Case Study

12 McDONALD’S: half a century

of growth
Nigel Slack

It’s loved and it’s hated. It is a shining example of how good value food can be brought
to a mass market. It is a symbol of everything that is wrong with ‘industrialised’, capital-
ist, bland, high-calorie and environmentally unfriendly commercialism. It is the best-
known and most-loved fast food brand in the world with more than 32,000 restaurants
in 117 countries, providing jobs for 1.7 million staff and feeding 60 million customers
per day. It is part of the homogenisation of individual national cultures, filling the
world with bland, identical, ‘cookie cutter’, Americanised and soulless operations that
dehumanise its staff by forcing them to follow ridged and over-defined procedures. But
whether you see it as friend, foe or a bit of both, McDonald’s has revolutionised the food
industry, affecting the lives of both the people who produce food and the people who
eat it. It has also had its ups (mainly) and downs (occasionally). Yet, even in the toughest
times it has always displayed remarkable resilience. Even after the economic turbulence
of 2008, McDonald’s reported an exceptional year of growth in 2009, posting sales
increases and higher market share around the world – it was the sixth consecutive year
of positive sales in every geographic region of their business.

Starting small
Central to the development of McDonald’s is Ray Kroc, who by 1954 and at the age of
52 had been variously a piano player, a paper cup salesman and a multi-mixer sales-
man. He was surprised by a big order for eight multi-mixers from a restaurant in San
Bernardino, California. When he visited the customer he found a small but successful
restaurant run by two brothers Dick and Mac McDonald. They had opened their ‘Bar-
B-Que’ restaurant 14 years earlier, adopting the usual format at that time; customers
would drive-in, choose from a large menu and be served by a ‘car hop’. However, by
the time Ray Kroc visited the brothers’ operation it had changed to a self-service drive-
in format, with a limited menu of nine items. He was amazed by the effectiveness of
their operation. Focusing on a limited menu including burgers, fries and beverages,
had allowed them to analyse every step of the process of producing and serving their
food. Ray Kroc was so overwhelmed by what he saw that he persuaded the brothers to
adopt his vision of creating McDonald’s restaurants all over the US, the first of which
opened in Des Plaines, Illinois in June 1955. However, later, Kroc and the McDonald
brothers quarrelled, and Kroc bought the brothers out. Now with exclusive rights to the
McDonald’s name, the restaurants spread, and in five years there were 200 restaurants
through the US. After ten years the company went public; the share price doubling in
the first month. But through this, and later, expansion, Kroc insisted on maintaining
the same principles that he had seen in the original operation. ‘If I had a brick for every

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time I’ve repeated the phrase Quality, Service, Cleanliness and Value, I think I’d probably be
able to bridge the Atlantic Ocean with them’ (Ray Kroc).

Priority to the process

Ray Kroc had been attracted by the cleanliness, simplicity, efficiency and profitability
of the McDonald brothers’ operation. They had stripped fast food delivery down to
its essence and eliminated needless effort to make a swift assembly line for a meal at
reasonable prices. Kroc wanted to build a process that would become famous for food
of consistently high quality, using uniform methods of preparation. His burgers, buns,
fries and beverages should taste the same in Alaska as in Alabama. The answer was
the ‘Speedee Service System’; a standardised process that prescribed exact preparation
methods, specially designed equipment and strict product specifications. The emphasis
on process standardisation meant that customers could be assured of identical levels
of food and service quality every time they visited any store, anywhere. Operating pro-
cedures were specified in minute detail. In its first operations manual, which by 1991
had reached 750 pages, it prescribed specific cooking instructions such as temperatures,
cooking times and portions to be followed rigorously. Similarly, operating procedures
were defined to ensure the required customer experience, for example, no food items
were to be held more than 10 minutes in the transfer bin between being cooked and
being served. Technology was also automated. Specially designed equipment helped
to guarantee consistency using ‘fool-proof’ devices. For example, the ketchup was dis-
pensed through a metered pump. Specially designed ‘clam shell’ grills cooked both
sides of each meat patty simultaneously for a preset time. And when it became clear
that the metal tongs used by staff to fill French-fry containers were awkward to use effi-
ciently, McDonald’s engineers devised a simple V-shaped aluminium scoop that made
the job faster and easier, as well as presenting the fries in a more attractive alignment
with their container.
For Kroc, the operating process was both his passion and the company’s central
philosophy. It was also the foundation of learning and improvement. The company’s
almost compulsive focus on process detail was not an end in itself. Rather it was to
learn what contributed to consistent high-quality service in practice and what did not.
Learning was always seen as important by McDonald’s. In 1961, it founded ‘Hamburger
University’, initially in the basement of a restaurant in Elk Grove Village, Illinois. It had
a research and development laboratory to develop new cooking, freezing, storing and
serving methods. Also franchisees and operators were trained in the analytical tech-
niques necessary to run a successful McDonald’s. It awarded degrees in ‘Hamburger-
ology’. But learning was not just for headquarters. The company also formed a ‘field
service’ unit to appraise and help its restaurants by sending field service consultants to
review their performance on a number of ‘dimensions’ including cleanliness, queuing,
food quality and customer service. As Ray Kroc, said, ‘We take the hamburger business
more seriously than anyone else. What sets McDonald’s apart is the passion that we and our
suppliers share around producing and delivering the highest-quality beef patties. Rigorous food
safety and quality standards and practices are in place and executed at the highest levels every
day.’
No story illustrates the company’s philosophy of learning and improvement better
than its adoption of frozen fries. French fried potatoes had always been important for
McDonald’s. Initially, the company tried observing the temperature levels and cooking

