Aug 282015
 

BK

On August 26, Burger King asked rival McDonald’s to merge two iconic burgers: the Big Mac and the Whopper, as a McWhopper!

In honor of International Peace Day upcoming on September 21, 2015, Burger King wanted to serve to customers on that day a new McWhopper sandwich in a pop-up stand located at a parking lot between a McDonald’s and a Burger King stores in Atlanta, which happens to be a neutral market midway between McDonald’s Corporate headquarters outside Chicago in Oak Brook, Illinois, and Burger King’s Management Office in Miami, Florida.

Burger King proposed in its full-page newspaper ads appearing in Wednesday’s New York Times and Chicago Tribune that all proceeds of the one-day venture would be donated to Peace One Day, a nonprofit group seeking to raise awareness of the International Day of Peace, which was established by the United Nations General Assembly annually for September 21 back in 1981, marking the opening of its annual meeting. 

Peace One Day is “devoted to strengthening the ideals of peace, both within and among all nations and people,” according to the United Nations General Assembly.

“Corporate activism on this scale creates mass awareness and awareness creates action and action saves lives,” Jeremy Gilley, founder of Peace One Day, said in a video posted on the website, mcwhopper.com, in which Burger King is promoting its proposal.

Fernando Machado, Burger King’s senior vice president for global brand management, urged McDonald’s to help “make history and generate a lot of noise around Peace Day,” in a company statement.

McDonald’s CEO Steve Easterbrook, apparently surprised by the Burger King full-page ads, graciously agreed the proposal was well-intentioned and for a good cause. But, he passed on the proposal. Because, he believes the two burger mega-brands could do “something bigger to make a difference.”

And every day, let’s acknowledge that between us there is simply a friendly business competition and certainly not the unequaled circumstances of the real pain and suffering of war. P.S. A simple phone call will do next time. — McDonald’s CEO Steve Easterbrook

“The Burger King work was done by seven agencies including Alison Brod Public Relations, which sent the details out to reporters on Wednesday morning to spread the word. The other firms involved are WPP’s Y&R New Zealand, Code & Theory, The David Agency, Rock Orange, Turner Duckworth and Horizon,” Alison Brod Public Relations agency said, according to AdAge.

So, why didn’t the great burger merger of the McWhopper come together? Because of something far more basic underneath it all: culture matters most inside, but not necessarily across, global mega-firms.

Big business culture is the focus of this piece, as exemplified through the case of a proposed McWhopper burger merger still yet unrealized.

Iconic Burger Synergy: Big Mac + Whopper = McWhopper?

Consumer behavior towards the saturated fast food industry has shifted in the millennial age towards healthier more wholesome foods and eating habits.

McDonald’s Corporation, now largely an international finance and global real estate holdings company, and Burger King Corporation, now a Canadian-based privately held, equity holdings firm, have been in a decade long struggle in getting consumers back in love with their iconic branded foods again. Much like consumers were either “getting away to” or “having it their way with” these two burger giants back in the 50s, 60s, and 70s, when Grammy-award winning singer, Barry Manilow wrote, “You deserve a break today, so get up and get away to McDonald’s!

Back then, when I earned my first dollar flipping burgers at my neighborhood McDonald’s, one of the first 18 franchise stores on Reading Road in Cincinnati, Ohio, we could actually smell the fresh food cooking in the McDonald’s kitchen throughout my family’s Bond Hill neighborhood at lunchtime and dinnertime.

Upon eventually rising up through the ranks from an entry crew member at age 16 to an assistant manager at age 22 (even attending Hamburger University in Oak Brook, Illinois), McDonald’s taught me their corporate values and norms of hard work, while working in their corporate culture through my junior and senior years of high school and onward to pay for my undergraduate college education at Ohio State University.

From the quality foods, such as the “Filet-O-Fish that catches people,” to the distinguished dinning lobbies of the McDonald’s stores, dedicated to the ethos ofQuality, Service, and Cleanliness (Q.S.C.), McDonald’s has stood as an icon of American life around the world for seven decades.

