SWINBURNE UNIVERSITY
McDonalds 2001 failed ‘Innovate Project,’
Business Analysis Author: Lee Trevena
Swinburne University INF60003 - Systems Development
Faculty of Business and Law Information Systems, Entrepreneurship and Logistics
28 December 2015
Author: Lee Trevena - INF60003 Systems Development Monday, 28 December 2015
2 | P a g e
Lee Trevena, Student Identification Number: 5820723 2 Assignment 1
EXECUTIVE SUMMARY
The purpose of this document is to gain an understanding of the key factors in the failed ‘Innovate
Project,’ a venture initiated by fast-food giant McDonalds in 2001.
Using a variety of available documentation pertinent to the line of inquiry and as a term of reference, it was
clear from the criteria reviewed against McDonald’s undertakings, that there were crucial steps, which McDonalds
neglected to consider.
The following considerations have been identified as key contributing factors to the failed ‘Innovate Project.’
Insufficient leadership – lack of ownership / responsibility for various key deliverables
Poor communication – objectives not made clear to all stakeholders. There was no clear direction on roles
and responsibility, poor project charter/briefing.
Lack of expertise and experience – McDonalds had never taken on a SDP as large and complex as this before
and failed to consider resources and organisational structure.
Failed to take a holistic approach
Failed to match strategy and structure – was unable to translate the strategy into structure
Failed to consider culture – this resulted in lack of cooperation from some stakeholders i.e. franchisers
Took on too much too soon – should have developed in phases and moved to next phase once current phase
successful.
OVERVIEW
This document reviews the failed ‘Innovate Project,’ a venture initiated by fast-food giant
McDonalds in 2001.
The research conducted for this inquiry has identified criteria viewed as being pertinent to
the line of inquiry and subsequently used as a term of reference in order to ascertain and
present the findings that led to McDonald’s ‘Innovate Project’ downfall.
4 | P a g e
Lee Trevena, Student Identification Number: 5820723 4 Assignment 1
TABLE OF CONTENTS
Executive Summary ............................................................................................................................................................................. 2
Overview ............................................................................................................................................................................................. 3
Introduction ........................................................................................................................................................................................ 5
Purposes of this inquiry ...................................................................................................................................................................... 6
The approach to this inquiry ............................................................................................................................................................... 6
Limitations .......................................................................................................................................................................................... 6
success factors for systems development projects ............................................................................................................................ 6
metrics for the critical success factors-related controls? ................................................................................................................... 8
How can internal auditors help improve the success rate of systems development projects? ......................................................... 8
auditors involvement in systems development projects? .................................................................................................................. 9
How can internal auditors protect themselves from becoming scapegoats if a systems development project is not fully
successful? .......................................................................................................................................................................................... 9
Do systems development methodologies matter? Why or why not? .............................................................................................. 10
How to select a suitable systems development methodology to guideline the project? ................................................................. 10
What roles are played by organisational culture, structure and strategies? .................................................................................... 10
Do stakeholders matter? .................................................................................................................................................................. 11
Do non-technical issues, such as ethics, matter to systems development projects? ....................................................................... 11