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methods that produced the best fries. The problem was that the temperature during the
cooking process was very much influenced by the temperature of the potatoes when
they were placed into the cooking vat. So, unless the temperature of the potatoes before
they were cooked was also controlled (not very practical) it was difficult to specify the
exact time and temperature that would produce perfect fries. But McDonald’s research-
ers have perseverance. They discovered that, irrespective of the temperature of the raw
potatoes, fries were always at their best when the oil temperature in the cooking vat
increased by three degrees above the low temperature point after they were put in the
vat. So by monitoring the temperature of the vat, perfect fries could be produced every
time. But that was not the end of the story. The ideal potato for fries was the Idaho Rus-
set, which was seasonal and not available in the summer months, when an alternative
(inferior) potato was used. One grower, who, at the time, supplied a fifth of McDon-
ald’s potatoes, suggested that he could put Idaho Russets into cold storage for supplying
during the summer period. Notwithstanding investment in cold storage facilities, all
the stored potatoes rotted. Not to be beaten, he offered another suggestion. Why don’t
McDonald’s consider switching to frozen potatoes? This was no trivial decision and the
company was initially cautious about meddling with such an important menu item.
However, there were other advantages in using frozen potatoes. Supplying fresh potatoes
in perfect condition to McDonald’s rapidly expanding chain was increasingly difficult.
Frozen potatoes could actually increase the quality of the company’s fries if a method of
satisfactorily cooking them could be found. Once again McDonald’s developers came to
the rescue. They developed a method of air drying the raw fries, quick frying, and then
freezing them. The supplier, who was a relatively small and local supplier when he first
suggested storing Idaho Russets, grew its business to supply around half of McDonald’s
US business.
Throughout their rapid expansion, a significant danger facing McDonald’s was los-
ing control of their operating system. They avoided this, partly by always focusing on
four areas – improving the product, establishing strong supplier relationships, creating
(largely customised) equipment and developing franchise holders. But also it was their
strict control of the menu which provided a platform of stability. Although their com-
petitors offered a relatively wide variety of menu items, McDonald’s limited theirs to
ten items. This allowed uniform standards to be established, which in turn encouraged
specialisation. As one of McDonald’s senior managers at the time stressed, ‘It wasn’t
because we were smarter. The fact that we were selling just ten items [and,] had a facility that
was small, and used a limited number of suppliers created an ideal environment.’ Capacity
growth (through additional stores) was also managed carefully. Well-utilised stores were
important to franchise holders, so franchise opportunities were located only where
they would not seriously undercut existing stores. Ray Kroc used the company plane
to spot from the air the best locations and road junctions for new restaurant branches.

Securing supply
McDonald’s says that it has been the strength of the alignment between the com-
pany, its franchisees and its suppliers (collectively referred to as the System) that has
been the explanation for its success. Expanding the McDonald’s chain, especially in
the early years meant persuading both franchisees and suppliers to buy into the com-
pany’s vision, ‘Working’, as Ray Kroc put it, not for McDonald’s, but for themselves,
together with McDonald’s.’ He promoted the slogan, ‘In business for yourself, but

