Don Thompson’s Recipe for Growth

As president and COO of McDonald’s Corp. for the past year, Don Thompson has been working on flipping the business model at the world’s largest fast food restaurant chain–and he’s loving it. Flying from the Philippines to New York to receive the Achievement Award from the Executive Leadership Council, the highest honor from the pre-eminent organization of black senior executives, the energetic, 20-year veteran met with editors of Black Enterprise about major developments taking place to transform the Golden Arches.

He discussed adapting the corporate “Plan to Win” for today’s environment including the $2.4 billion the company has allocated to radically redesign 2,000 restaurants and build another 1,000, as well as new menu offerings such as oatmeal, smoothies, and frappes that promise to broaden the iconic corporation’s customer base worldwide. Innovation, Thompson says, serves to buttress the $23.5 billion company’s focus on customer service and affordability.

The recipe is clearly working: Third quarter earnings for McDonald’s, which serves 47 million customers a day at 32,000 outlets in 100 countries, rose 12% on the strength of global sales. In fact, sales were up 5.3% in the U.S.; 4.1% in Europe; and 8.1% in Asia/Pacific, the Middle East, and Africa.

Thompson also believes that further development of its diverse talent pool will propel the company forward in the coming decades. There’s a reason why McDonald’s has made our 40 Best Companies for Diversity list for six consecutive years: More than 50% of McDonald’s managers are women and minorities. The following are excerpts from our exclusive interview with Thompson on how the fast food chain maintains its competitive edge.

How do you define corporate leadership in today’s environment?
Corporate leadership today is transitioning. Historically, corporations decided to define themselves around both short- and long-term profitable growth and if they were publicly held it was about [making] sure that they had provided total shareholder return. Today, I think the additional point relative to how corporations are defined is much more by consumers. It’s not just financial anymore. It’s also what role corporations play in the overall community and overall corporate social environment.

There’s a lot of fear and uncertainty due to the economy. What strategies should companies employ to attract customers and boost sales?
The challenge today in business is that although there’s quite a bit of economic uncertainty and disposable income is quite depressed, you have to stay tied directly with customers. For us that means we’ve got to remain a part of their lives even though

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they may not have the same financial wherewithal to be able to visit us in our restaurants. We’ve adapted quite a bit. We have our expanded dollar menus but also things like breakfast which is one of the heaviest hit areas. So you have to continue to adjust. I think if you’re there for customers through these tough times, they’ll be there for you as the economy gets better.

What is the biggest business challenge you face?

For the past seven years we have experienced global comparable sales increases in every area of the world, and we’ve increased market share as well. We’re working hard to stay aligned around our business priorities in every market. A challenge we face is to not become complacent with the positive results we’re achieving. We continue to set aspirational targets for our markets.

How has McDonald’s been able to fend off competitors such as Subway and other fast food chains?
One of the reasons we’re doing well

is our growth beyond our traditional industry with new food items and beverages like McCafé Coffees, Frappés, and Real Fruit Smoothies; extended hours; as well as a renewed focus on our classic menu favorites and breakfast. We’ve reached outside of the traditional quick service industry to serve customers new and different products with the service, speed, and convenience they expect from McDonald’s.

Share with us McDonald’s approach to innovation.
R & D happens every day at McDonald’s. There is always someone somewhere, whether they are in the restaurants or another area, that gives me and our team feedback about what products we should offer or a different type of service. [Innovation] related to human resource development [focuses on] how we train our talent for tomorrow. We created a leadership institute which help us to do a couple of things. One, it exposes our senior leaders and leaders throughout the organization to a more strategic approach to business. The other thing is it allows us to see who the up-and-coming leaders within our corporation are.  So innovation takes place in all forms whether it’s human resource development, operating system development, supply chain efficiency, or those things customers see in a restaurant which is our menu pipeline.

How did you develop the current menu strategy? How do you test whether a new item resonates with customers?
Our menu strategy as well as our broader business strategies are focused on existing and emerging customer trends. We have a strong pipeline of unique food items that resonate with customers in every area of the world. Our efforts are grounded in consumer research and testing, and we allow customer feedback to guide future menu development.

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Share how the $2.4 billion initiative to remodel and build new restaurants came about. What will the new outlets communicate about the McDonald’s brand?
Our capital expenditures [include] plans to continue to build new restaurants at the appropriate pace and invest more dollars in re-imaging and remodeling our restaurants. We feel it is important to continue to invest in our business, along with our owner/operators, to ensure our customers have a modern, contemporary, and inviting experience when they visit McDonald’s.

A number of corporations have placed diversity on the back burner because of tough economic times. In terms of human resource development, what is McDonald’s current approach to diversity?
This has been a long journey for us. We began this effort back in

the ’70s with a main focus on reflecting the demographics of the customers that we served. Throughout McDonald’s–not just in the restaurants–[we were] beginning to develop that talent up through the management team. This migration has moved in several phases, from acknowledging diversity, which I think anybody can do, to really moving to a point of leveraging that for business benefits. We’ve found in these last seven years where we’ve had consecutive quarters of positive sales and earnings, it’s [been] driven a lot by the fact we have a lot of other faces sitting around that table who are not the same as people sitting there before.

So that commitment has come from the top?
Jim Skinner, our CEO, claimed back in 2003 that he wanted a more diverse pool of candidates each and every time we had an opportunity. So today a much more diverse McDonald’s is great for business for us. We would not be where we are today without having the mix of people, ideas, backgrounds, and ethnicities that we have in the organization. The last part is we’re a global company. Diversity takes on even broader meaning when you get outside the boundaries of the United States. In all of those areas we have to make sure that we’re representing the demographics of those various areas around the world. We’re not where we want to be yet but we’re moving forward faster and harder than we ever have before.