Balanced Scorecard

Financial Perspective

The revenue stream for McDonald’s corporation consists of: The revenue from its
corporate locations, franchise royalties (4% of monthly sales), and rent as a percentage of
monthly sales. McDonald’s sales are divided by segments are follows:

Source:
Annual
10k Report
2014

With diversified global sales McDonald’s is able to hedge some of the risks inherent
within the U.S. market and the increasing competition. However, the global presence of its
restaurants also exposes McDonald’s to political and economic threats mentioned beforehand
such as weakness in the European market and political instability in Russia.
 In the third quarter of 2014,
McDonald’s same store sales in the
US fell by 3%. In comparison,
competitor Chipotle Mexican Grill
soared at an increase of 20% for
same store sales. In comparison to
industry ratios McDonald’s is still
well above the average with Profit
Margins more than four times
above the industry average (MCD:
17.34%, Industry: 4.16% for
2014). Even though most of its
metrics are above the industry
average, a decrease in performance is evident over the past five years. Profit Margin has
decreased from 20.50% in 2010 to 17.34% in 2014. For 2014 Revenue Growth was actually a
-2.40%. With less revenue coming in consequently the interest coverage ratio for the
company also decreased from 16.79 in 2013 to 13.95 in 2014. Even though in store revenue
per employee actually increased by 2.3%, profit per employee decreased by 10.8%. These
metrics show the challenges McDonald’s is currently facing in controlling its cost structure
and offering attractive products to its customers.
For 2014 McDonald’s stores brought an average of $2.5M in sales, compared to the industry
average of $1.2M in sales per store.

Internal Process Perspective

One of McDonald’s main areas of focus is the quality and consistency of the products
it offers. McDonald’s does a good job at keeping consistency with its product offerings in
every restaurant. On the other hand quality perception by customers has been an ongoing
problem, and is considered to be one of the main contributors to the decrease on revenues for
the chain. McDonald’s is taking steps to improve the quality of its food and address customer
concerns regarding products raised with antibiotics. On March, 2015 McDonald’s announced
they would only source chicken raised without antibiotics that are important to human
medicine. McDonald’s also announced they would only be selling milk products from cows
that are not treated with rbST, an artificial growth hormone.

To address quality McDonald’s is also focusing on technological advancements to attract

more customers. Improvements in technology like charging stations for phones and self-order
kiosks are a few of the ideas Atif Rafiq has brought to the table to draw in more customers,
and maintain the company in the forefront of technological innovation. Regarding the
allocation of its tangible resources, McDonald’s will focus on reimaging restaurants to appeal
to a more contemporary culture. Nearly 60% of McDonald’s restaurants have been remodeled
with a modern look.i

Customer Perspective

Uniform value-priced menu and a consistent customer experience is essential for a quick-
service restaurant. Quality is also an increasing concern for customer, especially with newer
restaurant (Better Burger, Fast-Casual) that stress freshness and good quality. The prevalent
customer perception is that McDonald’s is low quality. Even if this was not the case, it is
important to monitor and work towards changing the customer perspective on quality issues.
McDonald’s needs to find a way to change the current mindset of their product offerings to
the customer. According to Technomic, a research firm that focuses on the fast-food industry,
new customers are focusing more on natural, unprocessed, and sustainable offerings rather
than on “low fat” and “low calorie”. Even though Chipotle’s burritos have more calories than
a Big Mac, the company is seen favorably due to the customer perception of what a healthy
offering is.ii

McDonald’s is also fighting to retain customers in a highly competitive market. The

challenge for the company is retaining millennials, and families with children under 12 years
of age (This group’s share in the chain’s customer pool dropped from 18.6% in 2012 to
14.6% in 2014).iii Nationally McDonald’s market share for the end of 2014 was 21.7%. Based
on Euromonitor International, the Global market for the informal eating out (IEO) segment
was of $1.2 Trillion. The IEO segment is composed of about 8 million total locations.
McDonald’s global operations account for 0.4% of the outlets and 8% of sales.iv The IEO
category excludes establishments that serve primarily alcoholic beverages and full service
restaurants excluding casual dining establishments. Compared to the entire restaurant
industry of $2.3 Trillion and 16 million establishments, McDonald’s global share amounts to
0.2% of the locations and 4% of sales.

McDonald’s is focusing on generating goodwill with the general population to increase its
brand strength. With its size and influence it is able to participate in socially responsible
activities and create a positive wave a change for the quick-service industry. For example in
2011 McDonald’s created the Global Roundtable for Sustainable Beef where it partners with
major beef suppliers to set standards and practices that lead to sustainable beef production.

Learning and Growth Perspective

McDonald’s has an actual Hamburger University where it trains restaurant managers

on all necessary aspects needed to run an efficient restaurant operation. McDonald’s shows
that it is committed to train its managers to follow its recipe for success in offering Quality,
Service, Cleanliness, and Value.

Regarding its employee workforce, McDonald’s Corporation does not control much of
the employee development as restaurant franchisees are in charge of employee development
and compensation. The fast-food industry is known for its high employee turnover which can
increase costs and decrease customer satisfaction. High turnover rates also imply that the
company spends more time training new employees and have to work harder to maintain high
quality standards. Employee turnover is also spurred by the low wages that entry level jobs
pay. On average fast-food jobs are low-skill/low-wage jobs that pay just above the federal
minimum age of $7.25. Recently fast-food employees, including those of McDonald’s, have
been striking for a wage increase to $15 dollars an hour. While this increase might not be
feasible, McDonald’s needs to focus on the needs of its employees as one of its top priorities.
i

ii

iii

iv