PRINCIPLES OF MANAGEMENT

CIA-1

By

SUSANNA OOMMEN

REGISTER NUMBER
2127757

Under the Guidance of

PROF. Shrinivas Pralhad

MBA PROGRAMME
SCHOOL OF BUSINESS AND MANAGEMENT
CHRIST (DEEMED TO BE UNIVERSITY), BANGALORE

AUGUST 2021
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 CONTENTS

SL NO Table of Contents Page No

1. Introduction of the Company 4

1.1 Objectives 4

1.2 Characteristics of the Company 4

1.3 Organizational Structure 4

2 Functions of Management 5

3.1 Classical Approach 7

3.2 Behavioural Approach 11

3.3 Quantitative Approach 11

4 Violations of Practices 12

5. Current practices 12

6. Conclusion 13

7. Bibliography 13

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1. INTRODUCTION OF THE COMPANY
McDonald's Corporation started its operations in 1940 as an American fast food corporation
in California. Richard and Maurice McDonald, the owners of the company renamed their
business a hamburger stand and then transformed it into a franchise. McDonald's was
previously headquartered in Oak Brook, Illinois, but in June 2018, it relocated its worldwide
headquarters to Chicago. McDonald's is the now one of the world's most profitable restaurant
company, with over 69 million customers served daily in over 100 countries and 37,855
locations. McDonald's is most known for their hamburgers, cheeseburgers, and french fries,
but they also provide chicken, breakfast, soft drinks, milkshakes, wraps, and desserts. The
company has introduced salads, fish, smoothies, and fruit to its menu in response to shifting
consumer tastes and negative criticism over the unhealthiness of their meals. McDoanld's
obtains its revenue from rent, royalties, and fees paid by franchisees and sales in company-
operated restaurants. McDonald's, with 1.7 million employees, is the world's second-largest
private employer, according to two reports published in 2018. As of 2020, McDonald's has
the ninth-highest worldwide brand valuation.

1.1Objectives
McDonald's aims to serve good food for great value in friendly, fun environment, and being a
socially responsible company that provides good returns to the shareholders.

1.2Characteristics of the Company

McDonald's mainly operates through a franchise model across different countries around the
globe. With branches spread across the world, the company has very efficient management and
staff base, who work together for the company's success. Each person from the top to bottom of
the hierarchy has a significant part in the successful functioning of McDonald's.

 Top Level Executives: The top-level executives of McDonald's are CEO, Chairman of
Board, Directors, CFO, Chief Restaurant Officer, Chief Operating Officer, Senior marketing
manager and Senior sales manager who are responsible for the goal setting, decision making,
finances, operations, and ensuring the smooth functioning of the company.
 Restaurant level executives: Since the McDonald's follow a franchise model, each franchise
will be run by a core team which includes General Managers, Restaurant Manager, Assistant
Manager, Shift running Manager, Floor Manager, Staff training crew and other lower-level
staffs. These people ensure the smooth functioning of each branch.

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 1.3 Organizational Structure
McDonald's follows a divisional organizational structure, and the main departments of
McDonald's are:
 Finance Department:
The company's finance department is responsible for ensuring smooth flow of funds in and
out of the company. This department's major functions are to keep the financial records and
information for managers, monetary planning, financial control, financial forecasts,
management of debts in the business, preparation of accounts, and acquisition of funds
required. Each country has a separate finance country head,
state head, finance manager and accounts manager, to handle the finances of that particular
division.
 Marketing Department:
The marketing department plays a major role in the success of McDonald's. The major
functions of the department are market research, advertising, promotions, and public
relations. It helps the company attract customers by using added values like happy meals and
informing them about any new product on sale through advertisements. Each country or
region has a different marketing country head, city/state head, manager, and marketing
executives, to handle marketing and advertising of that particular area.
 Human Resources Department:
The primary function of the human resources department is to handle all the issues related to
the company's employees. This includes recruitment of staff, health and safety issues,
employee relations, compensation, and benefit, making salary policies for the company, and
training and development. Every franchise of McDonald's has its human resource
department.
 Production Department:
This department is responsible for converting inputs into outputs, i.e., converting food
ingredients into hamburgers. The department is also responsible for planning and arranging
the ingredients, equipment, and other materials required for the production process. Each
country or region has a separate production department which ensures that the right
ingredients are bought at the right quantity at the right price and are provided to each branch
of McDonald's as required..
 Operations Department:

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 This department handles the administrative duties required for the day-to-day functioning of
McDonald's restaurants. This includes the purchase of office supplies, payment of rent and
insurances, telephone, and other utilities. This may do in bulk purchases for all the
restaurants to save money.

The primary skills needed by a manager in McDonald's are communicating to the higher
authority as well as to the subordinates, taking appropriate decisions at the right time, motivating
the employees, delegating authority to subordinates, taking responsibilities, listening to
employees opinions and issues, organizing and planning the work.