Conclusion ......................................................................................................................................................................................... 11
Recommendations ............................................................................................................................................................................ 12
References ........................................................................................................................................................................................ 13
5 | P a g e
Lee Trevena, Student Identification Number: 5820723 5 Assignment 1
INTRODUCTION
In January 2001, fast-food giant McDonald's conceived the ‘Innovate Project,’ a system aimed to be a state-of-the-art
international digital network and enterprise resource planning system for human resources, supply-chain
management and financial data management (Kellogg School of Management, 2004). MacDonald’s strategic was to
expend $1 billion over a five-year period to integrate and connect all its operations in to a real-time digital network
(Barrett, L, & Gallagher, S 2003). What was promised in McDonald’s ‘Innovate Project’ was a Global Private Network
capable of having every restaurant feeding data to the global headquarters and track the following activities in
restaurants:
o Daily Sales Volume o Temperature of product/equipment o Amount of time to make perfect burger o Drive thru times o Inventory o Training
(College of Engineering & Mines, 2014)
According to the College of Engineering & Mines (College of Engineering & Mines, 2014), the Innovate applications
and infrastucture intergrated the following:
Application / Service Product Supplier
Application Server Oracle 11i Oracle
Enterprise resource planning systems (ERP) Oracle 11i Financials Oracle
Business intelligence / analysis Oracle 11i Business Intelligence Oracle
Sales performance, data warehouse Oracle 9i Oracle
Wide area network (WAN) routers n/a Cisco Systems
Application servers Sun Fire enterprise servers Sun Microsystems
Storage n/a EMC
Table 1 (College of Engineering & Mines, 2014)
Using the technologies stated in table 1, the innovate system was to replace McDonald’s antiquated system of ten
years, an IBM mainframe general ledger accounting system (Kellogg School of Management at Northwestern
University, 2004). The new enterprise architecture was to facilitate and streamline how employees access and
analyse information to make business decisions through a comprehensive and centralised Oracle-based system
based system (BALTZAN, BLAKEY, LYNCH 2015, p333).
Consultants such as, PWC, Bearing Point and Mpower assisted with the systems development, however, before the
Innovate Project even got off the ground it failed (Kellogg School of Management at Northwestern University, 2004).
The Innovate project was discontinued in December 2002, which saw $170 million being a write-off, the most
expensive and extensive information technology project in McDonald’s history (Barrett, Gallagher, 2003).
6 | P a g e
Lee Trevena, Student Identification Number: 5820723 6 Assignment 1
PURPOSES OF THIS INQUIRY
The purpose of this inquiry is to gain knowledge and understanding of present issues in systems development by
investigating the factors affecting the success of the fast-food giant ‘McDonalds’ 2001 systems development.
THE APPROACH TO THIS INQUIRY
The approach to this inquiry was pursuant to the following terms of reference:
o What are the critical success factors for systems development projects?
o What are the metrics for the critical success factors-related controls?
o How can internal auditors help improve the success rate of systems development projects?
o How can internal auditors become more involved in systems development projects?
o How can internal auditors protect themselves from becoming scapegoats if a systems development project is
not fully successful?
o Do systems development methodologies matter? Why or why not?
o How to select a suitable systems development methodology to guideline the project?
o What roles are played by organisational culture, structure and strategies?
o Do stakeholders matter?
o Do non-technical issues, such as ethics, matter to systems development projects?
Various reference criteria concerning the subject of systems development project’s, success or failure, was considered
in this investigation.
LIMITATIONS
The scope of this inquiry has been limited to the articles listed above, which are viewed as being pertinent to the area
of inquiry. Its prime concern is identifying issues in systems development projects through investigating the 2001
McDonalds systems crisis.
SUCCESS FACTORS FOR SYSTEMS DEVELOPMENT PROJECTS
I found significant evidence supporting the need to take a holistic approach and consider the wider background and
context to these systems as opposed to a scientific focus (Rothaermel, 2012, p.8-38). It is nessecary to understand
that different organisations will have their own structures and culture which should be considered at the planning
stage of systems development (Rothaermel, 2012, p.303). In contrast, McDoualds seemingly fell short in this area
(Kellogg School of Management, 2004).