A personal aside, as a young teenager working the grill at McDonald’s, I used to make myself what I called back then a “Quarter Mac” — a McWhopper sort-of-speak — which was “two all beef (Quarter Pounder) patties, special sauce, lettuce, cheese, pickles, onions on a sesame-seed (Big Mac) bun.” You may perhaps recall the iconic slogan of the Big Mac commercial back in the late 70s early 80s.

When I introduced this huge McWhopper into the culture of my young constitution, it is a miracle I am still alive today. My how a skinny teenager’s stomach as mine back then could absorb so much beef of such a “McWhopper of aQuarter Mac” into that youngster’s highly-metabolized culture that just chewed up the enormous amount of fat from eating what was a deliciously huge sandwich to me at the time. It would be impossible for me to consume such a McWhopper today.

Since businessman Ray Kroc purchased from Richard and Maurice McDonald their company back in 1955, and subsequently gave the company its iconic namesake, McDonald’s continues its dominance as the world’s leading fast-food service brand composed of more than 36,000 mostly franchise stores worldwide.

Photo Credit: Bruce Marlin, The first franchised McDonald’s, now a museum, in Des Plaines, Illinois.

The corporation has a modern ethos of “good food, good people, and good neighbor.” The publicly traded company aims to promote tasty food choices created safely with real quality ingredients; to create entrepreneurial opportunity through 5,000 independent small franchise businesses collectively operating inside a globally diverse work environment motivated by rewards and incentives; and to build families through philanthropy and reducing the company’s environmental footprint across the communities in which the over 36,000 stores reside around the world.

The National Labor Relations Board announced a real McWhopper ruling on Thursday, August 25, 2015 to “effectively loosen the standards for who can be considered a worker’s boss under labor law, and its impact will be felt in any industry that relies on franchising or outsourcing work. McDonald’s and Burger King, for instance, could now find themselves forced to sit at the bargaining table with workers employed by a franchisee managing one of its restaurants,” according to The Huffington Post.

Franchising and outsourcing is a key aspect of the Big Mac and Whopper corporate culture of these two fast-food giants. This is mainly because the workplace responsibilities and accountability are shifted to the franchised and outsourced companies, and not to McDonald’s or Burger King at their corporate levels.

The new “joint employer” ruling of the National Labor Relations Board on Thursday is a McWhopper game-changer for the corporate culture of these two burger giants, as asymmetric information management increases inefficiencies, workplace controls require more corporate monitoring and oversight, and interest-based workforce cooperation reduces, while collective right-based worker bargaining costs skyrocket. These McWhopper corporate culture issues are specifically examined more closely later in this piece.

Concludes The Huffington Post: “McDonald’s and other franchisers (like Burger King) have been bracing for a ruling like this for years. The board’s general counsel, who functions as a kind of prosecutor, has already named McDonald’s as a joint employer alongside some of its franchisees in several cases involving alleged unfair labor practices. Many observers took that move as a sign that the board would soon revise its standards for what makes a company a joint employer.”

Founded in 1954, Burger King is arguably the second largest fast food hamburger chain in the world with more than eleven million consumers enjoying the chain’s food everyday. The home of the Whopper, Burger King uses premium ingredients to produce the sandwich, including its buns made by the “Pillsbury Dough Boy,” which gives it its addicting sweet sense to the taste buds.

In 2010, 3G Capital, a global privately held investment firm, acquired the Burger King Corporation to increase its long-run value in the increasingly saturated global fast-food industry under a Canadian-based company called Restaurant Brands International, when it merged Burger King with Tim Hortons, a Canadian fast-food chain.

“Burger King even ceded its position as the world’s No. 2 burger chain to Wendy’s,” reports the New York Times. But sales have rebounded this year by 6.7 percent, according to the national paper. “Management attributed the gains in part to the success of menu additions like a pulled-pork sandwich and the return of the popular Chicken Fries.”