2. FUNCTIONS OF MANAGEMENT

According to Fayol's Administrative Management Theory, a manager's functions may vary

widely depending upon the type of manager and the nature of the manager's responsibilities.
As such, categorizing the tasks of a manager helps understand what the duties of a manager
are.

Managerial functions are categorized into:

 Planning

 Organizing

 Commanding

 Coordinating

 Controlling

Functions of Management used in McDonald's

1. Planning - According to Fayol, managerial planning involves forecasting future situations,

formulating objectives, and developing methods to achieve those objectives. The planning
function is flexible to handle unexpected situations arising in the future.

McDonald's planning identifies its goals and objectives and the methods and actions needed
to achieve them. McDonald's' planning is in sync with changes in the external environment
and incorporates the different hurdles, such as people's local tastes, cultural values, and
customs, in their strategies. The management of McDonald's supply chains is one component
that exemplifies the company's good planning. Establishing good relationships with supply
chain partners resulted in the timely delivery of high-quality raw materials. McDonald's

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entered the 24/7 restaurant sector as a result of this strategic planning and to meet the wants
of all types of clients while also increasing earnings by expanding store hours. McDonald's
now served all three meals of the day and was considering expanding the menu to include
snacks. McDonald's created sustainable profitability due to the clearly defined corporate
purpose, entrenched values that drive the vision, and a focus on planning.

2. Organizing- According to Fayol, it includes structuring activities and organizing

individuals. Individuals are recruited, equipped, and trained as part of this process. The
emphasis is on job division, coordination, control, and the flow of information inside the
organization. Rigid structures harm employee creativity; therefore, a culture of empowerment
and delegation is prevailing in the competitive economy.

McDonald's has a collaborative management strategy that brings together all international
franchisees under a single corporate umbrella (Long, 2006). Management encourages
franchisees to collaborate and support one another to provide the most outstanding service to
their consumers by overcoming external hurdles and demonstrating a collaborative,
responsible culture. Uniform standards are followed by all franchisees to maintain the quality.
McDonald's' formal structure splits the company into divisions, and each employee is well-
versed in the activities for which he is responsible.

3. Leadership- It is the potential of a person to influence others. A leader should be able to

induce confidence and zeal in their subordinates.

McDonald's emphasizes the role of leadership within an organization and constantly

developed leaders who are creative and innovative. The history of past management tells us
about the strategies that the leaders implemented for handling situations. All the managers
adopt strategies to keep the employees motivated and committed. The leaders gave great
importance to customer satisfaction, employees talents, values and ethics. McDonald's was
once blamed for obesity, and instead of running away from the situation, the leaders and
managers took action to handle the situation positively.

4. Controlling- This function ensures that the management sets standards, measures the
actual performance, and takes corrective actions. The management will be able to identify the
deviations and adopt strategies to check the errors.

Controlling at McDonald's is a combination of motivated employees and clear regulations

that keep them on target. The line manager is in charge of ensuring that staff adheres to the

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company's requirements. Every franchisee must adhere to quality standards and rigorous
supplier policies. These are to ensure that irresponsible acts at the franchise level do not
jeopardize the brand's reputation. McDonald's places a strong emphasis on employee training
so that the staff understands the benchmarks and performs as per the company's objectives

3. Management approaches and theories followed by McDonald's

3.1. Classical Approach

McDonald's follows several aspects of classical management style of Henry Fayol's
management principles and Frederick Taylor's scientific management.

i. Administrative Theory of Management

It focuses on principles that managers could use to coordinate the internal activities of
organizations. Henri Fayol was the first to extend the Administrative Theory of Management
with his 14 Principles of Management and Administration Industrielle et Generale.

Henry Fayol is the Father of Administrative Management Theory as he introduced a general

theory that can be applied to all levels of management and every department. Fayol's work
was unique from Taylor's scientific approach to management as the theory concentrated on
managerial efficiency than work efficiency. Unlike Taylor, Fayol focused on the organization
and structure of work tasks.

The 14 principles of Fayol and its application in McDonald's

1. Division of Work- It focuses on specialization in the workplace and promotes task

separation, improving the product's quality. Similarly, he concluded that work division
promotes worker productivity, efficiency, accuracy, and speed. This principle is applicable at
both the managerial and technical levels of work.

At McDonald's the employees are divided into a number of departments like human
resources, payroll, complaint department,marketing department etc based on their capabilities
and expertise. The company believes that specialisation will increase effectiveness and
efficiency of its operations.

2. Authority and Responsibility- This principle emphasizes that managers must have the
authority to issue commands and at the same time be responsible for the work done. The
management's authority makes it easier for them to work efficiently, and their duty makes
them answerable for the work done under their supervision or direction.

