Managerial Accounting (PDF)

Management Accounting
McDonald’s
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MANAGEMENT ACCOUNTING 1
Executive Summary
This report is being prepared in order to identify whether Balanced Scorecard method is
suitable for McDonald's or not. In order to identify this, the report will highlight various
aspects like company's description, the concept of the balanced scorecard and its suitability in
the company.

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Table of Contents
Executive Summary...................................................................................................................1
Introduction................................................................................................................................3
Overview of McDonald’s.......................................................................................................3
Balanced Scorecard................................................................................................................4
Four Legs of Balanced Scorecard......................................................................................5
Features of Balanced Scorecard.............................................................................................6
Financial Evaluation...........................................................................................................6
Measuring perspective of customers..................................................................................6
Classifying Internal Business Processes............................................................................6
Learning and growth..........................................................................................................7
Clarify the image of the company......................................................................................7
Flexibility...........................................................................................................................7
Example of the Balanced Scorecard in McDonald's..........................................................7
Difference between Traditional Performance Measurement systems and Balanced
Scorecard................................................................................................................................8
Suitability Balanced Scorecard for McDonald’s..................................................................11
Simplifies Strategic Goals................................................................................................11
Communicates Vision and Mission.................................................................................11
Refines Metrics and Measures.........................................................................................11
Enables Performance Analysis.........................................................................................12
Conclusion................................................................................................................................12
References................................................................................................................................13

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Introduction
The procedure of recognizing, determining, examining, understanding and communicating
information for achieving goals of the organization is known as Management accounting
(Arora, 2012). This accounting branch is also called as cost accounting. The major difference
between financial accounting and managerial accounting is that information is focused
towards supporting administrators in the organization in making decisions, whereas financial
accounting is focused towards offering information to the partied outside the boundary of the
organization (Adler, 2013). This report is focused towards providing the information of one
of the information measurement system i.e. Balanced Scorecard which will be applied in the
McDonald's to identify whether it will be beneficial for the company or not. To do so report
will talk about balanced scorecard and its features. The overview of McDonald’s will be
given to know more about the company. Further, discussion of the difference between
balanced scorecard and traditional performance measurement system will be conducted and
in the end, whether balanced scorecard system is suitable for McDonald’s or not will be
discussed.
Overview of McDonald’s
McDonald’s is a fast food company of Australia which was established in 1940 by Maurice
and Richard McDonald in California, United States. They started the business as a hamburger
stand (McDonald’s, 2018). The first time the franchise of McDonald’s was in 1953 utilized
by Golden Arches logo in Phoenix, Arizona. Ray Kroc who is a famous businessman joined
the company in 1955, as an agent of the franchise and continued to buy the chain from the
McDonald's brother. The original headquarter of McDonald’s is in Illinois, however,
transferred the worldwide headquarter to Chicago in 2018.

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McDonald’s is said to be the largest chain of the restaurant by revenue in the world, by
serving approx. 69 million consumers daily in about 100 countries with around 36,900 outlets
as of 2016 (McDonald’s, 2015). Though McDonald's is famous for its hamburgers, they also
sell cheeseburgers, French fries, soft drinks, chicken products, desserts, breakfast items,
wraps, and milkshakes. In order to deal with the changing taste of the customers and an
adverse reaction due to the unhealthy food, the company has added more items in its menu
i.e. fish, fruit, salads, and smoothies. The revenue of the McDonald’s Corporation is earned
from royalties, franchising fees, and rent, along with sales in the restaurants of the company.
As per the report of BCC of 2012, McDonald’s is the second-biggest private employer in the
world after Wal-Mart of 1.9 million employees, and from this 1.5 work for the franchises
(Myers, 2018).
In 1963, the McDonald’s public face was created with the establishment of a clown called
Ronald McDonald, although the dual arch “m” which is the symbol in 1962 became the
McDonald’s most lasting logo, long-lasting for lengthier than the big yellow arches that had
once ruled the previous restaurant rooftops. The products and symbols of the company define
the brand comprising The Egg McMuffin, Chicken Nuggets, Happy Meals, and the Big Mac.
The restaurant chain sustained to grow internationally and domestically, spreading business
in Canada in the year 1967, which resulted in touching the total of 10,000 restaurants in 1988
and functioning around 35,000 outlets in approx. 100 countries in the starting of the 21st
century. In the 1990s, the evolution was so rapid that people started saying that in every five
hours a new McDonald’s outlet is opened somewhere in the world. It efficiently became the
famous restaurant for family, highlighting reasonable food, flavors, and fun that seemed to
adults and children alike (McDonald’s, 2012).