Three key levers were identified, which McDonalds would have benefited from in designing their organisation for
competitive advantage - structure, culture and control (Rothaermel, 2012, p.303). Considering these factors, the
coordniation of work and cooperation from stakeholders, across different levels, functions, and geographies, may
perhaps have aided the project greatly (Rothaermel, 2012, p.303). I am satisfied that, if McDonalds had effectively
used the three levers critiria, the translation of the selected strategies into structure would have increased success
probability (Rothaermel, 2012, p.303). It should also be highlighted the importance to match strategy and structure
followed by carefully addressing the cooperate culture, as the culture can aid or obstruct any success (Rothaermel,
2012, p.303). Numerous systems developments have failed because managers were unable to action chosen
strategies effectively, as in the case of former Yahoo CEO Jerry Yang (Rothaermel, 2012, p.303). His inability to
7 | P a g e
Lee Trevena, Student Identification Number: 5820723 7 Assignment 1
translate the stragtegy into structure meant no matter how good the strategy was it was never going to succeed,
likewise, if the organisation’s culture is unable or unwilling to adapt its structure then failure is inevitable
(Rothaermel, 2012, p.303 - 304).
Equally important, organisations that are successful in their existing business model, have a predisposition to
measure success through financial metrics and are susceptible to infexibility, leading to significant breakdowns in
their modus operandi when internal and external shifts occur, such events are called organisation inertia
(Rothaermel, 2012, p.304).
Another influence I identified is the ‘Systems Development Life Circle’ (SDLC) model (Tian & Chiong, 2012, p.118).
Despite the fact that there are variations to the SDLC model, the basic characteristics are the same and have had
significant guidance to the standardise approach in developing information systems as follows (Tian & Chiong, 2012,
p.118):
• feasibility study
• system investigation
• systems analysis
• systems design
• implementation
• review and maintenance
These six stages are commonly discussed as ‘conventional systems analysis’, ‘traditional systems analysis’,
‘information systems development life cycle’, or, more commonly in the USA, the waterfall model (Tian & Chiong,
2012, p.118). The term ‘life cycle’ indicates the presented nature of the process, what is more, by the time the
review stage arises, it is possible that the system maybe seen as insufficient, resulting in the six stage process being
revisited (Tian & Chiong, 2012, p.118).
It is important to reiterate here, that the above success factors discussed should be measured with the following
holistic considerations:
PROJECT MANAGEMENT
Systems Development Methodology
Quality Assurance
Change Management
Monitoring SDP Process
Financial Management
Tools and Infrastructure
Agile Optimization
PROJECT
System Requirements
Systems Interoperability
PEOPLE
Executive Support
Project Personnel
Project Management Expertise
Conflict Management
ORGANIZATION
User Involvement
Business Alignment
EXTERNALITIES
Vendor Relationship Management
(Gray et al. 2011)
Given the points discussed in this section, it is clear that McDonalds neglected some critical criterias that guide
industry in SDP.
8 | P a g e
Lee Trevena, Student Identification Number: 5820723 8 Assignment 1
METRICS FOR THE CRITICAL SUCCESS FACTORS-RELATED CONTROLS?
In addition to the balanced-scorecard model (Balanced Scorecard Institute, 2015), McDonalds could have used
culture, input controls, and output controls to enhance the firm’s strategic control and reward systems (Rothaermel,
2012, p.322).
Strategic control and reward systems are internal techniques designed to support the motivations of shareholders
and employees (Rothaermel, 2012, p.322). Using these systems appear to be of great benefit to managers as it
allows them to be specific in communicating objectives and obtain tangible metrics relating to goals, progress and
performance feedback (Rothaermel, 2012, p.322).
Input controls aim to define and direct employee behavior by a establishing clear and categorised operating
procedures as a standard model (Rothaermel, 2012, p.322). Input controls are applied when businesses want to
define specific steps to accomplish the strategic objective and to ensure predictictable outcome (Rothaermel, 2012,
p.322). The reason why this model is called input controls is due to their intended design, which are process steps
employees consider prior to making decisions, they are an input into the value-creation process (Rothaermel, 2012,
p.322).
Output controls direct the behavior of employees by outlining expected outcomes, this model is different to input
controls as it leaves the steps to accomplish the strategic objective open to strategtic business units (SBUs),
individual employees, or groups (Rothaermel, 2012, p.322).