The New York Times adds: “In the proposed pop-up shop, employees from both companies would wear special uniforms, and the burgers they would serve might blend the Big Mac’s top bun (Burger King, not surprisingly, calls it a “crown”) and Big Mac sauce with the tomato slices and 4-ounce meat patty from the Whopper, among other things.”

“Social activism campaigns like the one proposed by Burger King are often effective in creating a favorable brand image and could go a long way to undo some of the companies’ negative press,” Yahoo! News Digest reports. “However, social awareness campaigns also have the potential to backfire, as in the case of Starbucks’ “Race Together” campaign earlier this year.” 

Culture matters most inside, but not necessarily across, global mega-firms.

Profitability inside global mega-firms, like McDonald’s and Burger King, is partially tied to technical and agency efficiency, competitive strategy, and positioning. High performance earnings are also dependent upon the culture inside each of these burger corporate giants, as the research supports this fundamentally in Tom Peters’ and Robert Waterman’s “In Search of Excellence,” and William Ouchi’s “Theory Z.”

Products can become so much of a symbol in society that they become icons, as in the case of leader brand cultural pairings, like McDonald’s and Coca-Cola, and runner-up brand cultural pairings, like Burger King and Pepsi. Perhaps, the longstanding publicly traded corporate culture of McDonald’s was the burger giant’s reasoning why it passed on Burger King’s McWhopper proposal. Especially so, given Burger King’s current primal focus on synergistic control of its ongoing post-merger value-creation, as a privately held firm.

Corporate culture comprises values, beliefs, and norms of behavior shared by customers, employees, management, and directors inside global mega-firms. Culture is also tied to products that represent the iconic symbols, artwork, and practices used to prepare McDonald’s Big Mac and Burger King’s Whopper.

Inside each of these firms are social orders held by the people of these fast-food giants that reinforce their sense of belonging to a common culture of preparing their product and of engaging their customers, which are fondly tuned to their signature Big Mac and Whopper brands.

Messing with this signature branding can sometimes be upsetting to the corporate culture, much like “New Coke” did wrongly to “Coke,” back in the 80s, when it was trying to shift its culture and product slightly towards that of its then hyper-competitive rival Pepsi.

Each of McDonald’s and Burger King’s corporate culture represent behavioral truisms in each of the mega-firms that cannot be fully spelled out in a full-page newspaper ad or contract. Because, their corporate cultures are not only highly restricted, but also they are well-ingrained by these mega-firm’s management and employees, altogether tied to their iconic products in the Big Mac and theWhopper. Such distinguishing features of corporate culture may be hard to observe and measure specifically.

So, here’s a question: Was Burger King’s corporate culture tied to itsWhopper burger brand attempting to use surprise social activism of a burger merger as a competitive strategy to induce McDonald’s into a strategic commitment contrary to its corporate culture dedicated to its Big Mac burger brand?

Clearly, yes, as this is what made McDonald’s pause at such an overt newspaper ad signaling of competitive positioning in stakeholder value creation from its rival Burger King. The runner-up burger player may be more incentivized to increase its post-merger synergistic value and to enhance its brand’s social positioning in the marketplace.

Corporate culture simplifies asymmetric information management. McDonald’s established corporate culture at this point reduces the cost of its decision to pass on Burger King’s newspaper ad-offering on Wednesday through McDonald’s culture of entrepreneurial specialization permitted amongst its collection of 5,000 independent small franchise businesses around the world. This allows these small businesses to share their experiences about what operational innovations they have created, as well as, the growth expectations these businesses have in the future, resulting from these breakthroughs.

Just as important, this entrepreneurial corporate culture simplifies information processing about competitive moves. Such a culture also reduces business risks (e.g., advertising, marketing, operations, and product preparation). But most of all, this innovation-driven culture decreases uncertainty (amongst employees, customers, and stakeholders) to better focus small franchise entrepreneurial activities and technical efficiency.

