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Reconciling Centralized Commonalities with Local, Decentralized Variations

This dilemma that McDonald's demonstrates so clearly is the increasing variance in local tastes and supplies, especially in economies recently rocked by currency crises and economic turbulence. Not only is food flavored differently in different places but supplies can also fluctuate in price, so that substituting domestic rice for imported potatoes is not just preferred by customers but may also be cheaper.

As McDonald's brands expand internationally it becomes increasingly important for indigenous managers to make decisions based on local knowledge. It may be a relatively "small" matter, like adding garlic or soy sauce, but this makes all the difference in satisfying local palates and would be difficult, if not impossible, to identify or dictate from HQ. McDonald's may also mean different things in different lands; a quick, family meal for travelers on a US interstate, an unusual guarantee of quality in Moscow, the cheapest source of protein in Cairo, the least expensive air-conditioned restaurant in Dubai, etc.

Those in the field know things that HQ in Chicago cannot, unless it is well informed - and even then such feedback may lose the subtlety of localized meaning. There is no way that McDonald's HQ can know everything about local tastes in every one of its foreign outlets. Such information is not "hard" but "soft." It's something local managers know because they live in the country and it is largely a question of subjectivity.

In many places, food is highly spiced. Historically this was to disguise the fact that it was not fresh; spices were used as preservatives in the days before refrigeration and gave meat a longer shelf life, especially in hot countries. Even where meat is refrigerated and in perfect condition, the taste for different spices lingers and has now become a culinary art and a local delicacy. The centralized control needs to be interwoven with the variations of local taste and supply.

On the vertical axis is the McDonald's centralized, global system headquartered in Chicago and symbolising the American Way. On the horizontal axis is the decentralized, diverse, localized variations in taste and custom, of which soy sauce and garlic are examples, deliberately chosen as variations unlikely to be widely generalized throughout the system, since these preferences might be seen as a trifle exotic.

Note that both centralized initiatives like Arch Deluxe and decentralized exotica like soy sauce and garlic contribute little to McDonald's profitability - in terms of the cost of provision and the selling price of products dressed with them. What does work is multi-localism, that is, multiple fits into a variety of markets. These may all be based on beef and buns, thereby achieving vast economies of scale. Yet local flavorings and fixings may assure customer acceptability - not only in terms of acceptable taste, but also in terms of local symbolism with which the customer can identify. In short the product is in some respects common and in some respects variant, and this combination assures wider acceptability - and more profits for McDonald's - than would otherwise be the case through sustained and increased sales.

But there is a second issue of equal or greater importance. McDonald's is also in search of new product ideas and these may originate anywhere. The company has become deservedly famous by promulgating and spreading universal rules for global fast food outlets. When you discover some effective rules for satisfying customers it is best to operationalize these quickly, before your competitors do so, and achieve scale advantages. (In Boston Consulting parlance this is the "experience effect.") But all rules inevitably run into more and more exceptions, or particular preferences, that the rules have not anticipated. This does not only happen in foreign cultures, although exceptions are more likely and numerous there. It also happens in diverse regions of the US, so that the Egg McMuffin, the McFlurry, etc., originated in particular regions, while new salad dressings were discovered in France.

McDonald's has now made as much money as it can from the "old rules" of hygiene, consistency, economy, and mass marketing. Too many of its competitors are doing the same thing and it is now facing an oligopolistic challenge as a result of its success. All "universal" rules eventually encounter the limits of their universe, beyond which profits fall away quickly. "Hamburgerizing" the world is likely to prove unpopular, especially where American traditions of bland food are perceived to be imposed on spice-using countries.

All universal systems of effective rules and brands need to be renewed. How does this happen? By creating new rules that not only account for traditional customers, but the new, exceptional customers with different preferences who were in danger of going to competitors.

We have to grasp that any particular exception, when it first arises, can become part of a revised rule. Those "fussy" customers in Kyoto, Japan who want something different could be helping to create a new rule for the future. Within perhaps a year, McDonald's could be supplying sushi in all cultures with fish-eating diets.

Thus activities might be decentralized but the information about the activities is centralized. Mass customization has become the credo of the reconciliation between standardized and universal products and customized and particular adaptations.

But McDonald's is going beyond the theme that "all business is local." The company's executives have said that they are responding to concerns of too much localization. McDonalds is in tune with its decentralized foreign operations where it actively experiments; from there it takes the best local practices and tries to use them in other areas of the world. It then globalizes the best local practices. The result is a transnational organization in which exceptions and rules modify the existing principles.

This evolution is thrown into sharp relief in times of international violence. Consider how McDonald's tries to keep the locals happy in hotbeds of anti-Americanism.

In France, advertisements featuring cowboys who boast that McDonald's franchises refuse to import American beef "to guarantee maximum hygienic conditions."

In Serbia, handing out free burgers at rallies and adding a Serbian nationalist cap to the golden arches icon under the slogan "McDonald's is yours."

In Indonesia, installing large photos of franchise owners making the hadj to Mecca, the staff wearing appropriate clothing on Fridays, and new TV commercials emphasizing local ownership.

In Saudi Arabia, a Ramadan promotion by the Saudi franchise includes a 30-cent contribution for every Big Mac to the Red Crescent and to the hospital in Gaza for treatment of Palestinian causalities.

The approach has worked in absorbing and surviving conflicts in the past. But in today's supercharged terrorist atmosphere, will it be effective in the face of the unprecedented scale of the current assault on "Americanism"?

Date: 2015-01-12; view: 765

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Franchising Dilemma 1: Global versus Local Brand Image | Franchising Dilemma 2: Control versus Independent Brand Image
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