Managerial Economics in McDonald’s Industry
Richard and Maurice McDonald implemented there business idea to come up with McDonald’s Industry as a fast food restaurant in 1940 (Jakle 2002). The industry was registered under the trademark of McDonald within the United States of America. This trademark was accompanied by the description of ‘Drive-in Restaurant services that continue to undergo transformation annually. McDonald’s fast food restaurant enjoys a large market share by operating in over 150 nations across the globe. The organization offers quality and standardized services to approximately 55 million consumers on a daily basis. The restaurant boosts of greater market dominance through operation of more than 20,000 restaurants across the planet. These restaurants contribute effectively and efficiently to the economy by providing employment opportunities to over one million employees. Studies show that fast food is a phrase that is coined to illustrate food made and served with minimal time and resources possible (Hyman, 2007). This definition omits the essence of food items that take much time to prepare and serve to the relevant consumers. The general definition for fast food entails food particles offered in a restaurant setting, stored with preheated ingredients and sold to consumers in an efficient packaging manner for take away.
Managerial economics is crucial towards the provision of decisions that would enhance the performance of the formal leadership of an organization. Managerial economics is also vital towards the understanding of the influences of economic forces on business entities. Managers can apply managerial economics to show economic consequences in relation to the actions of the leaders of the organization. Managerial economics integrates traditional and modern economics with rational options to establish considerable instruments to facilitate the growth and development of the organization. Organizations apply managerial economics in the generation of the goals and objectives. Managerial economics can be applied in the context of McDonald’s to facilitate the process of growth and expansion to enable efficient adoption of national media advertising (Schlosser, 2001). In this scenario, it is applied to determine the pricing system and strategies for production to enhance the achievement of short-term goals. Managers at McDonald’s fast food restaurant apply managerial economics to allocate the scarce resources effectively and efficiently with the aim of meeting the goals and objectives. This implies that managerial economics is appropriate and sufficient in the allocation of human and capital resources within the organization.
McDonald’s fast food restaurant focuses on the investment of properties, franchiser of restaurants, and management of the restaurants as sources of revenue. McDonald’s adopts both direct and indirect operations of its restaurants. Approximately 15 percent of the restaurants are under the direct operation by the corporation while 85 percent are managed or operated by other companies under the franchise agreements and joint ventures. An example can be drawn from the fact that the organization is capable of collecting market and contract fees in addition to the rent charges, accumulating as sales. The corporation adopts the use of accepted third party logistic operators to deliver its products and food to the contractors rather than the direct sales procedure. McDonald’s corporation is the largest operator of playgrounds in the United States’ market. It is also the biggest consumer of potatoes, pork, and beef to supplement the spending of apples.
There is a distinction in the type of meet chosen by McDonald’s corporation with reference to the cultural background of the host nation. Managerial economics enhances the attempts by the corporation to operate its business with the aim of achieve success. The measurement of success and achievement is done at the unit level. Each restaurant contributes towards the achievement of the goals and objectives. Overall contribution is also crucial to the measurement of success. Each restaurant facility should focus on fulfilling the needs of consumers by promoting trustworthy brands. This contribution is essential to the achievement of competitive advantage within the market and industry because the products are close substitutes. This makes it critical for the organization to develop quality reputation within the industry based on the brands. In order to determine the achievement of the unit, it is critical for the organization to evaluate the rate of turnover, minimization of costs, and margin of contribution by each firm. All these factors relate to the concept of managerial economics.
Traditionally, fast food completion was executed through the application of effective and appropriate discounting arms resulting into sufficient margins. Increase in the cost of products and least gross in relation to slow growth orientation has created demands for the greater benefits. McDonald’s ignores the application of reduced pricing system with the aim of driving the turnover and market share. Example of this application is evident in the increase of the prices of the products of the corporation in almost half of its restaurant facilities. McDonald’s adopted monopolistic policies as elements of the new strategies with the aim of attracting potential and actual consumers. This was implemented with the reduction of prices for the products and promotion to replace the expensive criteria in the previous settings. This alteration is one of the reasons behind the greatest margins by McDonald’s within the industry. The organization was forced to eliminate unit level margins through the alteration of the competition with reference to profitability strategies. This strategy proves to be ineffective in that it make it difficult for the fast food restaurant to increase its profit levels.