Corporate culture facilitates workplace controls, monitoring, and oversight. Corporate culture of McDonald’s controls the activities of its employees and its 5,000 small businesses on the basis of their attachment to the mega-firm rather than on the basis of incentives and monitoring that could perhaps characterized the post-merger culture of Burger King’s synergistic controls.

Individuals and small businesses of McDonald’s, who value belonging to the Big Mac culture, will align their independent goals and behaviors with those of McDonald’s. And not necessarily, find the need to momentarily now merge with the Whopper culture, focused on social diversification of stakeholder value-creation proposed by the Burger King brand.

Further discussions would need to be had momentarily to flesh out the cultural details of a Big Mac – Whopper merger brand valuation as a McWhopper!

Individuals inside the McDonald’s and Burger King corporate cultures would ideally and functionally control themselves, and thus, monitoring costs will be reduced.

Essentially, the corporate culture in each of the mega-firm would strongly dictate motivated self-control, informal monitoring of co-workers, and increased self-compliance of corporate values and behavioral norms tied to the Big Mac andWhopper cultures in order to technically and efficiently create a McWhopper culture for at least one-day of peace perhaps?

William Ouchi in “Markets, Bureaucracies, and Clans,” [in Administrative Science Quarterly (1980), pp.129-140] has outlined an entrepreneurial corporate culture as a control system contrary to bureaucratic or market controls. What Ouchi describes as clan control, McDonald’s collection of 5,000 entrepreneurial small franchise businesses, for instance, creates such constraints through internal systems of organizational norms and values of the Big Mac culture that do create enormous value to shareholders and stakeholders.

Clan control is defined by moderate-to-low specialization of organizational roles and tasks, long-term employment in the Big Mac and Whopper culture, individual self-motivation, accountability, and responsibility, and collective integrity and trust in decision-making. Clan control contrasts bureaucratic control, which calls for greater specialization of roles and tasks inside the Big Mac and Whopper culture, shorter-term employment, less individual motivation, responsibility, and accountability, and more distrust in decision-making. Both clan control and bureaucratic control are distinguished from market control, which is dictated by the price of the Big Mac and the Whopper, and supposedly, the combined McWhopper.

Corporate culture induces interest-based cooperation and reduces collective rights-based bargaining costs. Finally, corporate culture facilitates cooperation through repeated games, and thus, reduces bargaining costs across mega-firms, like McDonald’s and Burger King.

Gary Miller in “The Political Economy of Hierarchy,” [in Cambridge University Press (1992), chapter 10] examines how corporate culture can mitigate the costly effects of power dynamics inside and across the two burger giants. These costs can be reduced by creating “mutually reinforcing” or “collective-interest” norms within the Big Mac or Whopper cultures that allow for mutually beneficial cooperative activities, like the McWhopper social activism, to emerge that would not be likely among self-interested actors outside the organization. Miller’s thinking rests upon that of David Kreps in “A Course on Microeconomic Theory,” [in Princeton University Press (1990), chapter 14], who addresses the question of securing cooperative outcomes through repeat McWhopper games of cooperative social activism.

This big business decision-trap between “collective-interest” and “self-interest” is known as the prisoners’ dilemma, perhaps, but not generally, is somewhat underlying somewhere underneath the Big Mac + Whopper = McWhopper social activism game. The prisoners’ dilemma (Appendix A) arises when both the Big Mac and the Whopper cultures are pursuing their own self-interests, they each in turn, impose a bargaining cost onto the other that is not taken into account.

In the McWhopper game, the Whopper culture’s added investments in social activism hurts the Big Mac culture, and vice-versa. Mainly because, such incremental investments drive down the market price. The prisoners’ dilemma is an essential corporate culture characteristic to consider in equilibrium pricing and output decisions in the McWhopper game of social activism not only on one-day of peace, but also the longer-term range of stakeholder value achieved afterwards.

