Thursday, April 24, 2008

Building the Scalable Enterprise

Early McDonald's restaurant, circa 1960

In 1954 Ray Kroc, a Multimixer salesman, took notice of the restaurants started by Mac and Dick McDonald in San Bernadino, CA in 1948. McDonald's was a highly focused, highly visible operation, featuring a simple menu (hamburgers, cheeseburgers, French fries, shakes and fountain soda), high quality ingredients and walk-up windows. Kroc partnered with the Brothers McDonald to franchise their speedy service system, then worked out the means to secure financing and expand the concept.

Kroc's unique genius was his ability to organize a highly distributed business network that promoted efficiency and rapid growth. Rather than waste resources on vertical integration, Kroc kept McDonald's operators focused on delivering a high quality experience to consumers, what he called "Quality, Service and Cleanliness."

Behind the scenes he built his enterprise by partnering with experts to provide essential services that his business lacked the scale to provide efficiently on its own. He and his small, entrepreneurial staff rapidly and successfully extended the enterprise by concentrating on core development processes:

  • Maintaining control of product quality and operations
  • Securing long-term rights, by lease or ownership, to the most promising restaurant locations
  • Recruiting and training highly motivated franchisees
  • Advertising the the service experience and promoting the product
  • Securing a reliable stream of ingredient supply
  • Designing efficient operations and accommodating them with functional, distinctive and attractive structures
Just as he had franchised operations to small businessmen, he partnered with key suppliers, including Golden State Foods, Interstate Foods, Perlman Paper Company, and later Martin-Brower to franchise supply and distribution operations. The evolving McDonald's Corporation (MCD) maintained absolute control over its core product offerings, advertising characters and messages, but allowed local operators to run their own promotions and even introduce trial products. Corporate officers qualified and approved suppliers and negotiated materials specs and service terms with them, but groups of local operators chose which of these suppliers would serve each market.

By 1972 the McDonald's system was generating $1 billion in sales through 2200 restaurants. Kroc was preparing for global expansion.

See our newsletter on Restaurant Lifecycle Management here.

Also of interest:
"Why Do Fries Taste So Good? A Brief History," by Scott Horsley, NPR
Behind the Golden Arches (New York: Bantam Books, 1986), by John F. Love

Grinding it Out: The Making of McDonald's, by Ray Kroc with Robert Anderson
(Chicago: Contemporary Books, Inc., 1977)

See also related posts on
Enterprise Architecture, Supply Chain, and Retail Lifecycle Management (RLM) by selecting topics from the Index of Topics on this Site in the sidebar to the right of this blog.

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