348 Part 3: Strategic Actions: Strategy Implementation
Strategic Focus
Changing McDonald’s Organizational Structure: A Path to Improved Performance?
Operating close to 37,000 restaurants worldwide and with
annual sales closing in on $90 billion, McDonald’s is huge.
In fact, it is several times larger than Burger King and Wendy’s,
its closest competitors. In addition to the United States and
Canada, McDonald’s has a significant presence in France,
German, Russia, and the United Kingdom.
But all is not well at McDonald’s. Almost immediately upon
being appointed as CEO, Steve Easterbrook said that “the
reality is our recent performance has been poor. The numbers
don’t lie.” Supporting Easterbrook’s position is the fact that
2014 was one of the firm’s worst financial performances in its
60-year history. Thus, changes are necessary. In response to this
reality, and viewing himself as an internal activist, Easterbrook
announced within 33 days of becoming CEO that he wants
McDonald’s to become a “progressive burger company.”
Changing the firm’s organizational structure is critical to reach-
ing this objective. Saying that he will not shy away “from the
urgent need to reset this business” demonstrates the intensity
with which Easterbrook is approaching McDonald’s challenges.
For a number of years, McDonald’s was structured around
geographic segments including the United States, Europe,
Asia/Pacific, Middle East, and Africa (APMEA). Over time though,
this structural configuration became cumbersome, making
McDonald’s “too slow to effectively respond to the needs of
its 69 million daily customers.” The way this geography-based
structure was being used resulted in “cumbersome” manage-
rial practices and operational inefficiencies. Franchisees were
reporting structural problems such as operational inefficiencies
to McDonald’s officials. In response to the franchisees’ com-
plaints, a McDonald’s leader said the following: “You’ve told us
that there are too many layers, redundancies in planning and
communication, competing priorities, barriers to efficient deci-
sion making, and too much talking to ourselves instead of to
and about our customers.” Overall then, the need for changes
to the firm’s organizational structure was obvious to virtually
everyone associated with the company.
Changes have indeed been made to McDonald’s structure.
Wanting to simplify, simplify, simplify, at the core of these
changes is Easterbrook’s desire to strip away the bureaucracy
at McDonald’s so the firm can anticipate trends as a foundation
for moving nimbly and to fully understand and appropriately
respond to customers’ interests. Additionally, Easterbrook spec-
ified that the new structure should be built on “commercial
logic” rather than simply geography.
With all of this as a background, a decision was made to
restructure McDonald’s into “four segments that combine
markets with similar needs, challenges, and opportunities
for growth.” As of July 2015, McDonald’s organizational
structure found the firm organized into the following
market segments:- United States (the largest market that accounts for over
40 percent of total firm revenue) - International lead markets (Australia, Canada, France,
Germany, and the United Kingdom—markets with similar
economic conditions and competitive dynamics that yield
similar growth opportunities) - High-growth markets (“markets with relatively higher restau-
rant expansion and franchising potential including China,
Italy, Poland, Russia, South Korea, Spain, Switzerland, and
the Netherlands”) - Foundational markets (all remaining markets in McDonald’s
system with each market having the potential to operate
largely as a franchised model)
Will this new organizational structure contribute to
McDonald’s effort to increase revenues and profitability?
Corporate officials are optimistic that this will prove to be the
case. More specifically, the firm’s leaders are confident the new
structure will enable individual segments to identify and suc-
cessfully address what are common needs of their markets andCourtesy of AG’s Globalization
The countries shown in the color red are ones
in which McDonald’s has locations.