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Lecture 2 ( January 18, 2003) Strategic Thinking Case Analysis Fast-food industry: McDonald’s 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 : Example of Change 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 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 Trends • • • • • • • • • Standardization Leverage Mass customization Franchise Methodology Modularization Liquid assets Client/servers Knowledge, information or expertise driven workers Standardization The Conscious Effort to Make all Jobs Similar, Routinized, and Interchangeable - enforces rules set - saves in economies - preserves continuity - prevents irregularity 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 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 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 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 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 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 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 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 Data vs Information • • • • Importance of input Knowledge and exposure Life long learning Technology advances and changes DATA • • • • • • raw numbers bare text sound video images factual elements/opinions/comments describing some object or event • application value -- little 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 Data Processing vs Information Systems • DP - Data Processing • IS - Information Systems Information Services • TOO MUCH DATA • TOO LITTLE INFORMATION 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 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 Decision process • • • • • Collecting data Identifying problems Making choices Persuading others to accept a decision Implementing the solution 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 Fast-food Industry case analysis • Franchising • Fast-food industry • McDonald’s 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 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. 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 Fast-food industry • • • • • financial analysis stock/investment outlook competition and growth technological impact recommendations financial analysis • In the US, franchise restaurants – – – • Revenues and profits – – • $800 billion industry 8 million employer one-third of food services spending 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 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 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 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 of competition 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 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 Reading Materials & Resources • chapter 1 of textbook • http://www.mcdonalds.com • http://www.dietclub.com.au/createameal/?menu=1 • http://www.spring.gov.sg