Polytechnic University of the Philippines

College of Business Administration

Department of Human Resource Management
A.Y. 2020-2021

CASE STUDY

REWARD STRATEGY

MCDONALD’S

PAULE, TRIXIE S.
BSBA-HRM 3-4N

DECEMBER 19, 2020

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TABLE OF CONTENTS

Overview of the Company ------------------------------------------------------ 3

Time Context ----------------------------------------------------------------------- 3

Historical Background ------------------------------------------------------------ 4

Statement of the Problem ------------------------------------------------------- 6

Areas of Consideration (SWOT Analysis) ----------------------------------- 6

Alternative Course of Action ---------------------------------------------------- 12

Conclusion -------------------------------------------------------------------------- 14

Recommendation ----------------------------------------------------------------- 14

References ------------------------------------------------------------------------- 16

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 MCDONALD’S

Overview of the Company

With the change in Australian people’s lifestyles, particularly dining habits, and new
job requirements, the fast-food industry in Australia has expanded rapidly since
the end of the 20th century (Lyons, 1999). Beliefs and perceptions regarding the
consumption and health risks of fast food have also been altered (Dunn, Mohr,
Wilson, & Wittert, 2008). The fast-food industry, which serves foods such as
burgers, pizza, sandwiches, salads, juices, desserts and confectionery, is
characterized by a low level of capital, and labor costs constitute the majority of
daily operating costs. According to a report by IBIS World, this industry’s revenue
is forecast to achieve an annualized growth rate of 3.9% over the five years through
2016-17, to reach $19.3 billion (Fast Food Services in Australia, 2017).

Time Context
In Australia, in 2015, McDonald was the leading fast-food brand, followed by
Subway Systems Australia. Australia had more than 905 McDonald's restaurants,
comparable with the US in terms of the number of McDonald’s restaurants per
capita, employing more than 90,000 people. The majority of its workforce is young

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people. The company attributed its success to its efforts to innovate and tailor its
products to serve increasingly diverse demands of customers with initiatives such
as Create your Taste, The Corner, all-day and gourmet breakfasts at selected
stores, etc. (Corporate Responsibility and Sustainability, 2012). As competition in
the food industry is on the rise and customers have also become more selective
with their food choice, paying much more attention to the nutritional values and
convenience (Fast Food in Australia, 2016), McDonald's is required to offer
suitable reward and performance enhancement incentives to improve the quality
of its workforce, which in turn can help to improve the quality of customer services
and efficiency. As customers place higher emphasis on their time and the quality
of their experience, service has become the new important criteria when
consumers decide on the choice of restaurants (Talbot, 2006).

Historical Background
McDonald’s, in full McDonald’s Corporation, American fast-food chain that is one
of the largest in the world, known for its hamburgers. Its headquarters are in Oak
Brook, Illinois.
The first McDonald’s restaurant was started in 1948 by brothers Maurice (“Mac”)
and Richard McDonald in San Bernardino, California. They bought appliances for
their small hamburger restaurant from salesman Ray Kroc, who was intrigued by
their need for eight malt and shake mixers. When Kroc visited the brothers in 1954
to see how a small shop could sell so many milk shakes, he discovered a simple,
efficient format that permitted the brothers to produce huge quantities of food at
low prices. A basic hamburger cost 15 cents, about half the price charged by
competing restaurants. The self-service counter eliminated the need for waiters
and waitresses; customers received their food quickly because hamburgers were
cooked ahead of time, wrapped, and warmed under heat lamps.
Seeing great promise in their restaurant concept, Kroc offered to begin a franchise
program for the McDonald brothers. On April 15, 1955, he opened the first