Previously, I pointed out the importance of addressing organisational culture as it can either hinder or aid
development systems success. I am satisfied that the aspect of culture can also be used to effectively control
systems (Rothaermel, 2012, p.322). Rothaermel pointed out that, “standards, informal and tacit in nature, act as a
social control mechanism” (Rothaermel, 2012, p.322). For example, using a standardised practice, where employee
groups are rewarded based on the group’s overall productivity encourages peer control, resulting in group
expectations of conformity and performace (Rothaermel, 2012, p.322). This output control model can also aid
control in times of change, since such environmnets are more likely to address unforseen changes effectively with
greater motivation, as opposed to the input control, ‘rules and procedures’ environment, which tend to only
preprare empolyee’s for anticipated situations with little motivation (Rothaermel, 2012, p.322). This factor is
emphasised during McDonalds SDP, by virtue of the ‘rules and procedures’ fast-food environment.
HOW CAN INTERNAL AUDITORS HELP IMPROVE THE SUCCESS RATE OF SYSTEMS
DEVELOPMENT PROJECTS?
Internal auditors help improve the success rate of systems development projects through their knowledge, expertise
and experience. They are able to use data, information, business intelligence and knowledge to make decisions and
solve problems (BALTZAN, BLAKEY, LYNCH, 2015, p.24). By using these combined resources, they are able to apply
appropriate mechanisms and method that aid in the defining of what SDP need to do to accomplish their objectives
(Tian & Chiong, 2012, p.117). By focusing on such factors as process control, input controls, and output controls for
SDP they help ensure that the expected outcomes are reached and, if required, the means how they are reached
(Rothaermel, 2012, p.322). In contrast, McDonalds lacked experience and expertise (Kellogg School of Management,
2004).
9 | P a g e
Lee Trevena, Student Identification Number: 5820723 9 Assignment 1
AUDITORS INVOLVEMENT IN SYSTEMS DEVELOPMENT PROJECTS?
This inquiry found three basic approaches to the auditor’s involvement in systems development projects (Gray et al.
2011).
Auditor approach: this is a more traditional auditing function that monitors on a milestone basis. Its objective is to
closely track the progress of the SDP and ensure it is meeting expectations (Gray et al. 2011).
Consultant approach: this model has the internal auditors consulting the SDP team concerning controls and is
commonly on a needed basis (Gray et al. 2011).
Embedded approach: here the internal auditors are incorporated in the SDP team functioning in which they are used
as the control experts.
The boundaries of a project, in relation to the organisation, are defined as the ‘scope definition’ and the level of
involvement by auditors will differ according to this factor (Tian & Chiong, 2012, p.124). In any event, it is clear that
internal auditors are highly beneficial to SDP. Internal auditors, I believe, are most effective when they are
incorporated into the systems development on a regular basis (Gray et al. 2011).
HOW CAN INTERNAL AUDITORS PROTECT THEMSELVES FROM BECOMING
SCAPEGOATS IF A SYSTEMS DEVELOPMENT PROJECT IS NOT FULLY SUCCESSFUL?
The research identified several approaches that would be beneficial for internal auditors in order to safeguard
themselves from becoming scapegoats if SDP are unsuccessful.
The importance for clear communication is highly desirable in any situation, but none more so than activities that
require the collaboration of different individuals and groups in order to achieve a common goal. With this in mind, it
is highly desirable that clear written policies, standards and project charters (PC) be available to appropriate parties
involved in the SDP (Macleod, 2006). The PC should present clear details on roles, responsibilities, timelines and
objectives (Meredith, j, Mantel, S, 2009).
Since those in the IT sectors are first to be pointed out if something goes wrong, concerning SDP, the internal
auditors should approach this matter by, not only having effective controls in place, but be able to demonstrate that
they actively took the most appropriate steps to ensure company policies, standards and communication has
occurred from their end (Macleod, 2006). My experience suggests e-mail communication is desirable, as it is
tangible proof of any discussions of decision-making, even if it is simply to reiterate and support verbal discussion, it
may be helpful evidence later.