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Balanced Scorecard
A performance metric utilizes in strategic management to recognize and enhance different
internal functions of the company and their resulting external consequences are known as
Balanced Scorecard (Rohm, 2017). It is utilized to evaluate and offer feedback to the
companies. Data collection is vital to provide quantitative outcomes, because the information
which is collected is understood by the executives and managers, and used to take improved
decisions for the company or organization (Johnson, 2018).
The Balanced Scorecard was established by Dr. Dravid Norton who is a theorist and by Dr.
Robert Kaplan who is an accounting academic. This system is utilized to strengthen good
behaviors in the company by dividing four distinct areas that should be examined. These four
areas are also said as a leg of this system and involve business processes, learning and
growth, finance, and customers. The balanced scorecard is utilized to achieve goals,
capacities, creativities and objectives that result from four key business functions. Business
can easily recognize factors hampering the performance of the company and plan strategic
variations tracked by future scorecards. It can also be used to execute strategy mapping to
look where the value is added to the company (Niven, 2010).
Four Legs of Balanced Scorecard
Information is gathered and evaluated from 4 business aspects. First is learning and growth
they are evaluated by the examination of knowledge and training resources. This leg
maintains how well data or information is taken and how efficiently staff members use the
information to make it a competitive advantage in the industry.
Second is a business process it is analyzed through examination of how well goods are
produced (50MINUTES, 2015). The operational administration is examined to identify any
delays, gaps, blockages, scarcities or waste.

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Third are customer perspectives these are gathered to measure the satisfaction of the
customers with prices, availability, and quality of products or services. Consumers provide
their feedback about whether their needs are fulfilled or not with the present products or
services (Pramudita, 2016).
Fourth, financial data like expenditures, income, and sales are utilized to known the financial
performance of the company. These metrics can comprise amounts in the dollar, budget
variances, financial ratios, or income targets. These four legs include the strategy and vision
of the company and need active management to examine the gathered data. Thus, the
balanced scorecard is mostly said as a tool of management, and not as a measurement tool
(Giannopoulos and Holt, 2013).
Features of Balanced Scorecard
Financial Evaluation – Financial evaluation is one of the traditional features of the balanced
scorecard. No single management employees will be concerned about balanced scorecard if it
does not involve this feature as it conducts with the profits, which are important for the goals
of making shareholder value. If possible, this feature must be considered equal same as other
features, however, other features are given more importance from this. This feature comprises
measures like return on assets, profit margins, and return on equity.
Measuring perspective of customers – Measuring perception of the customer's permits to
understand the organization as it exists due to the customers and for the customers, without
whom the company cannot survive. It is a not as much of an upfront feature as compared to
financial evaluation as it does not possess the similar static performance pointers. Perception
of the customers about a company is normally examined by surveys that confront customers
whether they life company or not and whether they can link the company with value or not.

