make use of any such channel effectively and that had made the overall situation worse for the company (Minnis & Sutherland, 2017).

Economical factors – The present state of the economy in which the company was operating was also a factor that had affected the overall crisis management. The company had operations in many countries and all of these were interlinked, so the present situation of economy in those country was affecting how the company was functioning and the steps that the government was taking to make sure that the operations were stopped was also affecting the company (Saad & Elshaer, 2017).

Social factors – The company has been in the business from decades, and the people associate with the same like their own. They had a lot of sentiments that was attached to the brand and all of that was affected because of this crisis and thus that led to the company loosing many of its loyal customers. The social stigma that it caused was also one of the factors that had affected the flow of the crisis management on part of the company (Rodriguez & Kaczmarek, 2016).

Problem Solving Application Case

 But there were many other models that the company could have resorted to and that would have resulted in better results.

There are two models that the company could have considered that would have helped them in achieving the

The company should go for such approach that could help them in maximizing the profit, and help them in recovering the losses that they have incurred because scenario where most of their products were banned (Xu, Y., 2014). The company should have gone for such an approach that would have helped in reducing the total costs that the company has incurred and would have also helped them in earning some revenues that would have helped them in achieving the break even in the future. But what we see is that the all the efforts that were put by the company were to reduce the total amount of losses and not to improve the profit elements (Lubensky, 2017). There are two approaches that the company could have taken in case of this model namely-

Short run growth of the Profit – This includes increased amount of profit in the shortest of time period, this may include increased efforts on part of the company that would include more items in the menus, good amount of branding and promotion, efforts to improve the customer satisfaction and introducing discounted meals so that the company can earn effective profit in small time period (Cogin, J.A. and Williamson, I.O., 2014).

Long run growth of the profit- This will include changing the system entirely, that would include, changing the way the company behaves, the company tackles the crisis and making overall changes in the net cost benefit ratio, so that these changes helps the company in making increased amount of steady profit in the future. This is how the company will be able to bring changes in the core strategies that would help it in bringing long term changes in the times to come (Osman, H., Johns, N. and Lugosi, P., 2014).

The company can also appoint experts in the field of finance and management that would have helped them in ensuring that in times to come, how the company can maintain its cost benefit analysis and the necessary steps that the company must take in that regard. But the short term and the long term profit methods are good and the choice depends on the company and what basis does it wants to follow to achieve the same (Pfeffer, J., Zorbach, T. and Carley, K.M., 2014). This is more of a resource based approach where the company needs to analyze the overall resources that it has, and draw up a budget on the total cost that it has incurred including the cost of the crisis and the required profit level that will help the company to break even. Thus all this needs to be researched before the company can go forward this model of crisis management (Akgün, A.E., Keskin, H. and Ayar, H., 2014). 

Models for Profit Growth

One of the most effective used methods of dealing with such insane situations where the company is seeing that the overall trust of the public is being lost is to apply proper formula strategic analysis that will help the company to deal with such situations better. When the company came to know about the uproar that the supplier’s issues had created, the company should have informed the general public through proper channels. This would have helped in marinating the overall confidence of the public in the company and the brand value would have been maintained. Also one of the major mistakes that was apparent on the part of the company was not to take such appropriate steps when the issue became relevant in Japan (Brown, R.S., 2014). Thus we see that the items should have been removed by the company before the ban on the same was stated. In this way the company would have been able to show that it cares about its customer more than its own profit. This is where the company lost its position of being the brand that it was and the customer also lost its confidence. Thus strategic method should be followed that would have helped the company in identifying the various routes through which communication can be given to the general public. The experts can be appointed who would have helped the company in managing the things better and would have made the situation a little better. The company could have also done market research and analysis before saying the products in Hong Kong where not made by the same supplier (Mosley, R., 2014). So we see that in this place the company lacked the basic knowledge about its own suppliers and that backfired on the company. So in future when such situation or any such crisis occurs the company should go for the strategic way, should maintain its level of composure and then the management should take the necessary steps. It is very important that the trust of the public is maintained because people makes a brand and all the activities of the company must be consumer centric. So thus in future the company should see to it that all the suppliers are secure, timely audits and checks must be done from the part of the company (Shakhshir, G., 2014). This will help them in maintaining their own level of safety and safety of the consumer. All the rules and regulations as set by the government in regards to food safety and standards must be followed by the company. It must be seen that all the products that the company manufacturers must see the safety standards (Loftsdóttir, K., 2014). So thus we can say that by applying this strategic approach the crisis could have been handled a bit better and the overall losses that the company had incurred would have also reduced. Thus the after effects of the crisis and the damage that it did to the company would have reduced considerably (Ghobadian, A. and O’Regan, N., 2014).