10 | P a g e
Lee Trevena, Student Identification Number: 5820723 10 Assignment 1
DO SYSTEMS DEVELOPMENT METHODOLOGIES MATTER? WHY OR WHY NOT?
This inquiry identified systems development methodologies as an important feature in SDP, the reason being, they
improve the practice of systems development (Tian & Chiong, 2012, p.123). They present a term of reference for
organisations to use for streamlining developments, where previous SDP experience, internally or externally, can be
guidance.
There are various SDP methodologies in use, which have evolved over time and practice and continue to do so (Tian
& Chiong, 2012, p.123). The type of methodology an enterprise uses depends greatly on the organisation, personnel
and project considerations (Office of Information Services, 2005). Commonly, methodologies recommend a
systematic exploration be taken, using documentation to ensure best practices occur (Tian & Chiong, 2012, p.123).
HOW TO SELECT A SUITABLE SYSTEMS DEVELOPMENT METHODOLOGY TO
GUIDELINE THE PROJECT?
Firstly, it should be emphasised the necessity to obtain a clear understanding of the possible dynamic characteristics
that occur technologically, internally and externally when organisations are confronted with continuing change in
order to maintain competitiveness (Rothaermel, 2012). For this reason, selecting the most appropriate methodology
to guideline the project organisations need to consider factors such as, the organisation, structure, culture, and any
modification on existing systems and what impact that will cause (Rothaermel, 2012, p.303). Mostly, McDonald’s
consideration of such criteria was limited thereupon having devastating effects.
WHAT ROLES ARE PLAYED BY ORGANISATIONAL CULTURE, STRUCTURE AND
STRATEGIES?
o Culture is defined by how an organisation and its members distinguish their identity, where established
values and assumptions are shared. It expresses what standards and behaviours are or are not valued in an
organisation, this in itself serves as signposts for members to conform and up hold the vales, behaviours and
social insight to perform their roles (Tian, 2015).
o Structure has four key building blocks, specialisation, formalization, centralization, and hierarchy
(Rothaermel, 2012, p.304). It is important to understand and consider these elements as some key SDP
decisions will be determined by structure, such as, how resources are used, how teams and individuals are
coordinated, integrated, and the formal and informal channels of communications (Rothaermel, 2012,
p.304).
o Strategy is the way that organisations take to reach objectives. Strategic management concerns itself with
the method used to establish its goals and articulates actions intended to accomplish the goals, including
timelines and monitoring the progress and results of key deliverables (Tian, 2015).
It is vital that these three factors are considered in a holistic perspective, such as, the ability to match strategy and
structure and the cultural adaptability to change (Rothaermel, 2012).
11 | P a g e
Lee Trevena, Student Identification Number: 5820723 11 Assignment 1
DO STAKEHOLDERS MATTER?
Meredith & Mantel (2009, p.23), defines stakeholders as parties-at-Interest, Individuals or groups with a special
interest in a project, usually this will include the project team, client, senior management, and specific public interest
groups.
Based on this definition, the simple answer is yes, they do matter. The importance of stakeholder cooperation was
emphasised during McDonalds SDP, where they failed to resolve conflict between stakeholders resulting in
Franchisees being disillusioned (Kellogg School of Management, 2004).
DO NON-TECHNICAL ISSUES, SUCH AS ETHICS, MATTER TO SYSTEMS
DEVELOPMENT PROJECTS?
The non-technical issues, such as security, ethical, and societal, are vital to SDP for several reasons (Tian & Chiong,
2012, p.402).
Information technologies can have beneficial or negative effects on society. Today there are global expectations that
industry is expected to follow, a level of responsibility and conduct that, if not followed, could have a damaging
impact, not only on society, but the stakeholders involved and the business itself, such as, reputation, sustainability,
and even litigation (Meredith, j, Mantel, S, 2009, p.128) (Tian & Chiong, 2012, p.402).
