May 16, 2014
A Visit from McDonald’s President and CEO Don Thompson: Our Faculty Discusses
McDonald’s President and CEO Don Thompson’s visit to the Kellogg School as part of the Brave Leader Series was a helpful reminder that, if you have ambitions of serving 70 million customers a day, you’d better have a handle on your operations. Global supply chains, speed, and customization were the main topics of a discussion that included Kellogg School faculty members, Dean Sally Blount, and Thompson. Several faculty members who attended the event weighed in with their takeaways:
Professor Marty Lariviere: I found Mr. Thompson’s comments on growth interesting—particularly since they highlighted contrasting approaches between a developed market like the United States and developing countries like China and Vietnam. He asserted that McDonald’s has room for many more restaurants in the U.S. and that growth would be driven by data. That is, they have enough analytics expertise to be able to site restaurants—based on traffic patterns, demographics, and such—so that new sites have minimal impact on existing locations. This struck me as at least a little surprising simply because they already have so many restaurants in the U.S. While I believe that a smart, data-driven approach could add value, I was surprised to hear that McDonald’s still sees many open opportunities in the U.S.
In contrast, Thompson said that growth in developing markets is limited by infrastructure as opposed to information. This echoed discussions with McDonald’s executives in China. In the U.S., it is almost inconceivable to think of a midsized city devoid of Golden Arches. But in China, McDonald’s is holding off on entering some cities despite the fact that they have millions of residents. The problem is that McDonald’s doesn’t yet have the supply-chain infrastructure to serve those cities adequately. Although it is often natural to think of McDonald’s as a marketing machine, this emphasizes just how important operations—both in the restaurants and supporting the restaurants—is to its success.
Professor and Senior Associate Dean of Strategic Initiatives Tom Hubbard: Completely agree, Marty. The pervasiveness of McDonald’s and its advertising sometimes makes me forget the degree to which it is truly an operations-driven company. Shame on me for continuing to forget this point. It was true in the 1950s and is true now, and comes out whenever someone from McDonald’s starts talking about “the McDonald’s system” and referring to food categories such as “protein.” This is a firm that, when successful, thinks constantly about its system and how it can be utilized intensively.
Professor Aparna Labroo: It was exciting to hear Don Thompson speak at length about growth plans at McDonald’s. In established markets, they are leveraging technology to better manage operations and connect directly with consumers. To signal quality, in Australia, they have an app showing sourcing of different foods. In Canada, their “Our Food. Your Questions.” program increases transparency about quality and connects the company directly with consumers. This expediency is necessary: in a recovering U.S. economy, financially strained consumers have other options available, while less financially strained customers are turning to home deliveries and fully-cooked meals.
In emerging economies, a strategy of working with committed franchisees to fuse the quintessentially American McDonald’s experience with country-specific variations in consumer tastes and behaviors is serving McDonald’s well. But there is a difference between having a global presence and becoming a global player. Becoming truly global requires commitment to understanding the consumer and becoming a part of the fabric of society, just as McDonald’s is in the U.S. To be consumer-driven globally, McDonald’s may have to work even more closely with the franchises or consider a few flagship stores. Their ultimate trade-off could be between consumer-driven long-term returns or immediate profits at the risk of over-reliance on franchisees with increasing power.
Professor Eric Anderson: I was very impressed with how well McDonald’s understands its customers and how their preferences vary across the globe. Big Mac in the United States; veggie patties in India; wings in China. Their adaptation to local tastes around the world is incredible. This requires not only mastering the consumer side of every market, but also mastering the supply chain for products that may only be sourced in a few geographies.
Professor Gad Allon: I asked Don about another aspect of McDonald’s operations: the company’s latest move to offer a higher degree of customization. Given that McDonald’s value proposition hinges on consistency and speed, this comes as a surprise. It was clear that he is well aware of the trade-off associated with it. First, customization will not be offered at the drive-through, which represents 70% of McDonald’s sales, as drive-through customers are extremely sensitive to speed. Secondly, McDonald’s is counting on using mobile technology to allow people to customize, as well as to reduce the perceived waiting time between order submission and pickup.