Introduction
McDonald’s is a renowned American-based corporation that has become an icon in the foodservice industry. The corporation’s history can be traced to the McDonald brothers, whose fast-food restaurant was bought by Ray Kroc in 1954 (Opait, 2019). Today it operates in over a hundred countries, becoming the world’s largest quick-service restaurant (Opait, 2019). This paper evaluates McDonald’s enterprise risk management in view of its governance, technology application, and resilience.
A Critical Reflection based on Enterprise Risk Management（ERM）
Every company needs to consider three global standards in its ERM processes: IRM Standards, IS0 31000 Framework, and the COSO-ERM Cube. IRM entails a corporation’s financial risks, operating risks, strategic management, and hazard risks (Albania, 2017). The 1SO 31000 was developed as a key element in risk management to guide corporations’ risk management processes, provide a framework, and aid in process evaluation (Tranchard, 2018). ERM processes will be analyzed through the COSO-ERM cube that depicts the link between the corporation’s internal control elements (Lee, 2021). All the processes, from strategic operations to compliance issues, are tailored to mitigate enterprise risks.
Internal Environment
McDonald’s internal environment has been a strong force influencing its successful operations in the food industry. It has a matrix organizational structure and a management style that prioritizes its workers’ welfare, growth, and development. The McDonald’s Board of Directors is tasked with and accountable for the governance of the Corporation in an open, ethical, conscientious, and responsible manner, as defined by the company’s charter (Chia et al., 2020). The Board of Directors has always believed that sound corporate governance remains essential to the organization’s performance, thereby implementing a transformational leadership style through which they promote service, inclusion, and respect values.
Objective Setting
McDonald’s risk management processes span the strategic operations, compliance, and reporting, in line with the COSO framework. Regarding the strategic operations, the corporation aims to address ecological and sustainability challenges that are of utmost significance to stakeholders and in which the company has the greatest potential to make a positive difference (Raj and Singh, 2021). Every day, the company acquires internal and external information to enable them to identify where to focus their efforts, develop and modify their strategy, and facilitate reporting. This involves interacting with specific stakeholders to assist in acquiring quantitative and external data and conducting internal reviews.
Event Identification
Risk mitigation starts from the identification of events that have significant impacts on business profitability. At McDonald’s, a supply chain disruption is a major event that can affect its operation. According to Chia et al. (2020), McDonald’s receives dairy, bakery, and meat supplies from many global suppliers. Should there be failures in some of these suppliers, the company would be adversely affected. In addition, a system failure poses a significant threat to the company owing to its overreliance on information technology solutions (Opait, 2019). Global economic crises and pandemics may affect the company’s pricing and marketing, consequently hindering its operations.
Risk Assessment
A supply chain disruption will cause a market risk, while a system failure will lead to operational risk, and global pandemics pose both operational and market risks. As shown by Chia et al. (2020), supply chain disruptions have a 30% likelihood of occurring but can reduce the company’s profitability by up to 60%, giving it positions 3 and 2, respectively. Pandemics leading to an economic crisis have a 90% probability and have a very high impact, up to 85%, putting it in the first position (Abdelgawwad, 2017). Lastly, a system failure has a likelihood of 10% and a 40% impact, giving it position 3.
Risk Responses
The four Ts, tolerate, treat, transfer, and terminate, are the main approaches to corporate risks. In the case of McDonald’s, the three risks identified above, supply chain disruption, system failure, and economic crises resulting from pandemics, have adverse effects and can only be treated or transferred. The risk of supply chain disruption should be treated by diversifying the sources. The system failure challenge can be treated by incorporating backup and recovery measures to ensure undisrupted operations. Lastly, the economic crisis risks should be transferred to a third party, most likely, an insurance company, for financial aid during such unforeseen events.
Control Activities
Since the products sourced by the company can be found in many geographical regions, McDonald’s should diversify its supply chain. This can be done by sourcing for suppliers from regions outside the U.S., considering the likelihood of supply interruptions (Desoutter and Lavissiere, 2018). A cloud-based solution should be implemented, and workers should be equipped with manual operation tools to shield the company against operation failure in case of a system failure (Pierce and Goldstein, 2018). Lastly, the company should ensure all its properties and franchises globally by obtaining policies with major insurance companies. With the insurance, any loss due to pandemics will be handled.
Information and Communication
Information technology (IT) plays a vital role in McDonald’s operations and communication processes. McDonald’s has compiled information from a variety of sources into a single database. Using the database’s forms, query tools, and reports, the company quickly and easily updates data, generates monthly spending reports for tracking purposes, and prints reports (Zadeh et al., 2018). According to Akcam (2020), these technologies have been instrumental in performance improvement through decreased waiting times, improved average order value, reduced staff costs, and increased order accuracy. Essentially, IT has facilitated service delivery at McDonald’s, but data integrity and customer privacy remain significant limitations.
