Maintaining Quality Across A Large Franchisee Network: McDonald’s Cloud Solution

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As it moves towards a 90% franchisee model, McDonald’s (NYSE:MCD) is looking at innovative ways to train new employees and maintain consistency across its large franchisee network, keeping costs in control at the same time. The company recently entered into a partnership with Inkling, an enterprise content platform company, to build a platform to create electronic training and operation manuals for its employees.  This technology will allow the company to deliver content on handheld tablets, which will  allow franchisees’ workers to train in the restaurant kitchen, so as to leverage the combined experience of training and kitchen work.

As McDonald’s reduces the number of company owned restaurants and moves towards the high margin franchisee model, consistency across restaurants is critical for McDonald’s to deliver customer satisfaction. Using technology instead of legacy paper manuals to provide training can aid in this goal. The new platform will also allow the company to use videos for training purpose and update the content quickly, leading to faster roll out of new initiatives. We believe that this investment in technology will improve operations and enable McDonald’s to run its franchisee model better and icrease profitability over the long term.

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Training Employees Key Factor For Growth

McDonald’s business model is highly dependent on franchisees and its consumer satisfaction is dependent on employee quality and service. Due to these factors, a high quality of training is critical for the company’s growth. The new cloud based platform, which digitizes the company’s training material and increases its accessibility, can play a significant role in improving the quality and timeliness of training. This can also allow McDonald’s to roll out new initiatives faster, as the necessary operating manuals can be disseminated to the large franchisee network quickly. As per our estimates, “Franchisee Rent & Fees” and “Franchisee Royalties” together account for more than 85% of McDonald’s valuation. We expect the number of franchised and affiliated McDonald’s restaurants to increase from 31,000 in 2016 to nearly 35,000 by the end of our forecast period.

The company is looking to refranchise about 4,000 restaurants through 2018 with a long term goal of becoming 95% franchised. Margins from franchised restaurants are higher and they are likely to provide a more stable, predictable revenue to the company. However, as the company has less control over franchised restaurants compared to its own restaurants, it is crucial that they manage franchisees to ensure that the consistency and quality standards are met across the franchise network.

As McDonald’s works on its turnaround program, it has  introduced several new initiatives, including healthier menu options, We believe a cloud based digital training platform can ensure faster roll out of these initiatives. This platform can also provide better management of training content and newer ways of training such as videos can help in better delivery. Modernizing its operations through investment in technology can play a crucial role in McDonald’s long term growth.

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