High margin is an indication that the organization has the opportunity to increase its volume of operation hence beneficial strategy. This strategy is vital and applicable in a segmented market. The organization can apply the strategy in the formulation of different stores to facilitate the operations of the organization. Despite the fact that reduction in the costs has minimal importance in relation to the benefits of the firm, the organization has never applied it as a strategy towards achieving competitive advantage. The unit administrator has the duty to execute this responsibility. This official has the role of doubling as the facilitator of the maintenance of the association and reputation. These reflect on the elementary sectors that the organization needs to focus on in order to improve the market performance.
Managerial economics offers application of economic theory and procedures relevant to the decision-making by the formal leadership of the organization. McDonald’s adopted managerial economics to enhance the process of decision-making in relation to operations in the competitive market and industry. In order to execute effective decisions within the organization, it is critical to evaluate financial resources, location of the business, pricing system, and promotion of the products and services. Managerial economics is also essential in evaluating the decision-making process within the organization. This is through evaluation of the risks, production, and pricing sector of the organization in the context. In most case, the relationships and activities among the principal stakeholders characterize prudence and validation.
McDonald’s promotes the application of four aspects: efficiency, control, calculability, and predictability (Purcell & Ahlstrand, 2004). These aspects form the theoretical structure of managerial economics. Efficiency implies effective application of a scarce resource with the least duration possible. In managerial economics, it is critical for the organization to prioritize its strategies with the aim of adopting the most effective and efficient approach. This would enhance the volume of turnover of the organization hence the achievement of competitive advantage. McDonald’s applies numerous approaches in its operations to achieve the aims of efficiency. These approaches include refining the procedures, automating the production and delivery processes, and including consumers within the program such as self-service criteria. Effective application of these strategies enables the organization to achieve its goals and objectives thus remain competitive within the market and the industry.
McDonald’s fast food restaurant has been able to enhance its decision-making process through the application of managerial economics in its daily operations. The organization adopts effective strategies in relation to the pricing system and choice of products’ quality and standard. Automation enables the organization to prepare its products cheaply and efficiently. This makes it possible for consumers to purchase or order for products by McDonald’s Corporation. Application of managerial economics is evident in the manner of food preparation within the organization. The organization applies effective strategies in preparing chicken, nuggets, burgers, and fries with minimal complexity in the cooking expertise. The system for service delivery is also straightforward to enhance the quality of interaction with the consumers. The examples include, cheeseburger, hamburger egg and drinks (Gilbert, 2009). These food varieties favor most of the people especially those in different organization. An individual only needs to buy a packed food since there is no restriction for eating in the restaurants. The restaurant also operates as a fast food subsequently acting as the best destination for the individuals who are on their duties.
The restaurants have simplified their operation to the potential customers through offering self-services to the customers. This helps the customers in minimizing the time loss of waiting for the restaurant attendant. The customers will only need to make a queue at the counter placing their orders with the counter managers. The issue for self-service arose because of the need to make the restaurant easy to manage. Apart from minimizing the time loss by the customers, self-service helps the company in reducing the duties of the workers; subsequently, reducing the need for labor force in the restaurants. There is an established queue track where the customers need to follow. The established tracks ensure that the customers do not go against the rules of queuing. In this situation, the company would have also cut down on the need for personalities regulating the queue. Further, the management has also established areas meant for cleaning the hands. This has helped the company to remove the need for employing personalities for such services to the customers. The self-service have formed one of the strategies that the management uses in reducing the cost of their operations.
McDonald’s, as a fast food restaurant, also uses such strategies like the ability to establish costs in order in the quest to obtain rationalization (Hyman, 2007). Through this technique, the company has to plan and quantify the materials used in the production process to avoid unnecessary wastages. The management is able to determine the amount of materials that would meet the needs of any production stage. The management also involves itself in studying the trends existing in the fast food industry. This helps in determining the taste of the customers and the approximate amount of food that the customers would feed on without any shortage or surplus. The study of market dynamism and the consumers’ cultures has helped the management in avoiding necessary wastage. Further, the management has employed enough personalities in the restaurant ensuring that there is no loophole in the daily operation. However, the management always ensures that there is no excess labor force, which would in turn increase the production cost. The management always estimates the amount of services that would meet all the requirement of their production. Subsequently, the estimates would help the company in determining the exact number of employees that would satisfy the operation of the restaurant.