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McDonald’s franchise in Des Plaines, Illinois, and in the same year launched the
McDonald’s Corporation, eventually buying out the McDonald brothers in 1961.
The number of McDonald’s outlets would top 1,000 before the end of the decade.
Boosted by steady growth, the company’s stock began trading publicly in 1965.
The public face of McDonald’s was created in 1963 with the introduction of a clown
named Ronald McDonald, while the double-arch “m” symbol became McDonald’s
most enduring logo in 1962, lasting far longer than the tall yellow arches that had
once dominated the earlier restaurant rooftops. Other products and symbols would
define the McDonald’s brand, including the Big Mac (1968), the Egg McMuffin
(1973), Happy Meals (1979), and Chicken McNuggets (1983).
The chain continued to expand domestically and internationally, extending to
Canada in 1967, reaching a total of 10,000 restaurants by 1988, and operating
more than 35,000 outlets in more than 100 countries in the early 21st century.
Growth was so swift in the 1990s that it was said a new McDonald’s opened
somewhere in the world every five hours. It effectively became the most popular
family restaurant, emphasizing affordable food, fun, and flavors that appealed to
children and adults alike.
The success of McDonald’s brought increased criticism, much of which concerned
its perceived association with a global increase in obesity. McDonald’s responded
by adding healthy items to its menu, and in 2017 it released McVegan, a plant-
based hamburger, which was only available in certain markets. Two years later it
began testing another vegan hamburger, the P.L.T. During this time McDonald’s
also eliminated supersized portions, and its U.S. and Canadian restaurants
stopped using trans-fat oil in a number of items. Such measures, however, did little
to stem health concerns. In addition, as one of the world’s largest private
employers, McDonald’s faced numerous calls to increase wages. The term McJob
was added to the Merriam-Webster dictionary to mean “low-paying job.”
In the late 20th century, McDonald’s moved beyond the hamburger business by
acquiring Chipotle Mexican Grill (1998), Donato’s Pizza (1999), and Boston Market

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(2000) in the United States, and in the United Kingdom McDonald’s purchased
Aroma Cafe (1999) and an interest in Pret a Manger (2001), a sandwich restaurant
chain. However, by late 2008 McDonald’s no longer owned or had a stake in any
of those companies, instead concentrating on its own brand.

McDonald’s was active in charitable work. In 1974 it joined Philadelphia Eagles

football player Fred Hill, whose daughter had been diagnosed with leukemia, in
founding the Ronald McDonald House in Philadelphia. The residence allowed
families to live near the hospital where their children were receiving treatment. By
the early 21st century more than 360 such houses existed around the world. The
Ronald McDonald House Charities (established 1987) also supports various other
efforts.

Statement of the Problem

McDonald's in Australia faces challenges in implementing its reward and incentive
system due to limited financial resources and its business strategy of cost-effective
leadership, aiming to lower its operating costs to remain competitive.
McDonald's’ current reward and incentive strategy is then discussed and
evaluated. It is argued that the rewards and incentives system, both intrinsic and
extrinsic has positive impacts on employees’ performance and business results for
businesses in general and McDonald's in particular. Nonetheless, other human
resource practices are also beneficial for the company.

Areas of Consideration (SWOT Analysis)

1. Strengths
• Strong brand name, image and reputation: McDonalds has built up huge
brand equity. It is the no 1 fast food company by sales, with more than
31,000 restaurants serving burgers and fries in almost 120 countries. The

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 image of McDonalds is recognized everywhere. This brand is in top ten of
the most powerful brand names in the world with Coca-Cola, Nokia or GM.
• Large market share: McDonalds is considered as the largest player in size
and global reach. When Wendy’s or Burgers King are losing market share
in 2006, McDonalds still increases its market share. Market share of
McDonalds in the recent time is about 19% while Yum! Brands is 9% and
both Wendy’s and Burger King is 2%.
• Specialized training for managers: McDonalds is very serious on training
managers. This company has its own program to train managers the most
professionally, which is called Hamburger University. As a result,
McDonalds has many good managers who can help company development
well.
• McDonalds Plan to Win: McDonalds customer—focused Plan to Win
provide a common framework for its global business yet allows for local
adaptation. Through the execution of initiatives surrounding the five
elements of its Plan to Win—People, Products, Place, Price and
Promotion—McDonalds has enhanced the restaurant experience for
customers worldwide and grown comparable sales and customer visits in
each of the last eight years. This Plan, combined with financial discipline,
has delivered strong results for company’s shareholders.
• Introduction of new production: McDonalds is considered the first one enters
to fast food industry. It initiates to other brand to enter this industry. As a
result, when think about fast food, customers always remember McDonalds
first. In fact, in some big countries, especially in US, McDonalds is the first
choice of a large number of customers.
• Technology innovative: McDonald’s is keeping at the forefront of technology
around the globe. For example, In Brazil McDonald’s is currently studying
the installation of Internet access terminals in some outlets as well as
enabling customers to order online. This will create a more efficient process

