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McDonald’s Corporation operates on a three-legged stool, said president and COO Ralph Alvarez at a gathering of Executive MBA Program students January 12 at Gleacher Center. Its model is a balance of franchises, suppliers, and the corporation. “All three must succeed for the company to be stable,” he said. “All three legs have had their best years ever in the past five years.”
That kind of success has not always been the case at McDonald’s. In the 1990s, when the dot-com age was booming, McDonald’s tried to keep pace by, “chasing numbers,” Alvarez said. The company was building restaurants as fast as it could - 2,000 to 3,000 per year. The focus on growth was so great, executives lost control of the business. “We slipped in quality, service, cleanliness, value. We grew faster than people could be developed. Our stock went from $48 per share to $12.”
The good news? “When you have a problem,” Alvarez said, “you get permission to make radical changes.” The company made management changes and shifted to a customer focus. It got back to its basic business: leveraging trends, being local no matter where in the world, and investing in its owner/operators.
As a result, McDonald’s has been on the upswing since 2002. Alvarez said it’s had five years of global increases and success in nearly all its markets. “Fixing the core business has been the key to recovery,” he said. “We had a history of scaling. We’re not innovators; we do things better than others. We had to find solutions that went with McDonald’s. We’re better at getting better, not just bigger.”
This was an important message for first-year student Rafi Wilkinson, a product manager. “The most interesting thing [that Alvarez said] was about McDonald’s capitalizing on trends, not innovating,” Wilkinson said. “It’s good to get back to the basics of the business, to do the basics right.”
At McDonald’s that means “freedom within a framework,” Alvarez said. “We offer franchises flexibility in marketing, in the community, [and] in deciding compensation. But the McDonald’s framework is consistent. The brand is the same around the world.”
“This is so relevant,” said first-year student Ryan Novak. “It’s relevant to what we do at work, and what we’re learning at Chicago GSB. We are facing these same challenges.”
- Carmen Marti