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not by yourself.’ But when they started, suppliers proved problematic. McDonald’s
approached the major food suppliers, such as Kraft and Heinz, but without much suc-
cess. Large and established suppliers were reluctant to conform to McDonald’s require-
ments, preferring to focus on retail sales. It was the relatively small companies who were
willing to risk supplying what seemed then to be a risky venture. Yet, as McDonald’s
grew, so did its suppliers. Also, McDonald’s relationship with its suppliers was seen
as less adversarial than with some other customers. One supplier is quoted as saying;
‘Other chains would walk away from you for half a cent. McDonald’s was more concerned with
getting quality. McDonald’s always treated me with respect even when they became much big-
ger and didn’t have to.’ Furthermore, suppliers were always seen as a source of innovation.
For example, one of McDonald’s meat suppliers, Keystone Foods, developed a novel
quick-freezing process that captured the fresh taste and texture of beef patties. This
meant that every patty could retain its consistent quality until it hit the grill. Keystone
shared its technology with other McDonald’s meat suppliers for McDonald’s, and today
the process is an industry standard. Yet, although innovative and close, supplier rela-
tionships are also rigorously controlled. Unlike some competitors who simply accepted
what suppliers provided, complaining only when supplies were not up to standard,
McDonald’s routinely analysed its supplier’s products.

Fostering franchisees
McDonald’s revenues consist of sales by company operated restaurants and fees from
restaurants operated by franchisees. McDonald’s view themselves primarily as a fran-
chisor and believe franchising is … ‘important to delivering great, locally-relevant cus-
tomer experiences and driving profitability’. However, they also believe that directly
operating restaurants is essential to providing the company with real operations experi-
ence. In 2009, of the 32,478 restaurants in 117 countries, 26,216 were operated by fran-
chisees and 6,262 were operated by the company. Where McDonald’s was different to
other franchise operations was in their relationships. Some restaurant chains concen-
trated on recruiting franchisees that may then be ignored. McDonald’s, on the other
hand, expected its franchisees to contribute their experiences for the benefit of all. Ray
Kroc’s original concept was that franchisees would make money before the company
did. So he made sure that the revenues that went to McDonald’s came from the success
of the restaurants themselves rather than from initial franchise fees.

Initiating innovation
Ideas for new menu items have often come from franchisees. For example, Lou Groen,
a Cincinnati franchise holder had noticed that in Lent (a 40-day period when some
Christians give up eating red meat on Fridays and instead eat only fish or no meat at
all) some customers avoided the traditional hamburger. He went to Ray Kroc, with his
idea for a ‘Filet-o-Fish’; a steamed bun with a shot of tartar sauce, a fish fillet, and cheese
on the bottom bun. But Kroc wanted to push his own meatless sandwich, called the
hula burger; a cold bun with a piece of pineapple and cheese. Groen and Kroc com-
peted on a Lenten Friday to see whose sandwich would sell more. Kroc’s hula burger
failed, selling only six sandwiches all day, while Groen sold 350 Filet-o-Fish. Similarly,
the Egg McMuffin was introduced by franchisee Herb Peterson, who wanted to attract

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customers into his McDonald’s stores all through the day, not just at lunch and din-
ner. He came up with idea for the signature McDonald’s breakfast item because he was
reputedly ‘very partial to eggs Benedict and wanted to create something similar’.
Other innovations came from the company itself. By the beginning of the 1980s,
poultry was becoming more fashionable to eat and sales of beef were sagging. Fred
Turner, then the Chairman of McDonald’s, had an idea for a new meal; a chicken finger-
food without bones, about the size of a thumb. After six months of research, the food
technicians and scientists managed to reconstitute shreds of white chicken meat into
small portions which could be breaded, fried, frozen and then reheated. Test-marketing
the new product was positive, and in 1983 they were launched under the name Chicken
McNuggets. These were so successful that within a month McDonald’s became the
second largest purchaser of chicken in the USA. By 1992, Americans were eating more
chicken than beef.
Other innovations came as a reaction to market conditions. Criticised by nutrition-
ists who worried about calorie-rich burgers and shareholders who were alarmed by
flattening sales, McDonald’s launched its biggest menu revolution in 30 years in 2003
when it entered the prepared salad market. They offered a choice of dressings for their
grilled chicken salad with Caesar dressing (and croutons) or the lighter option of a driz-
zle of balsamic dressing. Likewise, recent moves towards coffee sales were prompted by
the ever-growing trend set by big coffee shops like Starbucks. McCafé, a coffee-house-
style food and drink chain, owned by McDonald’s, had expanded to about 1,300 stores
worldwide by 2011.

