MANAGEMENT CONTROL PROCESS AND RESPONSIBILITY CENTERS:

There are basically two viewpoints to understand the management control system for McDonalds. 1. As company itself, i.e. McDonalds perspective 2. From the perspective of the Franchisee i.e. Hard Castle Restaurant Pvt. Ltd.

McDonalds
Over the past few years, McDonalds has taken a number of significant steps to enhance its ability to develop leadership talent and ensure greater management continuity throughout its talent management system. This can be described in two major initiatives that have been designed and implemented to enhance the system. These included: a major re-design of the companys global Performance Development System, a significant enhancement of the Global Succession Planning and Development Process. In addition to the specific positive impacts associated with each of these initiatives that have already been described, the overall process has also demonstrated how broad scale initiatives to develop talent can be successfully used as a lever of culture building and change as well as the absolute criticality of top management owning and driving talent management initiativeswith Human Resources playing the roles of partner and enabler. McDonalds strategy to develop its global workforce is designed to be aligned with and support the execution of its over-arching strategic business goal, which is to become everyones favourite place and way to eat. McDonalds has an overall Plan to Win that provides the global business with a common framework for developing tactics to reach this goal. The framework includes five key elements: 1) People, 2) Place, 3) Product, 4) Promotion, and 4) Price

Key Elements Relevant Measures

Performance Development System Redesign

Prior to 2001, McDonalds performance development system was comprised of :
1. An MBO based annual performance plan that measured performance against

established annual objectives but included no assessment of how these results were achieved (i.e. leadership behaviors)
2. a five-point rating scale of overall performance ranging from Outstanding to

Unsatisfactory
3. a personal developmental planning element based upon a McDonalds-wide

competency framework that included 9 core competencies and 4 leadership competencies as well as a menu of elective competencies that could be chosen/applied as relevant in specific functional areas ,
4. a three-level assessment of career potential that combined performance and

demonstrated leadership competencies, and

5. an annual compensation system element tied to the results of the annual performance

rating While the process for rating performance and potential was not unusual in structure and design, the outputs of the system reflected the culture of McDonalds at that time. Specifically, there was significant rating inflation for both annual performance (98% of managers were rated either Outstanding or Excellent) and potential (78% of managers were rated as having the potential to advance in the business at least one level). Because there was significant inflation in such ratings there was little meaningful performance and compensation differentiation. Further, since almost everyone was rated not only as being an excellent/outstanding performer but also as having advancement potential it made differentiation for purposes of realistic succession planning very difficult.

McDonalds Competency Framework

Global Succession Planning and Development Process

Beginning in 2003 it was decided that the Talent Management process at the leadership level needed to be more rigorous and also more transparent. To achieve this rigor and transparency the Presidents of each area-of-the-world (i.e. U.S. Europe, Asia/Pacific/Middle East/ Africa and Latin America) along with each Corporate Staff Head (e.g. EVP-HR, EVP-Finance/CFO), etc.) were given a Talent Management template that consisted of a series of questions about their leadership talent requirements and the depth and diversity of their talent. They were asked to prepare answers to these questions for their respective organizations. It was made clear that these questions would form the basis of the in-depth Talent Reviews that each of them was scheduled to have with their immediate superior, who was either the Vice Chair or the Chief Operating Officer. The stated purpose of these Executive Talent Reviews was as follows: Identify executive (e.g. Officer/MD) talent requirements for successfully executing their organizational strategy over the next 3 years and how these requirements will be met. Ensure that plans are in place in each organization to upgrade the executive talent via development, planned movement, strategic hiring, etc.

 Ensure the next generation (i.e. feeder pool) of leaders has been identified and is

being developed.

Talent Review Template Questions

I. Forecast of Corporate Leadership Talent requirements for next 3 years including positions, people and/or competencies The answers to the following questions should be based upon the strategic plan for the business as well as the operational requirements: Specify the Corporate Leadership positions that will be added, eliminated or changed from the current organization? Expected retirements, terminations, promotions, transfers, etc.? What, where, when and how many openings are forecasted for the next 3 years? What, if any, changes in the competencies or roles will be required of the leadership team and how will they be addressed? II. Assess and Develop Current Talent Pool Who are your A, B and C players? What actions are you taking to develop and retain your A players? Development plans including development moves? Retention strategy? What actions are being taken with your C players to improve or remove them? Who represents your next generation of leaders (e.g. Ready Now/Ready Future with higher level target positions)? Development plans including planned development moves? III. Replacement and/or Diversity Gaps and Associated Action Plans What, if any, significant replacement gaps exist and what plan is in place to close this gap? What, if any, diversity gaps exist and what plan is in place to close these gaps? IV. Summary of Planned Actions

HARD CASTLE RESTAURANT PRIVATE LTD.

As explained earlier there are two major franchisee owners of McDonalds in India. Out of them one is Hard Castle Restaurant Pvt. Ltd. operating franchisees in West and South region of India. HCRPL has also established their own management control system with the kind guidance of McDonalds. There are major 9 Department in their organizational structure. They are as shown below.

