In 1917, the Spanish philosopher Jose Ortega y Gasset mused, “Every employee should be demoted to his immediately lower level, as every man has been promoted until turning incompetent.” His satire was referring to something known as the Peter Principle, which holds that organizational systems are structured to keep promoting successful people until the point at which they can no longer succeed at that work.
Don Thompson, the recently “resigned” CEO of McDonald’s, is the most recent example of this phenomenon. Thompson showed up on the scene at McDonald’s as an electric engineer in 1990, and did no excellent work. Within two years, he got put in charge of the quality control department. Again, there, he excelled. Within two years, he was learning the ins and outs of his promotion to operational manager. Still finding success, he took over oversight control of the entire San Diego region by the end of the 1990s.
The incremental steps of success continued for Thompson: He got in charge of McDonalds’ California, then eventually the entire Western division (which included oversight of almost 5,000 of the company’s 36,000 restaurants). That paved the way for him to get promoted to running all of McDonalds’ operations before becoming CEO after Skinner’s retirement two years ago.
At every step of the way—from engineering to running operations—Thompson was immensely successful, until he received that one promotion too many and actually became CEO of McDonald’s. It’s a shame that his name is now on that list of people who couldn’t get the job done when the big opportunity arose, because many of the problems at McDonald’s are large and do require exceptional leadership to overcome.
Forty years ago, eating at McDonald’s was “a thing.” Young families, old families, teens—it was the kind of place where you would go to get a burger and fries. McDonald’s knows what it does well—provides food cheap, fast, and convenient—and spent most of its corporate history cementing its advantages in those areas.
Unfortunately, in the past 10+ years, McDonald’s has resorted to some techniques that have fared poorly in the public spotlight as consumers focused on what a business has to do in order to sell a cheeseburger for $1 in this day and age (remember pink slime?).
Some of the criticism has been unfair as McDonald’s has been targeted for its low wages that employees earn. This is not something that is specifically a McDonald’s problem. Even at the smallest companies, janitors and cashiers will not be making much more than $9 or $10 per hour. This does not mean the work is not noble, but rather, a function of supply and demand in the labor force: You will not find any cashiers coasting to early retirement on accumulated savings from salary alone. Instead, the wage criticism is something of a Wal-Mart effect: McDonald’s is one of the biggest examples of a societal grievance, and therefore is a target of the backlash even though the behavior at McDonald’s isn’t distinguishable from its peers in the fast food industry.
The food quality problem is an issue that McDonald’s will need to resolve. If you get two chicken sandwiches with cheese, have fries and a drink, you will consume over a day’s worth of allotted calories from that meal alone unless you exercise. It doesn’t help when you can log onto YouTube and see video diaries of men who are fitness instructors and women who could easily pass as supermodels conduct experiments in which they eat nothing but McDonald’s for a month and then look overweight and unattractive at the end of the experiment. That does not help your brand equity.
Now, I don’t want to oversimplify the problem—McDonald’s sells salads, and someone could easily get a chicken salad at McDonalds three times per day, consume 1500 calories in total, and lose a pound or two per week by living exclusively on that McDonald’s menu item. The issue is that these offerings aren’t what people associate with McDonald’s—do you know anyone who actually desires to be seen eating at McDonald’s?
This isn’t to say that McDonald’s is a bad stock—the dividend is at 3.7%, the profits are stable, and this is probably one of the better times in recent memory to buy the stock because of the nice valuation propelled by slow growth and bad public perception. The real estate portfolio is immense, the world is still addicted to McDonald’s fries, and the profit margins on the coffee are insane. From a shareholder perspective, millionaires will still be minted, even if it is at a slightly slower pace than has been customary over the past few decades.
If rumor holds true during the Super Bowl this evening, McDonald’s should be taking a step in the right direction with the announcement of its Lovin’ Campaign in which random customers will be able to get free meals by paying for it with “Lovin.’” The premise is that every eighth, tenth, or whatever customer in line will be able to get their meal for free by doing a dance, fist bump, taking a selfie, calling a relative to tell them they love them, and so on.
Personally, I think this is a brilliant campaign. In terms of social media presence, McDonald’s has been a disaster in the internet age. The narrative has been about workers wanting $15 per hour and stories of poor conditions on the job, or in-depth looks at how the food has been processed through questionable sources that will make your appearance suffer while you take years off your life. Efforts to rebuild brand equity have been much needed. This campaign starts to take serious the rehabilitation effort. Of course, a brick is not a house, but showing happy people getting free food between February 2nd and February 14th paves the way for more substantive changes to the menu that could improve McDonald’s deteriorated reputation.