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 that will reduce the amount of lag time between a customer’s orders and
pick up of the order.
• Good marketing strategies: No matter the continent, children and adults
know the face of Ronald McDonald is synonymous with the colossus
restaurant chain. This results in wonderful marketing strategies among
management which conducts a very thorough market analysis, resulting in
much success around the globe.

2. Weaknesses
• Unhealthy food image: McDonald's has been impacted by negative press
like the documentary "Supersize Me" by Morgan Spurlock in which he
contributed our society’s obesity to McDonald's and other fast-food chains.
In fact, each McDonalds dishes provides large number of calories but not
too much nutrition.
• Customer loses due to fierce competition: McDonalds has to compete with
many strong brand names in fast food industry such as Wendy’s, Burger
King or Yum! Brands. This fierce competition makes McDonalds lose a large
number of customers who prefer favor of other brands.
• Problem related to health issue: McDonalds use Trans—fat and beef oil in
their food. Although it is not illegal, it affects badly on customer’s health
because Trans—fat is causes of some kind of cancer. Consequently, a
number of customers who care about their health stop eating at McDonalds
restaurants. It makes revenue of company decrease.
• Legal action: McDonald’s has been involved in a number of lawsuits and
other legal cases in the course. For example, there are many cases which
involved with trademark issue. McDonald’s force many others restaurant,
company of just a coffee shop to change their brand name because of
keeping “Mc” letters.

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 • Unbalance meals: Although McDonalds tries to update its menu by healthy
criteria, McDonald’s meals are still unbalance. For example, there are many
dishes with chicken (both grilled and fried), bacon, beef, rib or egg. Besides,
just several dishes are salad with vegetable and fruit. Moreover, amount of
fruit or vegetable is not much.
• High employee turnover rate: Although McDonalds has many good
managers as well as skillful employees, the turnover rate is still high. Every
year many of their employees are fired out of the restaurants. Moreover,
many others quit their jobs, especially part time employees because of low
salary as well as too high working pressure.
• Action related to environmental issue: McDonalds uses HCFC – 22 to make
polystyrene that is contributing to ozone depletion. The company has to
repair this weakness if doesn’t want to be criticized.
• Dissatisfied Franchisees: Franchisees are beginning to become very
dissatisfied with the fees that McDonald’s are forcing them to pay. As the
company continues to expand, they are also increasing the amount of fees
franchisees have to pay for the use of the notorious fast-food brand. Many
people are not very happy about this and as a result many franchisees are
selling their businesses.

3. Opportunities
• Growth of the fast-food industry: Fast food industry now is developing
significantly. The change of lifestyle leads to the change in people eating
habit. In the past, if just workers, drivers or someone who had to work busily
and didn’t have enough time for a home meal choose fast food; nowadays,
almost people eat fast food and a major of them like fast food very much. It
is a huge chance for fast food brand to increase their revenues, especially
McDonalds.

