McPrinciples to supersize business success

When Mr. Kroc started McDonald's, he shunned the kickbacks from suppliers that were common in the industry. Any supplier rebates went to the franchise owners, not the company, to make the foundation for his empire stronger. Handshake agreements are common with McDonald's suppliers even in today's litigious society.

The Globe and Mail
March 4, 2009

McPrinciples to supersize business success
Harvey Schacter


When Paul Facella was a young assistant manager at a McDonald's outlet in New York, he took the woman who would be his wife out to a fancy restaurant he could barely afford on his modest salary.

At a corner table, he happened to notice the owner/operator of the franchise where he worked. Uncomfortable with what to do, he waved sheepishly to his boss.

When dinner was finished, Mr. Facella tried to pay his bill. But the waiter informed him that wouldn't be necessary: "The gentleman at the corner table has taken care of it."

The incident illustrates some of the special ingredients that Mr. Facella believes have made McDonald's extraordinarily successful and could be applied to help your own organization.
McDonald's cover

Most of us think of McDonald's as a cost-efficient, machine-like operation. But in Everything I Know About Business I Learned At McDonald's, written with journalist Adina Genn, Mr. Facella takes us inside the organization to look at the heart, soul and principles that have made it an international hit.

Company founder Ray Kroc never graduated from high school. Most of the people who built the company lacked formal education. They started on the floor or at the grill, learning about burgers, fries and serving customers. If they went to university, it wasn't Harvard Business School, but the company's own Hamburger University.

"We delivered where it really counted — on the restaurant floor, with sales and customer satisfaction," Mr. Facella says.

He outlines seven principles they applied:

Honesty and integrity
When Mr. Kroc started McDonald's, he shunned the kickbacks from suppliers that were common in the industry. Any supplier rebates went to the franchise owners, not the company, to make the foundation for his empire stronger. Handshake agreements are common with McDonald's suppliers even in today's litigious society.

Mr. Facella recounts the story of John Paterakis, who remembers McDonald's asking his company to build the first automated bakery on the East Coast in Baltimore. Mr. Paterakis arrived at the crucial meeting with a lawyer and a proposed contract, only to be told by Mr. Kroc and McDonald's operations wizard Fred Turner that there was no point in a contract since either side could break it. Either they were going to have an honest relationship with each other or they weren't, and that meant being comfortable with each other as human beings, not sparring over a contract.

Mr. Turner constantly talked to staff about "the three-legged stool" — the strong relationships needed by three partners for the company's success: owners/operators, suppliers and corporate staff.

Mr. Facella says he learned at McDonald's that you could be a boss and still be friends with your staff. And, it might be added, with your suppliers.

Mr. Facella tells of Pat Paterno, a sales manager from a milk company, who remembers getting a call from Mr. Turner, asking if Mr. Paterno's company could help out a new operator in upstate New York. Mr. Paterno's company ended up lending the new operator money to open the store.

Years later, when Mr. Paterno's company couldn't afford to send him to a meeting of McDonald's operators, the operators took up a collection to help him — and, at their insistence, his wife — join them.

From the start, Mr. Kroc believed high standards would set the company apart from competitors.

"Those of us with ketchup in our blood," Mr. Facella writes, "the ones who rose through the ranks and were turned on in a competitive way, had a saying: 'Never be satisfied.' And we weren't. … We were always looking to beat yesterday's sales, cut energy expenses, increase our customer counts and lower costs to the stores. We were driven to be faster, cleaner and better."

Leading by example
The first time the author met Mr. Kroc was when the McDonald's founder was visiting New York and was taking him out to dinner. Mr. Facella tried to sit on one of the two small seats in the back of the limo. "You are my guest tonight. I'll sit there. You sit in the comfortable seat," Mr. Kroc said.

Company leaders knew how to impress their subordinates with their humility and energy. Top officials visiting franchises would pick rubbish off the grass and join in at the grill if there was a rush of customers.

McDonald's staff were taught to be willing to risk failure and to admit mistakes. They learned to walk away from deals that didn't feel right. They learned to speak their minds, respectfully, and challenge the status quo.

In the late 1980s, Mr. Turner set the example when, after lengthy negotiations to establish McDonald's outlets on all U.S. army bases, he walked away from the deal because it didn't feel right. McDonald's success came from individual owners/operators running their restaurants day to day, and he felt the stores on the base, run by the army as a franchisee, would lack that hands-on attention and suffer in quality.

"I was sweating bullets; it was a hard decision," he later said. But he felt "we had to stick to our formula — had to stick with who we are and how we do things."

Mr. Kroc used to stress that it's not how often you communicate that is important, but how well.

Communication at McDonald's is intended to be free flowing, and the company obviously communicates its brand extensively through marketing. The author stresses the importance of compromise when dealing with others, asking for feedback and honest performance appraisals.

McDonald's likes to inspire employees by rewarding them for their work. The culture is steeped in recognition, and Mr. Facella, as a consultant these days, has yet to find another company that embraces it to the same extreme.

It offers 23 different national awards, and many more at the regional and zone level — as well as informal recognition, such as what Mr. Facella received that night at the fancy restaurant with his future wife.

I began this book skeptical that McDonald's had much to teach us. Obviously, Mr. Facella is a booster who doesn't dwell on negatives. But the book's many anecdotes from inside the company suggest we can all do well to put our cynicism aside and learn from the best of the McDonald's ethos.

Special to The Globe and Mail

Risks: 30 different programs of kickbacks, shelf allowances and inside money, Tied contracting, Must buy only through franchisor (tied buying), Must lease, not buy, land and/or building, Award-winning franchisees, Portrait of a franchisor, United States, 20090304 McPrinciples of

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