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Classifying Internal Business Processes - To flourish, a company should know its main
competencies. A balanced scorecard recognizes internal processes of the business. This
comprises understanding which procedures are very important for an organization to get
success and assessing how the firm performs. The goal of this feature is to evaluate the
competence of the important operations of the company. Instances of processes comprise
distribution, manufacturing, and marketing.
Learning and growth – Businesses should regularly growth or the risk becoming obsolete.
Hence, learning and growth are involved in a balanced scorecard. This measures how a
company is capable to create new processes and knowledge and how it is capable to interpret
this into development and growth of the company (Clark, 2017).
Clarify the image of the company – Effective balanced scorecard help in defining the effect
and cause clearly about different objectives to the employees and stakeholder. The
explanation of the objective of the company and its target must be clearly explained to
decrease the chances of conflicts in the future.
Flexibility – A balanced scorecard must be very flexible. It should not create rigid
boundaries around the strategic objectives. In place of this, it permits the management to do
required changes whenever possible (Biazzo and Garengo, 2012).
Example of the Balanced Scorecard in McDonald's
Perspectives Objectives Measures
Financial Perspective Market survival
Growth in Revenue
Enhance structure of cost
Cash Flow
Sales Volume
Actual Cost
Customer Perspective Effective service to the
customer
Enhance the quality of the
Satisfaction of customer
Increase in the number of
customers

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product
Environment-Friendly
Use of Plastic products
Learning and Growth Enhance corporate culture
Competencies
Technology leadership
Enable communication at
every level
Strategic Competencies
Time to introduce next
generation
Internal Process
Perspective
Create exclusive products
Reduction in employee
turnover
Enhancing brand image
Industry leadership
Survey of employee
satisfaction
Brand Recognition
Difference between Traditional Performance Measurement systems and Balanced
Scorecard
The traditional system of performance measurement trails only the company’s financial
performance in terms of profit earned from vending to the capital required. The emphasis is
solely on the financial measures depending on the reports of internal accounting like cash
flows, return on assets, profitability, revenue, earnings per share, economic value added, etc.
These measures are said to be the lag indicators as they reflect the ancient data and signify
historical performance (Agarwal, 2018). Although these metrics of quantitative performance
can regulate and enhance the organization’s internal performance, they can result in improper
decision making in future. Whereas, balanced scorecard is a system of performance
measurement that helps in overcoming the weaknesses of traditional system of performance
measurement. It has more metrics of strategic non-financial performance as compared to
traditional financial metrics, therefore, offering a stable or balanced view of the performance
of the organization (Gia, 2009). Balanced scorecard highlights changes in the current

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competitive environment by considering the intangible assets that are now a key source of
competitive advantage (Schmeisser and Clausen, 2011).
The traditional system of performance measurement fundamentally dependent on the
financial metrics can inspire executives to take decisions that sacrifice long-term value
formation for the advantage of short-term performance. For instance, cost reduction can
upsurge profit in short-term, however simply at the loss of quality expense, customer base
loss or loss of expertise which all have long-run influences (Pourmoradi and Niknafs, 2016).
On the other hand, the balanced scorecard is an integrated system of strategic management
that supports activities of the business to the organization strategy by involving measurement
of performance with the strategic objectives of the company. It offers a framework to
interpret the strategy of the organization into precise assessable objectives of the performance
that can be measured (Yilmaz, 2013).
The financial performance is dependent on the historical data was adequate for the purpose of
decision making. But, the modern environment of business has shifted from bulk production
dependent industrial time to knowledge-based time period. This change has brought a
transformation from depending only on measuring tangible assets in the direction of valuing
of intangible assets like human capital, customer relationship, and intellectual capital, etc.
Therefore, in present competitive environment, single dependence on the financial measure is
unsuitable because this measure does not evaluate intangible assets, does not highlight the
competitive rivalry issues. Besides this, traditional performance measures are not related to
the strategy of the organization. Strategies are linked with the organization's long-run goals,
the organization's activity scope, the matching and allocation of organizational activities to its
resources ability and needs of the business, and consideration of the stakeholders of the
organization expectations and values. In another side, the objectives of the performance are
evaluated by using the four perspectives which are interconnected, i.e., the financial