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At McDonald's each employee or subordinate is allotted adequate authority to get their tasks
performed on time.

3. Discipline- It is an essential aspect of any project or management. A disciplined workforce

will be able to perform better and attain excellent results. Employees' attitude towards senior
management and subordinates helps in the smooth development and advancement of their
professional careers.

The management of McDonald's constantly adheres to the policies and agreements of the
company. There are clear rules on the timings and the number of leaves that can be taken. To
maintain the reputation of the company, disciplinary issues are given utmost care.

4. Unity of Command- This means that an employee should report to only one manager and
obey his/ her orders. When an employee is required to report to multiple bosses, a conflict of
interest arises, leading to misunderstanding.

As per the organizational structure of McDonald's, every subordinate is answerable to only

one manager. For example, for employees of a particular branch, their superior is the Branch
Manager, and the Branch Manager is accountable to the other top-level authorities.

5. Unity of Direction- Everyone involved in the same activity should share a common
purpose. This means that everyone in a firm should have the same goal and motivation to
achieve that organizational objective.

McDonald's strives to achieve its objectives and works in one direction to be the best fast
food outlet in the market. Employees in various departments sets their targets in such a way
that the organizational objective is achieved. This enabls employees to perform as per the
needs the company.

6. Subordination of Individual Interests- The employees should prioritize the organization's

interests more than personal interests.

McDonald's follows this principle and caters to the needs of the stakeholders. The interests of
the employees are not superior to that of the organization. Counseling sessions are provided
for employees who feel pressurized while performing tasks to achieve the organization's
interests.

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7. Remuneration- Employees should be given proper remuneration for the work done by
them. This is an element that keeps employees motivated. The compensation can be in
monetary or non-monetary forms.

McDonald's considers its employees as its greatest asset and provides adequate remuneration
for the tasks performed. The salary provided for te employees are fair, justifiable and
reasonable.

8. Centralization and Decentralization- The management or any authority in charge of the

decision-making process in any organization should be impartial. This, however, is dependent
on the organization's size. Henri Fayol emphasized the importance of maintaining a balance
between hierarchy and power division.

A centralized structure is adopted by McDonald's to ensure the control is maintained for all
the outlets. This is given utmost importance so as to ensure consistency of customers
experience and quality of each outlet. It is easier for the company to coordinate and control
from the centre and implement policies and strategies that could benefit all the location
outlets together.

9. Scalar Chain- Fayol emphasizes that the hierarchical steps should be from top to bottom.
This is required so that every employee knows who their immediate supervisor is and can
contact them if necessary.

This is not followed in McDonald's as there is only one boss- for example the employees of a
respective branch is answerable only to the Branch Manager of that branch. Only this
manager can be contacted for any purpose.

10. Order- The work environment and responsibilities must be governed by well-defined
norms and standards. Greater coordination occurs in a safe and orderly atmosphere.

McDonald's has clear-cut standards for its operations. All the processes have a particular
order to ensure proper functioning.

11. Equity- All employees should be treated with respect, kindliness, and justice. It is the
manager's responsibility to ensure that no employees face discrimination.

In McDonald's, all employees are treated in the same manner. They are not allowed to be
discriminated on the basis of gender, caste, sex, religion etc.

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12. Stability-Low turnover is essential for businesses. Employees will have more time to
learn their tasks, develop skills, and build loyalty due to this.

Most of the employees working in McDonald's are either on part-time basis or on job
agreements. Employees enjoy their work during the limited time span. Most of the
employees leave after their agreement is over.

13. Initiative- The management should encourage employees to take the initiative and be part
of planning, decision-making, etc.

Though employees in McDonald's do not enjoy much flexibility with regards to initiatives,
certain decisions and ideas can be put forward and central authority makes a judgement.

14. Espirit de Corps- Management must motivate and support their personnel on a daily basis.
A positive outcome and work environment can be achieved by building trust and mutual
understanding.

Harmony and unity are two essential elements followed in McDonald's. The company is
successful because it has incorporated the contribution of every employee. Promoting spirit
de corps is a strong foundation on which the organization grows.

ii. Scientific management

Fredrick Winslow Taylor is known as the 'Father of Scientific Management. He proved that a
scientific method can be implemented in the organization and will help increase employees'
work efficiency. By applying these methods, the management will reduce the cost of
production, increase efficiency, and reduce production time. Taylor's concepts include
adopting a "one best way" manner of completing tasks, scientifically hiring, training,
developing each individual, applying a work-for-reward mindset, and equitably and fairly
sharing labor between management and workers in specified jobs.