Problematic periods
The period from the early 1990s to the mid-2000s was difficult for parts of the McDon-
ald’s Empire. Although growth in many parts of the world continued, in some devel-
oped markets, the company’s hitherto rapid growth stalled. Partly this was due to
changes in food fashion, nutritional concerns and demographic changes. Partly it was
because competitors were learning to either emulate McDonald’s operating system, or
focus on one aspect of the traditional ‘quick service’ offering, such as speed of service,
range of menu items, (perceived) quality of food or price. Burger King, promoted itself
on its ‘flame-grilled’ quality. Wendy’s offered a fuller service level. Taco Bell undercut
McDonald’s prices with their ‘value pricing’ promotions. Drive-through specialists
such as Sonic speeded up service times. But it was not only competitors that were a
threat to McDonald’s growth. So called ‘fast food’ was developing a poor reputation in
some quarters, and as its iconic brand, McDonald’s was taking much of the heat. Simi-
larly, the company became a lightning rod for other questionable aspects of modern
life that it was held to promote, from cultural imperialism, low-skilled jobs, abuse of
animals, the use of hormone-enhanced beef, to an attack on traditional (French) values
(in France). A French farmer called Jose Bové (who was briefly imprisoned) got other
farmers to drive their tractors through, and wreck, a half-built McDonald’s. When he
was tried, 40,000 people rallied outside the courthouse.
The Chief Executive of McDonald’s in the UK, Jill McDonald, said that some past dif-
ficulties were self-induced. They included a refusal to face criticisms and a reluctance to
acknowledge the need for change. ‘I think by the end of 1990s we were just not as close to the
customer as we needed to be, we were given a hard time in the press and we lost our confidence.
We needed to reconnect, and make changes that would disrupt people’s view of McDonald’s.’

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Investing in its people also needed to be re-emphasised. ‘We invest about £35m a year in
training people. We have become much more of an educator than an employer of people.’ Nor
does she accept the idea of ‘McJobs’ (meaning boring, poorly paid, often temporary jobs
with few prospects). ‘That whole McJob thing makes me so angry. It’s snobbish. We are the
biggest employer of young people in Britain. Many join us without qualifications. They want
a better life, and getting qualifications is something they genuinely value.’

Surviving strategies
Yet, in spite of its difficult period, the company has not only survived, but through the
late 2000s has thrived. In 2009 McDonald’s results showed that in the US, sales and
market share both grew for the seventh consecutive year with new products such as
McCafé premium coffees, the premium Angus Third Pounder, smoothies and frappes,
together with more convenient locations, extended hours, efficient drive-thru service
and value-oriented promotions. In the UK, changes to the stores’ décor and adapting
menus have also helped stimulate growth. Jill McDonald’s views are not untypical of
other regions, ‘We have probably changed more in the past four years than the past 30: more
chicken, 100 per cent breast meat, snack wraps, more coffee – lattes and cappuccinos, ethically
sourced, not at rip-off prices. That really connected with customers. We sold 100m cups last
year.’
Senior managers put their recent growth down to the decision in 2003 to reinvent
McDonald’s by becoming ‘better, not just bigger’ and implementing its ‘Plan to Win’.
This focused on ‘restaurant execution’, with the goal of … ‘improving the overall experi-
ence for our customers’. It provided a common framework for their global business, yet
allowed for local adaptation. Multiple improvement initiatives were based on its ‘five
key drivers of exceptional customer experiences’ (People, Products, Place, Price and
Promotion). But what of McDonald’s famous standardisation? During its early growth
no franchise holder could deviate from the 700+ page McDonald’s operations manual
known as ‘the Bible’. Now things are different, at least partly because different regions
have developed their own products. In India, the ‘Maharaja Mac’ is made of mutton,
and the vegetarian options contain no meat or eggs. Similarly, McDonald’s in Pakistan
offers three spicy ‘McMaza meals’. Even in the USA things have changed. In at least one
location in Indiana, there’s now a McDonald’s with a full service ‘Diner’ inside, where
waitresses serve 100 combinations of food, on china; a far cry from Ray Kroc’s vision of
stripping out choice to save time and money.’