A notable big business game of an analogous structure to the “battle of the sexes” dilemma (Appendix B) is “standards setting“. This occurs when two oligopolistic strategies, as in the McWhopper social activism game, aim to coordinate alongside the Big Mac or the Whopper cultural standard. But, each burger giant prefers to adopt its own sandwich preparation and ingredients as the standard. Inasmuch as, they have different Big Mac or Whopper preference standards for each of their consumers on where they want to coordinate to reach a common McWhopper standard for the consumer on the one-day of peace.

Photo Credit: McDonald’s in Higashiomi, Shiga, Japan

Bottom-Line Takeaway

Above all else, culture plays a huge role in efficient corporate portfolio analysis in the age of demography shift and heightened shareholder engagement and stakeholder (or social) activism. This is especially so for foreign firms entering the U.S. marketplace, like Canadian-based 3G Capital private equity and Restaurant Brands International, as a result of Burger King’s merger with Canada’s Tim Horton restaurants.

As always, experience is the best teacher in addressing cultural differences inside global industries, like McDonald’s and Burger King. Here, it is so much more than accounting. As there are no set best practices in international mergers and acquisitions, and especially in burger mergers, like the Big Mac and the Whopper into a McWhopper of a joint-venture of social good for one-day of peace on September 21, 2015, commemorating the ideals of the United Nation’s General Assembly. 

Every journey of a potential burger merger starts out and ends differently. Generally speaking, this potential burger merger transaction may be restructured several times to meet integrated goals of buyers, sellers, regulators, shareholders, stakeholders, and investment communities.

This is why I brought out the earlier point that when I used to work at McDonald’s Corporation, as a young teenager, we could actually smell the food cooking inside the kitchen. As we walk into a McDonald’s or Burger King Corporation store today, can we still smell the food cooking inside the kitchen? Go see? Perhaps, this is why these burger giants are now getting back to their basics of fresh food ingredients, as a company culture, and away from the company mascots of clowns and creepers, now put back into their toy boxes under lock and key.

Photo Credit: Budapest, capital of Burger King

Handling cultural differences inside a future of global fast-food industry consolidations calls for innovation to chart the proper course, as well as, innovators to “respect the history” and to “show the way.”

Such inventive people have the core competencies of negotiation and mediation practices.

Moreover, such practices involve not only keeping a watchful eye on the oftentimes competing integrated goals of the burger economics and decision-makers seeking joint-value.

But also, such burger merger practices involve “finding the burger that fits the fries,” heaven-forbid, if such a fuss arises before the dust settles at the global burger industrial consolidation rodeo.

And, an eventual “fist-punch” may be achieved between these two giant burger brands for a social good well-done for one-day in the name of peace.

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Appendix A: Prisoners’ Dilemma

Commonly seen on the long-running NBC drama Law & Order, produced by lawyer Dick Wolf, this situation involves two criminals who are arrested for committing a serious crime. The police have no proof of their involvement, except for a minor infraction. The prosecutor offers them a deal, whereby the one who implicates the other escapes all punishment, and the other gets a heavy prison sentence. If both criminals implicate the other, both end up in prison for a long time. The dominant strategy (or Nash equilibrium) is for each criminal to implicate the other. Consequently, they both end up getting relatively heavy prison sentences.

Appendix B: The Battle of the Sexes

Perhaps nowadays a “politically incorrect” manner to describe this Nash equilibria game, a husband and a wife want to coordinate their choice for an evening out having fun on the town. The husband prefers to go to a night football game, and the wife wants to go to the theater. But, they both prefer to do together any of the two activities than to do their preferred one alone. This is coordinating to set a standard of fun for each during their evening out on the town.

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  2 Responses to “McDonald’s Isn’t Lovin’ It, Like A McWhopper, With Burger King”

  1. Hello old friend. I remember well our days at McDonald’s. Congrats on your success! I hope to see you sometime if you are ever in the old neighborhood!

    • Hi Judy! Wow what a surprise. Thank you for getting in touch. Connect with me on LinkedIn, Facebook, Twitter so I can give you my contact information so we can stay in touch. Warmly, Oli

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