Application of Scientific Management in McDonald's

There is a lot of evidence that McDonald's business operations are based on Scientific
Management concepts, which include a system that pays employees for attaining objective
goals, scientific education for their staff, and a consistent technique of completing each job.
According to Taylor, if workers are not provided incentives despite putting in more effort,
they would become discouraged, resulting in low output. McDonald's has a competitive
compensation and promotion scheme that recognises and rewards hard effort. The awards can

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take numerous forms, ranging from a simple "Job well done!" from the boss to a more well-
known award such as the "Employee of the Month." The second principle adopted by
McDonald's is specialized training for staff. The employees are provided management
training, operations developments, equipment familiarity practices, and interpersonal skills
courses to improve their knowledge. McDonald's has developed precise working procedures
that ensure the customers' food is of the same quality in every chain or franchise. For
example, every outlet has the same layout for equipment and machines to maximize
efficiency. Also, there is a rigid script for the employees to communicate with customers..

3.2 Behavioural Approach

Maslow's Hierarchy of Needs by Abraham Maslow is one of the most famous theories
addressing motivation. This theory suggests that human needs are organized hierarchically,
from the most basic to the most advanced. McDonald's, for example, concentrates on meeting
the lower demands, which include psychological requirements such as health and nutritional
adequacy.

As a fast-food restaurant, McDonald's strives to provide nutritious food to all its customers.
The organization also aims to address higher-level needs, such as a sense of belonging, by
maintaining good customer relations where the customers are treated with love and care.

3.3. Quantitative Approach

The quantitative approach to management includes the application of statistics, optimization

models, information models, and computer simulation to assist in the managerial decision-
making process. With the application of mathematical and statistical concepts, organizational
effectiveness is achieved.

Management Information System is one branch of quantitative approach and is followed by

McDonald's. It is an information system used to coordinate, control, analyze, and visualize
data in an organization. Management information systems are concerned with the design and
implementation of computer-based information systems for businesses. The main process
involved is the conversion of raw data to information that managers can utilize to make
appropriate decisions.

The types of information systems used in McDonald's are:

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1. Transaction Processing System (TPS)- McDonalds sells a large number of hamburgers
every day, so it needs to order raw materials from its supplier. Every time McDonalds places
an order with its supplier, a transaction occurs, and the transaction processing system records
the relevant information, such as the supplier's name, address, the quality of the items
purchased, and the invoice amount.

2. Management Information System (MIS)- This system helps produce periodic reports such
as a daily list of employees, hours they work, and monthly report of expenses compared to
budget. McDonald's implemented MIS because it provides profitability and information to
management regarding the performance and helps plan the future direction.

3." Made for You" System- This is a modern technology used by McDonald's. In this
system, once a customer places an order, it appears on the computer monitor in the kitchen
and will alert the kitchen staff to prepare the same.

4. POS system "Scale of Point System"- This system helps to ensure fast and accurate
ordering. It is used to speed the business process and can track massive amounts of data in
seconds. Staffs receive alert messages regarding the payment due, upcoming order, waiting
time by a customer, etc.

5. Hyperactive Bob System- This system helps McDonald's know the upcoming shop rush.
Computers and rooftop cameras are used to monitor traffic outside.

4.Violation of practices by McDonald's

 Many employees were demotivated due to the low pay policy and less engagement in the
functioning. Employees were not paid proper incentives for the work done. Therefore, the
principle of 'remuneration' of Fayol's principles is violated here.
 McDonald's faced several criticisms when they served unhealthy food that led to obesity and
cardiovascular diseases. The customers' safety and physiological needs are affected due to
unethical practice. Therefore, Maslow's Hierarchy of Needs is violated.
 Many workers of McDonald's filed complaints against the hazardous working conditions and
work abuse. If workers are not provided good working conditions and are not supported, they
will not perform well for the company. Therefore, Fayol's principle of Espirit de corps is
violated here.

5. Current Practice in McDonald's

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McDonald's currently follows an autocratic leadership style. This style involves absolute,
authoritarian control over its employees. The employees are not allowed to be part of
decision-making. Though the company can adopt another leadership style, it fears that there
may be severe backlashes from the teams in terms of independence. Since McDonald's has
many global outlets, it emphasizes the importance of standardization. The company cannot
give authority to the employees as being creative could cause chaos in the overall
functioning. For a multinational food chain like McDonald's, all the employees must follow
an order.

Therefore, autocratic leadership is necessary to develop the customer base for long-term
survival in the restaurant business and improve efficiency. The benefits of this style are: it
allows quick decision-making, offers a transparent chain of command, and emphasizes the
importance of unity of direction.

Conclusion
Though McDonald's follows strict policies, it has built a reputable image in public. Over the
years, the company was able to cater to the changing needs of the customers. The adoption of
various theories and approaches has helped McDonald's improve its performance and
increase its profitability. The proper use of different functions of management led to the
success of the company.

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