McDonald's need for speed: Inside CEO Steve Easterbrook's bold strategy to transform the fast-food giant

Steve Easterbrook was behind the counter at one of North America's first two standalone McCafé restaurants in downtown Toronto, watching intently as line cooks prepared Egg McMuffins over a sizzling grill. The CEO of McDonald's Corp. was clearly pleased: Unlike the years-long struggle in its U.S. unit, the Canadian division of McDonald's has performed well in the past seven years, tripling its coffee sales, and this country remains one of the fast- food giant's top-performing global markets.

The new McCafé is a departure from a regular McDonald's. It's bright and airy with abundant white tile and modern fixtures as opposed to the cozy functionality of its revamped Canadian restaurants. But its menu is the real standout: It serves the iconic Egg McMuffin sandwich and other breakfast items all day long, as well as baked goods, a range of trendy non-McDonald's salads such as kale and brussels sprouts with mixed veggies, and sandwiches on artisanal bread.

On the January day Easterbrook visited, the newly opened outlet had hit a record that morning, serving 280 people in an hour, a fact not lost on a CEO with a keen desire to expedite traffic inside its restaurants. Though the bulk of his career has been spent at McDonald's, Easterbrook trained as an accountant at Price Waterhouse after university and joined the restaurant chain in 1993 as a financial reporting manager. But he said spending time outside the company as CEO of smaller British restaurant chains between 2011 and 2013 gave him a fresh perspective on the broader industry.

"The one thing I recognized, more than anything, was the speed with which they moved," he said of his tenure at PizzaExpress and Wagamama before returning to McDonald's in 2013 as global chief brand officer. "I was determined when I rejoined the company that I never wanted our size and scale to be a barrier to speed. The world is moving at an ever- faster pace. The world is not waiting for us to catch up. The world is just going to get on with it."

Easterbrook remained silent on whether all-day breakfast, a key driver behind the company's standout U.S. earnings this week, might eventually be brought to Canada, or whether standalone McCafés, a clear rival to Starbucks and Tim Hortons in Canada, will get introduced elsewhere in the world. But making bold moves - albeit well-informed ones; all- day Egg McMuffins had been a request of U.S. consumers for years - appeals to Easterbrook's action-oriented sensibilities for the global organization.

"Today, everyone else is more nimble (than McDonald's is) because they are smaller," said Darren Tristano, president of the Chicago-based food industry research firm Technomic. "Getting to be more nimble allows McDonald's to become more competitive. Put it this way: We had heard about all-day breakfast for years - you might not even say that it was (Easterbrook's) idea - but he made it happen."

That drive for speed and efficiency was evident in Easterbrook's move to reconfigure the company's structure and combine its five top markets of Canada, France, Germany, U.K. and Australia into one unit to more readily share best practices. The prior structure had the company's country divisions organized by geographic region, which made sense when the company was in a period of rapid global expansion decades ago, but worked less well for a more mature company. "I wanted to challenge the legacy structure we had globally, to leverage the experience of the market leaders and move quicker to seize the opportunities ahead of us," Easterbrook said. "We had never, I felt, maximized the learnings that the (top countries) could have gained from each other."

Robert Carter, executive director at market research firm NPD Group Canada, said the strategy makes particular sense given that overall global restaurant industry growth is slowing down. "Really, the only market that is experiencing a lot of growth is China, so in that kind of environment, you really need to be stealing share from your competitors and you have to be much quicker to adapt to changes," Carter said. "McDonald's has been traditionally viewed as a slow-turning machine in terms of renovations and getting new items out. Throw in the competitive threat coming from the fast casual market, it just makes sense that one of the first things you would do is how do we make things happen quicker."

As such, Easterbrook seems to be intent on smart, productive growth rather than growth at all costs. He has closed underperforming outlets around the world and simplified the menu by paring it back rather than continuing with an all-things-to-all-people strategy, introducing a broad range of new items to try to draw in customers seeking healthier or ethnic fare.

"Customers are relying on us for convenience and consistency, and what we were actually finding was it was getting more complicated for our customers than they cared for and more complicated for our teams to deliver," Easterbrook said. "That is where someone has to make some brave calls. You never want to take something away because you think that it is going to hurt, but actually the net benefit is that the operation got smaller, and the customer experience becomes a lot easier to navigate. Lives are complicated. Going to McDonald's shouldn't be. People's lives are hectic and they come to us for a break".

His decisions have paid off. After a multi-year slump and seven straight quarters of declining sales in its biggest market of the United States, volume has now grown for the past two fiscal periods. In fourth quarter results released last Monday, same-store sales jumped 5.7 per cent at the company's U.S. restaurants, more than double the analyst forecast of 2.7 per cent, and U.S. operating income surged 30 per cent. Operating income in its international lead markets, including Canada, rose eight per cent excluding currency impact. Investors are also regaining faith in the company, sending McDonald's shares up 30 per cent in a period in which the Dow Jones industrial average has dropped nine per cent.

QUESTIONS

Keep in mind that in addressing the questions below, you must apply the concepts, theories or frameworks discussed in class or in the assigned readings. Make any assumptions you feel are necessary.

Question 1

a. Explain how McDonalds uses elements of the Classical AND the Behavioural approaches to management.

b. Based on this article, do you think McDonalds is better off with classical or behavioral approaches to management? Make sure to explain and justify the benefits of either approach for McDonalds using the contingencies of management philosophies.