It is recommended that the use of clear guidelines concerning business ethics can be beneficial (Tian & Chiong, 2012,
p.402-404).
CONCLUSION
It was clear from the criteria I reviewed against McDonald’s undertakings, that there were crucial steps, which
McDonalds neglected to consider.
I am satisfied that the below key factors, which McDonalds failed to consider during their 2001 Innovative project, is
pertinent to its costly downfall:
o Insufficient leadership – lack of ownership / responsibility for various key deliverables
o Poor communication – objectives not made clear to all stakeholders. There was no clear direction on roles
and responsibility, poor project charter/briefing.
o Lack of expertise and experience – McDonalds had never taken on a SDP as large and complex as this before
and failed to consider resources and organisational structure.
o Failed to take a holistic approach
o Failed to match strategy and structure – was unable to translate the strategy into structure
o Failed to consider culture – this resulted in lack of cooperation from some stakeholders i.e. franchisers
o Took on too much too soon – should have developed in phases and moved to next phase once current phase
successful.
12 | P a g e
Lee Trevena, Student Identification Number: 5820723 12 Assignment 1
RECOMMENDATIONS
The terms of reference criteria discussed in this document is, I believe, pertinent to SDP, therefore needs
consideration for SDP.
The measures I discussed in this document, if adopted, would improve future systems developments projects (SDP)
and reduce the key issues that contributed to McDonald’s ‘innovate project’ demise.
13 | P a g e
Lee Trevena, Student Identification Number: 5820723 13 Assignment 1
REFERENCES
Balanced Scorecard Institute, 2015. Balanced Scorecard Basics. [Online]
Available at: http://balancedscorecard.org/Resources/About-the-Balanced-Scorecard
[Accessed 21 December 2015].
BALTZAN, BLAKEY, LYNCH, 2015. Business Driven Information. 2nd ed. North Ryde: McGraw-Hill Education.
College of Engineering & Mines, 2014. McDonald's Innovate. [Online]
Available at: https://www.cs.uaf.edu/2013/fall/cs471/Pres/McDonalds.pdf
[Accessed 14 December 14].
Gray, G. Gold, A, Jones, C, Miller,D, 2011. Improving System Development Project Success: How Internal, Northridge: California
State University.
Kellogg School of Management, 2004. McDonald's Innovate Project. [Online]
Available at:
http://www.kellogg.northwestern.edu/student/courses/tech914/summer2004/projectfailures/projectfailures/mcd.htm
[Accessed 13 December 2015].
Larry Barrett, S. G., 2003. Fast Food Fails Digital Networking Test. [Online]
Available at: http://www.baselinemag.com/c/a/Projects-Supply-Chain/McDonalds-McBusted
[Accessed 13 December 2015].
Macleod, C, 2006. Scapegoat or Superstar - escaping the managerial blame game. The British Journal of Administrative
Management, 1 October, pp. 24-25.
Meredith, j, Mantel, S, 2009. PROJECT MANAGEMENT - A Managerial Approach. 7th ed. s.l.:John Wiley & Sons.
Office of Information Services, 2005. SELECTING A DEVELOPMENT APPROACH. [Online]
Available at: https://www.cms.gov/research-statistics-data-and-systems/cms-information-
technology/xlc/downloads/selectingdevelopmentapproach.pdf
[Accessed 24 December 2015].
Rothaermel, FT, 2012. Organisational Design: Structure, Culture, and Control. In: Strategic management: concepts and cases.
New York: McGraw Hill Education, pp. 8-38.
Tian, X, 2015. Lesson 1 organisation and Information Final, Hawthorn: Swinburne.
Tian, X, & Chiong, R, 2012. Systems Development. Melbourne: McGraw Hill.
