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A brief history of transformation in business: Ray Kroc & the McDonald’s empire

Ever eaten a McDonald's? Statistically, yes, you probably have. 

McDonald's is arguably the greatest phenomena of the 20th-century. The fast food giant has over 35,000 locations worldwide. It employs nearly two million people, it has 70 million daily customers (more than the population of Britain), and it's the largest private sector employer in the UK. Across the world, it sells 75 hamburgers a second.

In the global fast food industry, no one comes close to their reach, their influence or their dominance. 

But how exactly did it get to where it is today?

Well, it all started back in 1954. Back then, the McDonald's "empire" was a relatively modest selection of franchised restaurants owned by brothers Richard and Maurice McDonald. The sons of Irish immigrants, Richard and Maurice moved to California in the late 1920s with the sole aim of making a million dollars before they turned 50 – and they had reached it. They had established the first restaurant 14 years previously in San Bernardino, California, and were content with what they had made for themselves since then. Their innovative fast food joints, boasting assembly line production methods and serving hamburgers at 15 cents were, relatively speaking, a hit.

But then a milkshake mixer salesman called Ray Kroc came along.

Ray Kroc was born in Chicago and spent most of his life in Oak Park Illinois. At age 15, he lied about his age to become a Red Cross ambulance driver in the First World War. He later took a job selling Prince Castle Multi-Mixers (machines that made milkshakes). After selling a few of his machines to the McDonald brothers, Kroc was soon wise to the restaurant chain’s huge potential. But the McDonald brothers weren't quite so ambitious. Having achieved their million dollars milestone, they were happy with their lot.

So Kroc decided to buy them out. 

He gave them $2.7m (about $1m each after taxes) and an annual royalty of 1.9 percent (apparently the McDonald brothers felt the original offer of two percent sounded too greedy). With the company, Kroc was now going to set about revolutionising the McDonald's franchising model. 

There was just one problem. 

Richard and Maurice didn't want to surrender the original San Bernardino restaurant – they actually wanted to hand it over to the employees. Kroc, feeling the original McDonald's outlet as integral to the brand, wasn't happy. So what did he do? Well, first he ignored their original royalty agreement (to be fair, the rather too forgiving McDonald brothers didn't consider it necessary to get that part in writing) and then he set up a new restaurant nearby to drive it out of business. 

With the Richard and Maurice out of the picture, Kroc got to work. 

First up, he established a new franchising model. Up until then, franchisees could come along and buy up a McDonald's region. And with that, they'd go about establishing any number of restaurants within it. There was an initial set-up fee, but once they had paid up they were free to make McDonald's their own within the territory they had purchased. Kroc changed that – now, you wouldn't have to pay any initial fee. All you had to do was pay 1.9 percent in commission each year. The only catch was that you could only buy one restaurant at a time. Also, there were now a few rules regarding the way you ran your McDonald's franchise day-to-day. 

Every McDonald's restaurant would use an assembly line system (the same one the McDonald brothers actually created and Kroc was an admirer of), every McDonald's would work from the same recipes and every McDonald's would serve the same portion sizes. Wherever you went in America, the taste, the look and the feel of a McDonald's restaurant was always going to be the same. 

He also made customer experience of paramount importance. When an employee suggested the cost-cutting measure of adding soybeans to hamburgers, Kroc said no. When an order was wrong, or even took more than five minutes to arrive, Kroc made sure customers got their money back. 

He also ensured that the young, inexperienced teenage staff his franchises invariably employed would be drilled into the earth on just about everything. He established Hamburger University, a 130,000-square foot training facility in Illinois, where employees learned nearly all there was to know about managing a McDonald's restaurant – from how to flip burgers to food hygiene and customer service. Despite his death in 1984, Kroc appears in video lectures at the facility to this day. 

But he wasn't a totalitarian in all respects – one thing franchisees were given free rein on was how to market their restaurant and products. For example, a McDonald's franchise in Washington D.C was allowed to come up with a loveable character to help promote its products – a clown called Ronald McDonald. It was such a success, he eventually became the brand's international mascot. A later study claimed Ronald McDonald was the second-most recognisable face in the USA, behind only Santa Claus. 

In 1974, Kroc retired as CEO of the company. A life-long baseball fan, he spent the rest of his life as the owner of his favourite team – the San Diego Padres. He died ten years later, having seen his empire grow on an unprecedented scale. By 1983, there were 7,500 McDonald's chains across more than 30 countries. Global sales had reached more than $8 billion. Despite criticism from some of his aggressive business tactics, Kroc's legacy as one of the greatest business leaders of all time is surely secured. 

Ray Kroc was a decisive businessperson with a strong leading mindset. But at the same time, he wasn't afraid to listen to the opinions of others – without his collaborative approach to marketing, McDonald's would have probably never produced one if its most iconic emblems. 

There are plenty of lessons to be learned from a business leader like Ray Kroc. But as ever, one of the most important examples he set was surely that of transformation. Kroc didn't accept McDonald's as the finished article. He saw that changes to the business model needed to be made and duly set about making them. And that spirit of transformation still exists in the company today – from ad slogans “You’ll enjoy the difference” to “I’m Lovin’ it”, from the classic Golden Arches to modern laid back coffee shop interiors, from the Supersize Big Mac to sliced apples and grapes, McDonald’s has never stood still for too long.

 

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Stuart Packham
Stuart Packham

On 18 January 2017 by Stuart Packham

Stuart Packham is a Regional Director of Recruitment for IT, Change and Digital Transformation in England

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