McDonalds Turn-Around: Obstacles To Implementing The Turnaround Plan

As you described the pillars of the turnaround, as you had developed the strategy and you are describing this clear break where you go the support of the CEO. What were some of the greatest challenges you experienced in implementing the strategy?

The biggest challenge in a turnaround, McDonalds is no different, in every company, whether it was General Motors or Ford Motor Company, or Renault, or Nissan, or McDonalds, or Intercontinental Hotels. The common thread is cultural resistance. When there’s a conflict between strategy and culture and you want to change the strategy, if it requires a change in culture, culture resistance will always win if you don’t address it head on. Culture is a powerful force. “This is what made us great.” Well, that’s wonderful to hear, but it might not help us create a great future. Reproducing the past is not a formula for success in the future. “This is how we’ve always done it.” Well, maybe that’s what’s wrong. Leaders are uncomfortable challenging culture head on because it is so powerful. If you don’t put cultural change first, you will not change anything.

Cultural change. How did you affect that?

I hate to use the word process because it’s such consultant speak. After all, our experience, you have to address that first, you have to refocus the organization on a new way of doing business. On a new mission for the company. On a new attitude about success. If you can’t do that, don’t bother trying anything else. Culture, number one step, is redefine the ambition of the business. What’s the purpose and the promise of the business? The mission of McDonalds that they were proud of, that was on posters, on walls, in speeches, presentations to analysts. I’m going to quote the exact words of the mission statement. To be the world’s best QSR. I asked people, I asked analysts in an analyst meeting. I asked employees. I asked franchisees. What is that meeting? What does that mean? What are you going to do to achieve that? I asked 100 people and I got 100 different answers. It was a Rorschach. It was the kind of mission statement a lot of companies have, that everybody can agree with and everybody can ignore. It was a UN resolution. Okay, that’s fine. That makes us feel good. I described it as a warm shower.

To be the world’s best QSR, does that mean you focus on the customer or do you focus on finances? To be the best QSR, does it mean you focus on cost-cutting or on new product investment? Does it mean you focus on advertising or training? What do you do differently? The most important question you should ask when you evaluate a mission statement is having this new mission statement, what will I do differently? If it doesn’t affect change in behavior, it will not affect change in results. We changed the mission statement. We killed the mission statement. Trust me, I got cultural resistance all the way up to the board of directors. As I just said. You’re changing the mission of the company? Well, under this mission, we’re losing money. How can that be the right mission? We changed it to be our customers favorite place and way to eat and drink. Favorite place and way to eat and drink. If you want, I’ll parse that. Favorite means we were going to run the business to build brand preference. The fascinating thing was McDonalds was number one fast food brand in sales and not the number one brand in preference. I go to McDonalds because it’s convenient, but I really would prefer to eat somewhere else. Convenience and price were the two reasons people went to McDonalds. It’s near me. It’s on my way to work. It’s on my way home. It’s convenient and it’s cheap. Convenient and cheap are the same two criteria people use to buy gas from a local gas station. We were selling fuel, not food. I said, that’s the killer. That commoditized it.

That means the reason people are going to come to us is not because they prefer our brand, but because we’re a commodity that happens to be low price and convenient. That’s not a way to high margin. We began with favoritism, not frequency. Our customers’ favorite, not everybody is our customer. Who’s our target audience? You can’t be everyone’s favorite, but you can be our customer’s favorite. Place meant the location. We want them to like the place, not just the food. That led to store redesign. A massive expenditure. If your goal is cost-cutting, we had stores that were out of date, old-fashioned, terrible designs. As you experienced in the UK, huge redesign energy came out of that, just that word, place and way to eat. People were eating a different way in many countries. The interesting thing about way to eat was that in the U.S., for example, 70 percent of McDonalds’ sales was through the drive through window. We were a drive through restaurant with an in-room dining attached, as opposed to a dining restaurant with the convenience of drive through. 70 percent of sales through the drive through. People don’t enter the restaurant. How do we make that experience better? That led to what came to be known as the double drive through, which many stores adopted around the world, which started in the U.S. Place and way to eat and drink.

Mc Café fit into that. Eat meant we were going to start working on the quality of our food, not just the price of our food. We had actually degraded the Big Mac quality because people wanted a cheap brand rather than a great tasting brand. That’s not true. We took our flagship brand and cut quality. It’s a sin. Think about that. Our favorite place and way to eat and drink. The impact that had on the business. Every word led to something we would do differently. Can you imagine how controversial that was? I had people on the leadership team that didn’t agree. I had Jim Cantalupo on my side. I had Charlie Bell on my side. The impact was historic. If you want to change the culture, change the ambition first. Then answer the question, so change the ambition, change the vision, change the mission. Whatever you want to call it. Then ask, okay, I get that. What am I going to do differently? I went through each word, what we were going to do differently. Then reinforce what you want people to do differently. Have visible reinforcement in the change in behavior. When somebody does come up with a new restaurant design that you think is going to work and then they’ve implemented it and sales went up, celebrate it. Make it exaggerate the behavior. Reward the behavior. Recognize and reward and reinforce the change in behavior, so that people believe that you believe in what you’re saying. The biggest sin of all is when leadership says do this and then they don’t do what they want you to do. I’ve seen that regularly. For example, I’ve had situations where leadership says we’re going to focus on the customer. We’re going to be customer driven. We’re going to build our brand. Then when it comes down to budgeting, they cut marketing expense. Who should I believe? Reinforcement of positive behavior is imperative. Then finally, the fourth pillar of culture change is, what are the success metrics?

Ultimately, if it doesn’t work, it’s academic. Is the success metric stock price? Is the success metric brand preference? We develop what we call the bottom line. Our bottom line were more customers, more often, more loyal, more revenues, more profit. Those were our metrics. In that order. If we had more revenues and more profit from fewer customers, that was not success. When I arrived, we were averaging a five percent decline in customers, but our profits were up. That is a guaranteed formula for bankruptcy. When that last customer comes to your store, he’s going to buy a million Big Macs a day. More customers, more often, more loyal means brand preference not just frequency. More revenues, more profits. Profit is the end of the equation, not the beginning. We adopted that as our metric. That will affect culture change.