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• Conservation: McDonald should research green energies and green
packaging solutions and incorporate these finding as a part of their
marketing strategies and advertisements.
• Globalization, expansion in other countries: McDonalds has more than
31,000 restaurants serving in almost 120 countries. Of the 31,000
restaurants, at least 14,000 are in US. However, now, because the care of
McDonalds about favors and cultures in each country it enters, McDonalds
can open more restaurant in new areas such as China or India—the
countries which culture influences on people lifestyle deeply. They are very
potential markets. The expansion of these areas is big opportunities For
McDonalds.
• Low-cost menu is preferred by large number of customers: With low-cost
menu, McDonalds can attract customers who just have low income. This
segment makes up a fairly remarkable part, especially in the recent time,
when global economic is struggling. It is not difficult for McDonalds to apply
low-cost menu on all restaurants.
• Appearance of freebies and discounts: Discounts given on every food item
may help them gain more customers. Moreover, a new trend is rising among
customers that they like freebies and discounts, even when they don’t need
it or don’t use these freebies after.
• Diverse tastes and needs of customers: Customer’s tastes now become
more diverse. As a result, they require new format of service in order to
satisfy them. McDonalds, with new format of business such as McCafé, it
can attract new segment of customer; for instance, civil service, who prefer
coffee as well as want to use Wi-Fi to work when drink coffee.
• Growing health trend among the customers: Although people concern about
how McDonalds influence badly on their health, it is also a chance for

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 McDonalds. This company can develop new products, specifically fresh
burger or healthy dessert.

4. Threats
• Intensity competitors: Along with the development of fast-food industry,
there are many new fast-food brands enter to the market. It is nothing to say
if there is no strong brand which can compete with McDonalds. However, in
fact, there are some and they are stronger gradually, for example Yum!
Brands, Wendy’s or Burger King. Although market share of these brand is
lower than McDonalds, they try to gain more customers from McDonalds.
Moreover, more casual dining restaurants increase their burger offering and
decrease the price. If we are not really hurry, we may choose this kind of
restaurant instead of fast-food restaurants. They also become the
competitors of McDonalds.
• Public health crisis: With a growing number of obesity cases among
Americans, fast food chains like McDonalds will continued to be
overshadowed by their previous products offerings, for example Supersized
Meal, no fruit or yogurt, slim salad selection. Besides, people nowadays are
facing heart problem more seriously. As a result, they require nutritious and
healthy food as well as lifestyle.
• Economic recession: The company's revenue streams are diversified, but
depending on the length of this "recession", they will inevitably be negatively
impacted by the trickledown effect. Recession or down turn in economy may
affect the retailer sales, as household budgets tighten reducing spend and
number of visitors.
• Serious environmental issue: Environment is one of the hottest topics all
over the world. Any action which influences on the earth and human life is
criticized strongly. Consequently, if McDonalds keep using HCFC -22, it
may lose customers, especially who really care about the earth.

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Alternative Course of Action
I believe that there is no point having a reward strategy that is at odds with the
business. “If the business strategy goes in one direction and reward in another and
is not helping, pushing and encouraging it, then it is a waste of time, money and
effort,”. “We have made sure that reward is never out of alignment. If it was, it
would need changing and we have not made significant changes for a good
number of years now, but it is more of an evolution process.”

Alternative Course of Action #1

Engender a firm-wide culture of reward and recognition
Lead by example and encourage team members to recognize and applaud each
other’s achievements, however small. Spontaneous, ongoing appreciation from
any part of the company can be as effective as bigger, more formal awards.
Advantages:
• Make employees happier
• Improve employee retention
• Cultivate a culture of self-improvement
• Boost morale
Disadvantages:
• Could lead to increased culture of competition, rather than collaboration and
teamwork, amongst staff
• Could lead staff to focus only on achieving outcomes associated with
rewards, and neglect other areas of performance

Alternative Course of Action #2

Personalize reward schemes
Take the time to consider what each individual might most appreciate, and tailor
rewards accordingly. What does that person enjoy? What are their hobbies?