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 cas e s tudy 13 • Onta r i o fac i li t i e s e qu i t y m a nage m e nt ( O FEM )

Case Study

13 Ontario facilities equity

management (OFEM)
Nigel Slack

Facilities management now is a multi-billion dollar business in most developed econo-

mies. Facilities management companies offer a range of property management services
including basic maintenance, cleaning, fitting and supplying office equipment, heat-
ing and environmental services, ‘disaster recovery’ services and, increasingly, informa-
tion technology equipment hosting and leasing.
‘Facilities management is the basic housekeeping of business. It may not be glamorous but
it is vital. It has always been done of course, usually in-house by people who often had other
responsibilities. As buildings and services became more sophisticated, the provision of even
standard office services required more cash and more expertise. Most large companies soon
found that companies like OFEM could provide these services better and cheaper. That is
what we have to keep in mind as we move into providing more (and more varied) services –
we have to be better and cheaper than our customers could do it for themselves. If we ever
forget that we will be in trouble.’
(Guy Presson, CEO, OFEM)

The Security Division

Within OFEM, the Security Division looked after the development and installation
of security equipment and systems in clients’ property. These included alarm and
intrusion systems, security enclosures (safes), surveillance and monitoring systems,
and entry security systems. In fact, entry security systems were becoming particularly
important for the company. Many firms were increasingly security conscious. As com-
panies became more information-based, they felt vulnerable to industrial espionage or
threats from individuals and groups dedicated to causing disruption, either for its own
sake, or to pursue political ends. Entry security systems had the purpose of permitting
entry into various parts of a building only those individuals who were authorised to be
there. Traditionally, this had been done using swipe cards or various kinds of security
PIN numbers and codes.
‘Entry security systems are now in routine use. There are very few of our clients who do
not want some kind of personnel security system, and they expect us to be able to provide
it. Financial services companies have been in the forefront of our customers, demanding
increasingly tight security. More recently it has been IT-based companies who have made
the running in demanding security. Some of our most demanding clients now are those with
large web-hosting operations. They demand several levels of security, as a minimum at the
‘building’, ‘department’ and ‘machine’ levels. In other words, individuals need to be checked
for access authorisation as they enter the building, when they enter a particular part of

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the building, and before they can use an individual terminal to access computer systems.
Machine level security has traditionally been provided using encrypted security passwords.
However, passwords are particularly problematic because they are either forgotten, written
down or even shared. In fact, it is not difficult to guess many people’s passwords.’
(­Mirella Freni, Head of Security Division)

Technological developments
The Security Division was facing a period of technological change in so much as several
new developments in security technology were starting to emerge. These were affect-
ing both what was known as ‘front-end’ and ‘back-end’ elements of security systems.
Back-end technologies were the systems which record, analyse and interpret the data
from front-end technology such as swipe cards and so on. These systems enabled com-
panies to know exactly who was where, and when. In addition to the use of such infor-
mation for security purposes, it could also be used for monitoring employee working
hours, and so on. Systems were now becoming available which could detect ‘abnormal’
behaviour in staff. For example, if the same swipe card was used to enter a building
within minutes of it being used to leave the building, this could prompt an investiga-
tion to check that it had not been lost and picked up by an unauthorised individual.
OFEM were considering adopting this type of technology. It would mean working
closely with systems developers to provide a generic system that could be customised
to the needs of individual clients. This would be expensive but the company felt that
they could probably charge clients for the extra services this technology would provide.
The systems themselves were very similar to those used by credit card companies to
detect unusual behaviour, but would need some modification. It was estimated that
OFEM would need to invest between C$2.5 and C$3 million over the next two years to
have these systems up and running. The revenues from such an enhanced service were
difficult to estimate, but some within the firm claimed they could be as high as C$1 to
C$1.5 million per year.
It was the recent ‘front-end’ technological developments which were even more
intriguing. These involved the application of biometrics – using human features for
unique identification. This technology was becoming available commercially for the
routine identification of individuals through features such as eye characteristics, fin-
gerprints, voice recognition and even body odor. In particular, fingerprint recognition
and iris (the central part of the eye) recognition looked promising. Fingerprint identi-
fication was in many ways the simpler of the two.
‘One advantage of using fingerprints for unique identification is that the same system can
be used at all levels of security. Fingerprints can allow access to buildings, departments,
and can also allow access to an individual machine. Panasonic has already produced some
laptops for one life insurance company with a fingerprint reader built in. This means that the
security risks of losing a laptop or having it stolen are virtually eliminated. Such technology
can also be used for mobile phone security. But fingerprint recognition is not perfect. It can
be affected by machine malfunction or changes and damage to an individual’s skin.’
(­Mirella Freni, Head of Security Division)
More exciting in the long run was the prospect of extensive use of iris recognition. An
individual’s iris is one of the most uniquely identifiable characteristics and one which

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