Conclusion

On the basis of the above analysis it can be said that the best approach that the company could have adopted during the time of crisis was strategic management. This had its share of advantage and would have helped the company to maintain its profitability for a longer period. It would have helped in achieving the long term goals of the company, making sure that in times to come the company does not faces any such situation (Zhao, 2017). As a consumer, once if the trust from any brand is lost, it becomes very difficult to regain the same. So in that situation it was very tough on part of the brand to proof that it was maintaining the required standards of safety and the food that it was providing to its consumer was up to the mark (Anginer & Kunt, 2014). So that is where strategic management would have helped, it would have made sure that not only the situation that the brand was facing was dealt effectively, but also the regained trust of the public is affirmed. This would have helped in maintaining the long term profitability of the company and the solutions would have affected the coming times in the future the overall operations of the company. It was very important for the company to recover from such  a big loss, the overall steps that the company followed were also not bad, but out of all the three models that were there, the strategic management of the crisis was the best approach (Feng & Koch, 2010).

References

Anginer, D. & Kunt, A., 2014. Has the global banking system become more fragile over time?. Journal of Financial Stability, Volume 13, pp. 202-213.

Akgün, A.E., Keskin, H. and Ayar, H., 2014. Standardization and adaptation of international marketing mix activities: A case study. Procedia-Social and Behavioral Sciences, 150, pp.609-618.

Brown, R.S., 2014. Double moral hazard and franchising: a dual case study approach. Journal of Organizational Culture, Communication and Conflict, 18(2), p.15.

Cogin, J.A. and Williamson, I.O., 2014. Standardize or customize: The interactive effects of HRM and environment uncertainty on MNC subsidiary performance. Human resource management, 53(5), pp.701-721.

Feng, M. & Koch, A., 2010. Once Bitten, Twice Shy: The Relation between Outcomes of Earnings Guidance and Management Guidance Strategy. The Accounting Review, 85(6), pp. 1951-198.

Ghobadian, A. and O’Regan, N., 2014. A case study and interview with Jill McDonald CEO and President of McDonald's Northern Europe Division. Journal of Strategy and Management, 7(1), pp.87-100.

Kohtamäki, M., 2017. Real-time Strategy and Business Intelligence: Digitizing Practices and Systems. Finland: Palgrave Macmillan.

Li, Y., Phau, I., Lu, W. & Teah, M., 2017. Crisis management of food security scandals in China: Motivations and solutions towards purchase intention. Journal Of Consumer Behaviour.

Lubensky, D., 2017. A model of recommended retail prices. The RAND Journal of Economics, 48(2), pp. 358-386.

Loftsdóttir, K., 2014. Iceland, rejected by McDonald's: desire and anxieties in a global crisis. Social Anthropology, 22(3), pp.340-353.

Maynard, J., 2017. Financial Accounting, Reporting, and Analysis. SECOND ed. s.l.:Oxford University Press.

Mayntz, R., 2017. Networked Governance. s.l.:Springer.

Minnis, M. & Sutherland, A., 2017. Financial Statements as Monitoring Mechanisms: Evidence from Small Commercial Loans. Journal of Accounting Research, 55(1), pp. 197-233.

Mosley, R., 2014. Employer brand management: Practical lessons from the world's leading employers. John Wiley & Sons.

Osman, H., Johns, N. and Lugosi, P., 2014. Commercial hospitality in destination experiences: McDonald's and tourists' consumption of space. Tourism Management, 42, pp.238-247

Pfeffer, J., Zorbach, T. and Carley, K.M., 2014. Understanding online firestorms: Negative word-of-mouth dynamics in social media networks. Journal of Marketing Communications, 20(1-2), pp.117-128.

Pape, T., 2017. Value of agreement in decision analysis: Concept, measures and application. Computers & Operations Research, Volume 80, pp. 82-93.

Rodriguez, J. & Kaczmarek, P., 2016. Visualizing Financial Statements. s.l.:s.n.

Saad, S. & Elshaer, I., 2017. Organizational Politics and Validity of Layoff Decisions: Mediating Role of Distributive Justice of Performance Appraisal. Journal of Hospitality Marketing & Management, 26(8), pp. 805-828.

Shakhshir, G., 2014. Positioning strategies development. The Annals Of The University Of Oradea, 977, pp.416-437.

Tian, X. & Slocum, J., 2016. Managing corporate social responsibility. Organizational Dynamics, Volume 45, pp. 39-46.

Xu, Y., 2014. Understanding CSR from the perspective of Chinese diners: the case of McDonald’s. International Journal of Contemporary Hospitality Management, 26(6), pp.1002-1020.

Hang, Y. and Wang, M., 2014. Prediction and analysis of fresh food cold chain logistics demand. In 2014 International Conference on Mechatronics, Electronic, Industrial and Control Engineering. MEIC (pp. 1686-1689).

Zhao, H., 2017. The Impacts of Contextual Factors on Social Media Crises: Implications for Crisis Communication Strategy Selection. International Journal of Strategic Communication, 11(1), pp. 42-60.

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