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perspective, learning and growth perspective, customer perspective, and business processes
perspective.
Traditional performances systems concentrate on the short-run financial performance,
ensuing in sever between the long-run strategy of the company and short-run actions.
Organizations should evaluate performance in those methods that not just only imitate past
optimistic performance, but also inspire positive results of the future. Present, the
environment of business is considered by strong competitive rivalry and as an outcome
businesses need to be adaptive and flexible in order to gain and tolerate a competitive
advantage. The organization should outshine in other serious areas like service or product
quality, customer relationships, organizational flexibility, relationships with employees,
relationships with suppliers, knowledge of technology and processes, and innovation to
continue in the present competitive environment.
The Balanced scorecard measures the performance of the company from its four legs or
perspectives when metrics of performance are designed, analyzed and gathered relative to
every four perspectives. The evaluation of four perspectives has an inter-dependent
relationship among them. The perspective of learning and growth results in supplying high-
quality internal processes of business as employees will have grown correct competencies
(Striteska and Spickova, 2012). With effective internal processes of business, the company
will be capable to fulfill the needs of the customers and will increase customer loyalty and
market share for prospect business. The higher satisfaction of the customer can result in
enhancing the financial performance of the company. This reflects that the purpose in the
four perspectives is linked. Hence, if a company can outshine in every perspective of the
balanced scorecard, the company will have an improved long-run financial success.

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Hence, it can be said that traditional performance measurement system which mainly
concentrates on the measures of financial performance are not suitable in this changing
environment. Whereas, balanced scorecard evaluates the performance of the company by
balancing between non-financial and financial measures. Progress is evaluated with
traditional financial measures, like loss and profit, with current non-financial measures like
employee’s retention, customer satisfaction, intellectual capital, market share, and brand
equity (Suvarna, 2012).
Suitability Balanced Scorecard for McDonald’s
McDonald’s can introduce a balanced scorecard in order to support all its activities of the
company. This framework of performance management will add measures of non-financial to
traditional financial metrics and will provide leaders of the company a stable view of how
things are going. By following non-financial measures, McDonald’s can confirm about
evaluating relationships with customers, employees, and suppliers and its capability to
preserve a sustainable business. Some of the points that will highlight the suitability of
balanced scorecard for McDonald’s are:
Simplifies Strategic Goals – A balanced scorecard will support McDonald's in creating
strategies for the organization by determining the priorities of the company. Program
operations, service delivery, and reporting production metrics support company in measuring
how positively company is performing and areas that need to be considered for changes,
depending on the mission and vision of the company. For instance, the satisfaction of the
customer is the priority.
Communicates Vision and Mission - A balanced scorecard supports managers to
communicate the same vision and mission in the company, at all the level. Prioritization and
decision making became simpler because the balanced scorecard introduces standards for the

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application programs. For instance, if internal processes of business take longer time, then
process improvement initiatives might take priority over another task, like need employees to
finish the courses of training on enhancing presentations skills.
Refines Metrics and Measures – If McDonald’s will review balanced scorecard as a part of
the process of strategic management may disclose what company is tracking the wrong things
to truly direct the future plans of the company. For instance, if the reports of balanced
scorecard will include just the training hours completed by the employees that might not
show how much employees are ready to shift into roles of leadership.
Enables Performance Analysis – Performing correct things at the correct time with the
correct people takes skills and experience. Creating a balanced scorecard support in guiding
company in how employees are implementing their current plans. After that applying, a
SWOT analysis can help in recognizing the strengths to increase business and the
opportunities to explore. It may also help McDonald's in identifying the weaknesses and
threats. Introducing balanced scorecard in the company and aligning all the activities to it can
result in the transformation of the business look (Duggan, 2018).
Conclusion
In the conclusion, it can be said that a Balanced Scorecard is a modern approach which helps
businesses in tracking all their activities and take possible actions. McDonald's is the biggest
fast-food chain which involves various employees and activities in its business processes. In
order to maintain all these activities, identifying objectives and taking proper measures is
very important because the business environment and conditions are dynamic in nature.
Therefore, McDonald's should establish balanced scorecard approach in its business so that

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can consider four important perspectives such as Customer perspective, financial
perspectives, learning, and growth perspective and business processes perspectives.

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