Reference no: EM132342812

McDonald's Focus. After brief attempts at other businesses (most notably a drive-in), the McDonalds decides to focus their efforts on three products (hamburgers, fries, and soft drinks)which constitute 87% of their revenues. They also focus on providing a new service, fast food (service within 30 seconds, not 30 minutes), which further differentiates them from drive-ins. Finally, they focus on a market segment as well, families, which means they intend to eliminate the hot rodders, juvenile delinquents, and riff raff which continue to populate drive-ins.

McDonald's Value Chain customization.To cater to families, they (1) remove vending machines and juke boxes, and (2) car hops (girls who can get grabbed). To provide fast food, they serve their food on paper instead of dishes. They also redesign the work flow in their operation, specializing some jobs, standardizing the way some activities are done, streamlining the workflow, and adding specialized, customized equipment.

Now to the strategic alliance. One reason for engaging in a strategic alliance is to capture economies of scope - synergies that result from combining unlike but complementary resources in this case. (1 + 1 = 3). Therefore,

1. What INTANGIBLE resources (both strengths and weaknesses) do you think the McDonalds and Ray Kroc possess initially (before their strategic alliance)?

2. Is there any resource complementarity here? That is, can a strength possessed by one side be synergistic with (compensate for) a weakness possessed by the other if combined under a governance mechanism such as a contract?

3. Initially, how is Ray Kroc able to solve the franchising problems of the McDonalds? In other words, what resourcedoes Ray Kroc locate that is complementary to (resolves the weaknesses inhering in) the McDonalds flawed franchising strategy?

4. A primary governance mechanism for this strategic alliance is the contract. Though Ray Kroc seems to have located a resource that would make the strategic alliance successful (#2 above), the contract nevertheless remains untenable for him. I suggest that this is because the weaknesses of each side have been formalized in the contract.
Some contracts are written containing clauses that avoid the very problems that surface in this strategic alliance. Propose one clause that, if we could elude the weaknesses of the parties, would help to avoid the seemingly unresolvable conflict here.

5. Ray Kroc (or, more precisely, Harry Sonneborn) eventually identifies (fortuitously) a new resource that lies outside of the contract, thereby allowing him to save the alliance and, ultimately, to prosper. What new resource has he identified?

6. Finally, unlike one-off sales transactions, strategic alliances suggest an on-going interdependence between parties. In this case, the McDonalds are dependent upon Ray Kroc to grow (franchise) their idea and he is compensated for this (royalties) in the license. At the same time, the franchisee (Ray Kroc) remains dependent upon the franchisor (McDonald's) to provide the highest reputation, the know-how (e.g, most efficient methods of providing "fast food"), etc. The McDonald's also receive royalties under the contract for this service.
Nevertheless, strategic alliances can be temporary arrangements. Does this one end? If it ends, why and how do you think it ends?