Basic Functions of all the Departments

Real Estate: This department works as the consulting agency for selecting and constructing the outlets in respective cities based on the McDonalds theme unanimously throughout the country. The guide each outlet for furniture, lightings, carpet area, seating arrangement, restaurant layout, and all other necessary amenities based on the McDonalds rules. Marketing: This department look after all the marketing activities like promotions, advertising, media, publicities, etc to push the sales of all the outlets of HCRPL. Legal: This department involves into legal and documentation processes related to HCRPL effectively. All Law and court related matters are handled by this department. Accounting: This department is actively involved into the financial transactions executed in the company. All the payments done through the cheques and are issued by this department time to time.

Operations: This department creates the framework for delivering the restaurant services for all the outlets for HCRPL. Each outlet has to follow this framework and guidelines developed by this department effectively. IT Department: This department designs and control the information system throughout the organizations, suppliers/vendors, outlets, Head office, etc effectively. All the information passed through these members are done through the information system developed by this department. HR, T & D and People Resource: These Department actively looks after recruiting, selecting, training and development of all the employees working for McDonalds under HCRPL.

FLOW OF OPERATIONS AND CONTROLLING SYSTEM:

As shown in the above figure of Formal Control Process of the organization, the various functions and responsibilities are allocated to all the department to fulfil the management goals.

Initially the goals are decided by the parent company that is McDonalds as their yearly targets and goals at India level. These targets are further divided between the two franchisers present in India based on the locations and number of outlets. From this annual target, HCRPL prepares their strategic plans and business activities for their sales targets with respective to all existing outlet and also for analysing the need of new outlets. There is active participation of all the 9 departments for making strategies and planning sales target for all the outlets respectively. Once the sales targets are broken down with respect to all outlets, budgets are calculated on the basis of sales targets of all the outlets. Further, these targets are analysed time to time throughout the year, most probably on the monthly basis for each of the outlet. From this analysis, the performance of each outlet can be judged and necessary actions are taken by the management of the HCRPL. Let us we understand that the operations are carried out and how the processes took place in each of the outlet for generating business for the HCRPL. Initially for every financial year, certain targets are given to all the outlets. These sales targets are on the yearly basis and further these targets are broken down to the monthly basis to know the business capacity of each business unit or outlet. While making monthly targets, marketer took care of all the festivals, vacations, event like IPL, World Cup, Asian Games, etc and accordingly the targets for all the outlets are decided. Now for example, at the start of the April month each outlets knows their targets for that month and they need to manage their budgets accordingly. On the basis of the targets they put their orders for food materials to the Radhe Krishna Foodland which is further broken down weekly basis based on the outlet demand. The order is delivered to Radhe Krishna Foodland, who is the vendor suppling all the food materials to the outlets. Once the order is given by the outlet, the bill is generated in Cobra MIS system. On the basis of this bill the Radhe Krishna Foodland will deliver all required food products to the respective outlet. At this juncture, the Accounting department will take a note on all the bill generated by each of the outlet in that particular month. The outlet has empirical formula like for sales of 100000 food products how much raw food materials are to be ordered and accordingly the calculate it on the basis of their weekly basis targets of that particular month. At the end of each month, when all the sales are fulfilled and all the cash are transferred to the Accounts department Head Office, respective payments are made to all the vendor, employees, Utility bills and miscellaneous expenses through the cheques by the Accounts Department. Moreover, each outlet is given petty cash around 50,000 to 100000 depending upon their requirements and business activities. The store manager has to give all the expenses record for this petty cash to the Accounts departments time to time. Also if the outlet store manager needs more petty cash, he can ask to his Area Manager based on valid explanation for the extra cash.

RESPONSIBILITY CENTERS

From the McDonalds point of view all the franchisees of India under HCRPL and Connaught Plaza are considered are the Profit Centers because the 2% of sales generated are directly paid to the McDonalds as royalty to the parent company. HCRPL perspective It is difficult to allocate exact responsibility in McDonalds operations because it is majorly associated with the service delivery. However, there are 9 Departments of HCRPL who looks after the business activities of the McDonalds under the franchisee contract. Majorly the responsibility centers are divided into two parts throughout the organizational structure based on their operations and business activity involvement. Expense Center: Expense centers are those responsibility centers whose inputs are measured in monetary terms but they cannot be associated with the outputs. Under the Expense Centers, there are two subcategories of expense centers: Engineered Expense Center and Discretionary Expense Center. Under the Engineer Expense center, engineered cost can be associated with right or proper amount on the basis of reasonable estimation can be considered. As McDonalds is majorly associated with the service delivery industry, no such engineered expense center can be developed for the department of the HCRPL as the responsibility center. Discretionary cost are those cost whose no such engineered cost estimation are feasible. Discretionary Expense centers includes administration and support activities like accounting, legal, human resource, research and development, etc. where engineered cost estimation is not feasible for such activities. Also the output of the expense center cannot be measured into the monetary terms. Hence for HCRPL, all the departments except the operations department which is actively involved into sales activities are considered as discretionary expense center. These departments are: Legal, Real estate, Information Technology Department, Marketing, HR, Training and Development, People resource department and Accounting Department. Profit Centers: