Lecture 2 ( January 18, 2003)

1. Lecture 2( January 18, 2003) Strategic Thinking Case Analysis Fast-food industry: McDonald’s

2. Strategic Thinking • Technology is rapidly changing what we do in society, in business and at work • Continual improvements and advances in IT are encouraging even more changes to business and society • Example of change affecting us most :

3. old economy work diligently be loyal secure life time employment new economy specific skills solve specific problems complete special projects move on to other assignments Example of Change

4. Technology & Industrial Trends • Identifying certain trends • Understanding their roles in the industry • Implementing them to assist you in your endeavors to position yourself for career growth and expansion

5. Trends • Standardization • Leverage • Mass customization • Franchise • Methodology • Modularization • Liquid assets • Client/servers • Knowledge, information or expertise driven workers

6. Standardization The Conscious Effort to Make all Jobs Similar, Routinized, and Interchangeable - enforces rules set - saves in economies - preserves continuity - prevents irregularity

7. Leverage Move all tasks to the lowest possible individual in terms of level and cost - role & budgetary requirements force tasks to be accomplished at an appropriate lower level - billing structure ensures tasks are accomplished

8. Mass Customization focus all products and services on the specific customer - not only specific market segments - tailored to specific individuals - no contradictions to standardization - examples: discount coupons special promotion mailers

9. Franchise The Organization has become a small central office with many autonomous, but identically structured units - strict guidelines in cost & output for each location - reporting to HQ in structured format - reduces middle management layers, for example no regional offices to evaluate & interpret information received

10. Methodology Methodology tells the user the steps to take in the process - simple step-by-step cookbook like approach - available across the whole organization - easy to learn & train, minimum skills required - example: systems development

11. Modularization Rather than be constructed at the most granular level, projects are completed using sections of code -easier and faster to put modules together than to work with individual lines of code every time - example, Microsoft Office Suite, the ability to fit together Word, Excel, Access, PowerPoint and FrontPage

12. Liquid vs Fixed Assets Focus on Liquid Assets, Reducing Fixed Assets - reduce cost by reducing reliance on fixed assets - provide direct link of cost to expenditure - examples, outsourcing of human resources, technology departments, lease rather than purchase of fixed assets

13. Client/Server Enables data to be stored at organizational, group, and individual levels. - decentralization of the technology tools - stored and accessed efficiently at local level while being maintained across the organization

14. Knowledge, Information, or Expertise-Driven Rather than work in a hierarchy, workers develop a particular expertise and are constantly reassembled to provide their expertise to a project - constant reassembly keeps workers fresh and focused - sharpness of expertise keeps the job rather than longevity in the organization - example, projects requiring a cross-section of knowledge-driven skills

15. Data vs Information • Importance of input • Knowledge and exposure • Life long learning • Technology advances and changes

16. DATA • raw numbers • bare text • sound • video • images • factual elements/opinions/comments describing some object or event • application value -- little

17. INFORMATION • processed, organized and integrated data to provide more inside • precise, timely and specific • supplied voluntarily or on demand • of strategic value to decision makers

18. Data Processing vs Information Systems • DP - Data Processing • IS - Information Systems Information Services • TOO MUCH DATA • TOO LITTLE INFORMATION

19. Analyzing and Building Systems • evaluate existing operations • explore new alternatives • simple projects • problems that can be solved by yourself, as users • calling IS professionals is a waste of time and money • complex projects • need analysis and design by IS professionals • need communication between yourself and IS professionals to develop systems that meet your needs • solving yourself can lead to costly mistakes

20. Management and Decisions • traditional roles of management • organizing • planning • control • job activities • attending meetings • talking over the phone • reading/preparing reports • discussing projects with colleagues • explaining procedures • decisions and decision process

21. Decision process • Collecting data • Identifying problems • Making choices • Persuading others to accept a decision • Implementing the solution

22. Methodology and Franchises • Decisions need input • Anticipation of data/information needed • Design of information systems to solve future problems • Reduction of management tasks to smaller problems • Smaller problems can be addressed with a standard methodology • Daily operating decisions reduced to a set of rules and procedures • Reduction of middle-level managers • Franchises -- financial performance of individual units

23. Fast-food Industrycase analysis • Franchising • Fast-food industry • McDonald’s

24. franchising • Franchising is a system in which a producer or marketer of a service, the franchisor, sells others, the franchisees, the right to duplicate a concept and use the trade name • Franchisor: provides sales and other support within a specific territory for an agreed period of time • Franchisees: order supplies from designated sources, receive training at corporate sponsored institutes

25. franchising types • Simple franchising • exclusiveness • Product-trade name franchising • selling products to distributors who resell them • Package (prototype) franchising • products, services, inventory system, sales and marketing methods, record-keeping procedures etc.

26. advantages of franchising • easy start to a business • minimum or no knowledge required • less risk to success • proven business • quick and higher market penetration • economy of scale • survival rate much higher than other start-up business

27. Fast-food industry • financial analysis • stock/investment outlook • competition and growth • technological impact • recommendations

28. financial analysis • In the US, franchise restaurants • $800 billion industry • 8 million employer • one-third of food services spending • Revenues and profits • start-up fees can range from $10,000 to $600,000 • profit levels of 10% to 20% for the past decade • More health-conscious • pizza and chicken enjoy faster growth than burger

29. stock/investment outlook • National trend toward two-income household contributes to more dining out • Larger franchises have positioned themselves to take advantage of the trend • Smaller franchises are being acquired by the giants due to the mergers and acquisitions frenzy • Long term prospects are favourable

30. competition and growth • Domestic market has matured • Competition is tight • fast-food industry itself • non fast-food industry such as grocery stores cooked foods, deli counters, eat-in dining areas • Search for new area of growth • niche marketing • mergers and consolidations • dual-branding • non-traditional operations • international development • value offerings

31. technological impact • Technological investments stimulate growth • Information systems tracking inventories and sales • Use of internet in the study of demographic and market research reports in search of key locations • Use web pages to advertise to prospective owners • Training and support systems • Global exchange of information • Monitoring of the required uniformity of the franchisee • Research and development to keep ahead ofcompetition

32. recommendations • Sales will lag in domestic market but can grow internationally • To increase or even keep the market share will be increasingly difficult • Focus on non-traditional markets and niche markets, dual branding • Service improvements like timeliness and delivery speed • Watch out for more merger and acquisitions

33. McDonald’s • Read case p.6-18 from textbook • Give the case questions some thought • Discuss them among yourselves • Are you aware of the first possible loss announcement since McDonald’s went public in 1965? • Bring up during the tutorials • Enjoy your weekend

34. Reading Materials & Resources • chapter 1 of textbook • http://www.mcdonalds.com • http://www.dietclub.com.au/createameal/?menu=1 • http://www.spring.gov.sg