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Personalized rewards – however small – can make an employee feel seen and
recognized more effectively than generic financial tokens.
Advantages:
• No financial investment required
• Increases employees’ sense of competence and worth, resulting in
increased pride and care in their work
• Builds meaningfulness and purpose for an employee, contributing to their
job satisfaction as they recognize the relevance/importance of their role
within the greater organization
• Can be a great way to reinforce organizational values and cultures like
improving teamwork
Disadvantages:
• Staff may “slack off” after they have received recognition, thinking they have
already proved themselves
• Staff can feel undervalued if they are never recognized

Alternative Course of Action #3

Offer learning and development opportunities
Showing staff that you are willing to invest in their professional development can
encourage engagement in the company, reduce the risk of roles becoming stale,
and re-energize and re-motivate people. And it doesn’t always need to directly link
to their role. Personal development opportunities – such as a creative writing or
foreign language course – can be equally productive.
Advantages:
• Address Weaknesses Within the Company
• Increased Productivity
• Better Innovation
• Reduce Turnover of Staff

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 • Enhance the Reputation of the Company
Disadvantages:
• Waste of time and money
• Too much of theory
• Loss of interest
• Leave for the new job

Conclusion
It is argued that the reward system undoubtedly has significant impacts on
employees’ performance and hence the business’s success. While the extrinsic
incentives can give an immediate boost to employees’ accomplishment, the
intrinsic incentives are also very crucial since they can positively improve the
company’s work environment and employees’ work ethics. In the case of
McDonald's, the company utilized both monetary and non-monetary incentives to
motivate its workers and increase its profitability. Nonetheless, since the
company’s main business strategy is effective cost leadership, and one of its main
competitive edges is the lower product price compared to other companies, the
success of these incentives might be quite limited. Hence, in the long term, the
company and its employee can also benefit from other employee-friendly HR
policies and practices such as human resource automation, innovation, on-the-job
training and development, and organizational culture development.

Recommendation
ACTION PLAN #1: Personalize reward schemes
For an employee to feel truly valued and therefore more motivated, a targeted form
of personalized recognition will have the greatest impact and promote the most
positive result. Choosing a scheme that offers flexibility to provide different rewards
to different team members allows for these individualities. Not only does it prove

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that you know and understand your staff, it enables you to give a truly appreciated
and therefore worthwhile reward, maximizing impact.

Work and home used to be very separate, but as technology advances, private
worlds are becoming increasingly transparent and social media inevitably brings
personal lives into the workplace. It is impossible not to know more about an
individual’s social life, personal preferences, likes and dislikes. This certainly
makes it easier for managers to learn and acknowledge an employee’s traits and
as a result it could actually be considered a slight if something so obvious goes
unrecognized. There is no excuse for getting it wrong when personal information
is so readily available.

Given that incentives and rewards improve performance and results, then getting
it wrong could have a damaging effect, slowing development and demotivating
staff. Personalization dramatically improves your chance of getting it right by
working specifically to individual preferences. You can take this a stage further
and allow employees to choose their own incentives, whether working towards a
small, easily accessible reward or large, long-term reward according to their own
wants. This also facilitates interaction when discussing options, and provides
employers with an opportunity to share positive observations, reflecting on how the
individual has benefitted the company and adding to the ‘feel good’ factor.

Of course, personalization can reflect your brand values as well as your staff’s
individualities. Reward schemes can be shaped to encourage behaviors in line
with company values. This route needn’t exclude employee preferences, in fact
as corporate reward schemes evolve, the more refined offerings can be
personalized to reflect your company ethos whilst simultaneously catering to your
employees.

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References

https://employeebenefits.co.uk/issues/june-2015/mcdonalds-restaurants-puts-
motivation-and-reward-at-heart-of-business-strategy/

https://www.crworldwide.com/en_US/news-ideas/employee-recognition-
en_us/do-personalised-rewards-make-better-rewards/

https://toughnickel.com/industries/McDonalds-SWOT-analysis-and-
recommendations?li_source=LI&li_medium=m2m-rcw-toughnickel---money

https://toughnickel.com/business/The-Use-of-Reward-and-Incentive-System-A-
Case-Study-of-McDonalds

https://www.britannica.com/topic/McDonalds

https://employeebenefits.co.uk/10-ways-to-increase-the-impact-of-your-reward-
and-recognition-activity/

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