Monitoring
Risk monitoring is crucial to help the company to develop mitigation strategies and minimize losses. Jiang, Hong, and Nelson (2020) assert that risk monitoring is the key determinant in effective risk management. Supply chain interruption risks will be monitored monthly by the production department. The team will assess the products delivered versus the company’s expectations, quality of products, and timely delivery. Since technology is incorporated in daily activities, the risk of system failure will be evaluated daily by the IT team to identify areas for improvement. Lastly, the risk of loss due to the economic crisis resulting from pandemics is unforeseen and cannot be monitored.
Role and Impact of Government, Technology, and Resilience
Governance cuts across all aspects of society and has been described differently by different bodies. With respect to politics, governance has been defined as the process in which individuals apply legitimate power to utilize a country’s resources for the benefit of all citizens and national development (Patterson et al., 2017). In the economic sector, governance implies the effective application of factors of production for optimum benefits in line with the set goals and objectives (van Zanten and van Tulder, 2021). Non-governmental institutions may refer to governance as the manner in which policies are made and implemented.
Role of Governance
A company’s board of governance is charged with responsibilities and obligations to which accountability is expected. Part of the responsibilities entails reporting on a corporation’s position with respect to risk management, auditing the company, and disclosing all information needed for policy formation and the subsequent implementation strategies (Wade, 2017). In companies, the level of compliance expected from employees distinguishes the governance types. On the one hand, military governance is founded on the basis that everyone is expected to comply fully with all set regulations. On the other hand, employees in corporate governance are expected to comply with the rules, or if not, they ought to explain. McDonald’s follows the corporate governance strategy in which the board of directors oversees all company operations and sets the rules by which all stakeholders are expected to abide.
Impact of Governance
Good governance is essential for a corporation’s growth as it aids in risk management and strategic development. On the same note, bad governance has been cited as a key driver for resource misappropriation and company failure. Lin (2019) notes that Starbucks has had an effective governance strategy that has reduced the company’s liquidity risks. In a case presented by Woodcock (2019), Wendy’s poor corporate governance was exposed in a lawsuit concerning consumer primacy. McDonald’s understands the crucial role of good governance and has been keen on enforcing its corporate social responsibility (CSR). According to Opait (2019), the McDonald’s Sustainability & CSR committee follows and audits the Corporation’s socio-economic and environmental strategies. The Committee also keeps track of the company’s progress and performance in terms of sustainability targets and KPIs, which has resulted in continuous growth and innovation.
Role of Technology
Technology has been defined differently from etiological and business perspectives. In the etiological sense, technology is seen as anything intelligent enough to cause an impact on human life through its application (Carroll, 2017). In business, technology implies the application of scientific knowledge, data, and information for the attainment of business goals (Jakšić, Rakićević, and Jovanović, 2018). Technology plays a crucial role in McDonald’s by aiding in data collection, facilitating customer self-service, and promoting effective communication in all its departments and franchises (Zadeh et al., 2018). Therefore, technology can be regarded as the key driver for innovation and sustainability at McDonald’s.
Impact of Technology
Despite facing stiff competition from competitors such as Starbucks and Wendy’s, McDonald’s has remained the world’s largest fast-food restaurant due to its effective utilization of technology. The impact of technology at McDonald’s has been demonstrated in its customer service and product innovation. From the information gathered through its IT system, the company develops products that meet customer requirements in its global franchises (Akcam, 2020). Through the years, the company has maintained innovation by developing new service methods to satisfy customer preferences, such as self-order kiosks (Zadeh et al., 2018). The major challenge in relation to technology application can be found in its franchises’ inability to deploy the developed tools in their local operation areas.
Role of Resilience
Resilience has been defined and applied differently depending on the cases involved. In psychology, resilience reflects a personal trait that enables individuals to adapt to changing life situations which may include trauma and stress (Schwarz, 2018). In business, resilience reflects the ability of an enterprise to recover from a setback in its operations, as shown in the case of McDonald’s by Kee et al. (2021). Since hazards are part of business operations, companies need to be resilient to continue operations after such events. One of the crucial factors for company growth is continuous innovation, which can only be possible when companies learn from past failures. McDonald’s has been responding effectively to hazards by adapting its operations, such as using technology to connect with its customers globally.
Impact of Resilience
Resilience enables companies to survive changing times, without which they would collapse. Resilient companies not only recover but also develop new methods of operation that aid in future crisis management. Abdelgawwad (2017) argues that the fast-food industry is highly dynamic and companies must be prepared to adapt to global changes or risk being thrown out of the market. McDonald’s demonstrated resilience in its response to the Covid-19 pandemic by developing the digital drive-through and delivery system (Opait, 2019). This technique enabled the company to recover from the revenue drop experienced due to the economic crisis during the pandemic. With this innovation, the company attracted many customers globally and continued its operations without jeopardizing customers’ safety and wellbeing.
Summary
This essay explains risk evaluation and decision-making through a critical reflection of McDonald’s corporation. The company’s enterprise risk management was evaluated considering its internal environment, the IRM strategies, COSO-ERM cube, and the ISO 31000 framework. The main risks facing the company are identified along with the events that could trigger such hazards and solutions recommended. Governance style and strategies are shown to play a critical role in the company’s performance by developing and enforcing company policies. Technology application and resilience have been instrumental in companies’ growth and sustainability, as shown in the case of McDonald’s response to the COVID-19 pandemic.
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