The management has also taken the idea of maintaining a warm relationship with their customers. Some incentives include offering a discount and providing large quantity and quality products. For instance, after eating at the restaurant the customers can order for more French fries at a little extra cash. This helps in increasing the loyalty of the customer to the company while increasing the quality of production. This has made the company to be ahead of their competitors because the customers have more favor for the company. This implies that the company uses its available resources to minimize on their production costs. In addition, the company also uses the strategy of simplifying their sets of meal especially on the most requested meals. This makes it easy for the employees to quicken their services since they have the knowledge about the most requested meals apart from the simplified set of meals. The company has also removed the problem of language barrier since the foreigners and immigrants can easily identify the variety of food they need. Consequently, the proper arrangement of the menu has made it easier for the company to relate with its customers.
The management also ensures that the place of work is presentable and hygienic, which acts as a strategy for maximizing their yield in the industry. Hygienic and cleaner environment usually attracts many customers as illustrated with the surrounding environment to the company. The hygienic environment implies that the management is trying to maintain a respectful and healthy interaction with the consumers. The site of the environment could act as one of the main reasons why the restaurant enjoys a larger number of customers all over the world. The type of business that the business is operating normally needs a health environment since foods always have a direct relationship to healthy living. Once the environment is not presentable many of the customers will shun the restaurant; consequently, leading to the failure of the business. Subsequently, keeping the environment clean has contributed to the managerial economics of the company.
The management also adds to their managerial economics through ensuring that the infrastructure suits the functions of the business. The restaurant is within the vicinity of the urban centers. This allows easy access by the consumers since there is a guarantee of good roads in the urban centers. This ensures that the company does not lose its customers due to inaccessibility of bad roads. An individual travelling in town, near the restaurant, can easily see the sparkling colors of the building consequently getting attracted to get in. The architecture of the building also makes it be unique among other building subsequently protecting the customers from confusion. The management uses the unique architecture to attract the potential customers hence maximizing the production output. Once an individual enters into the restaurant, there is always a welcoming smell of delicacy, which makes the restaurant to maintain the originality of a fast food environment. The smell makes the potential customers to feel that they have entered into the right place that identifies with food they would like to eat.
The management has exposed the process of working to both the customers, employees and the management in order to facilitate transparency in the firm. The exposed working regulations makes the employees relate with the customers in accordance with the rules. This arises because the customers are aware of their rights and the treatment they should be receiving from the workers. The employees find it difficult to avoid the rules because everyone knows about the rules. Exposing the working process has also made the management to gain the loyalty of the customers since the latter have confidence in the operations. The customers always feel part of the operation because they can visualize everything happening in the restaurant.
In regard to instrumental rationality, McDonald’suits always the interest of investment as well as reinforcing its ability of capital accumulation (Ritzer, 2007). The meaning of accumulation has made the management to consider establishment of new technologies along with the modification of the labor force. This involves the introduction of self-serving machines that allows the customers to key in the type of food they would like to order. The company has also introduced the drink dispensers and automatic switch off fries that further reduce the need for a physical labor force. The use of bar codes has also made it easier to determine exact prices of products thereby reducing the errors usually made in determining prices. Further, the evident technological modifications include planning machinery and organizing the flow of work to reduce the inefficiency arising from the uncontrolled work plan. Further, the managers have also taken the initiative of training the employees to ensure that they have maximized the optimum output from the latter.
Conclusion
McDonald’s gives a better illustration of the extent to which the upcoming small businesses should go in order to consider themselves as successful in the market. The company has witnessed all element of managerial decision making it to maximize its profit in the market. The managers have used the managerial economics to ensure that they have determined the correct place for the location of the business. This has in turn made the business to maximize its output, since every element of the business is in line with the managerial economics; consequently attaining good reputation among its competitors. Through the managerial economics, the managers have also determined the appropriate price that would suit most of the potential customer. The use of managerial economics has contributed a great deal in the growth of the company.
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