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How Ray Kroc’s values inspired success

7 min read


This post is part of the series “Workplace Morale,” a weeklong effort co-hosted by SmartBrief’s SmartBlog on Leadership and the folks at Switch & ShiftKeep track of the series here and check out our daily e-mail newsletter, SmartBrief on Leadership. Don’t subscribe? Sign up.

McDonald’s was not a can’t-miss proposition.

The company started as a drive-in burger joint with a loosely affiliated network of franchisees before Ray Kroc obtained national franchising rights in the 1950s. The company faced entrenched and upstart competitors,  families who were not used to regularly eating meals outside the home, and was going against the grain in how it granted franchise rights and managed them.

Kroc’s McDonald’s succeeded because of shrewd decision-making and hard work, but also because of luck, favorable timing and the short-sightedness of incumbents and would-be competitors. All of that success stemmed from the culture Kroc put into place: a decentralized, risk-taking, personality-driven hub of constant innovation and improvement on top of a foundation of clear, inviolable values.

That foundation was critical in steadying McDonald’s in times of turmoil. After becoming a public company in the mid-1960s, potentially crippling challenges for McDonald’s included a rift between Kroc and then-CEO Harry Sonneborn, rapid expansion amid risky leveraging during a time of economic worry, the rapid rise (and then fall) of a now-defunct brand called Burger Chef, and unrest among communities and franchisees.

All this time, however, the company continued to grow rapidly, and by 1980, it hadn’t yet fully explored sectors it has since come to dominate — drive-through service, breakfast food, the McNugget, McDonald’s PlayPlaces and international growth.

How did the company overcome these challenges, and how did it explore new ideas while not losing focus on quality, service, growth or its core tenets? Without high morale, none of this would have been possible. This morale was influenced by Kroc’s personality, which isn’t replicable, but the policies and philosophies his company practiced offer lessons we can apply to our companies.

Quality, service, cleanliness and value

Quick, dedicated customer service. Simple menus with high-quality food that’s the same whether you’re in New England, California or anywhere in between. Clean stores, efficient operations. Dedicated suppliers and franchisees who show loyalty and receive it in return. These were some of the values Ray Kroc insisted upon at McDonald’s.

The culture started at the top. Kroc, as related in John Love’s seminal insider’s look at the company, liked to hire people who didn’t think just like him — he once said, “If a corporation has two executives who think alike, one of them is unnecessary.” What was non-negotiable was hard work and a dedication to the values of McDonald’s. He was a stickler for protocol and neatness and order but would hire smart people even when their personalities clashed. “If his managers were committed to building his McDonald’s, they were on his side — no matter how much their personalities differed from his,” Love wrote.

There were few silos in the McDonald’s of Kroc’s time, and innovation was not top-down. Early on, future CEO and Chairman Fred Turner introduced suppliers to the strict standards of quality and consistency for McDonald’s, even though he was no professional food technologist. Two life insurance salesmen stopped by McDonald’s headquarters one day; they were hired and later became treasurer and CFO, respectively. The chief accountant in the 1970s pioneered the licensing and financing of Ronald McDonald PlayLands — an idea that came from a regional manager who had come to that job after being a franchisee. Ronald McDonald was a D.C.-area hit before going national, and the Big Mac came from the tinkering of a Pittsburgh-area franchisee.

What do all those examples have in common? People knew and acted on their own when they saw problems they could fix. That’s not luck — that’s culture.

Giving a fair shake

Most fast-food franchises in the 1950s and ’60s were generally sold by territory with exclusivity, with the corporation interested in easy cash and not in local operation. In other words, if I contracted for a franchise with Generic Burger Company, I might pay $50,000 and I’d have exclusive right to operate Generic Burger Company outlets in the District of Columbia metropolitan area. The corporation could further earn money through various fees and by making me buy supplies from its warehouses, often at an inflated price. However, the corporation would have little control over how many units I opened or I operated my restaurants — the menu, cleanliness, appearance and design, etc. Loyalty was short-lived for both sides.

Kroc inverted this model — cheap fee to gain a franchise and relatively cheap ongoing fees, but it was generally only one store, and it was subject to the standards of the McDonald’s System. Suppliers would be arranged by McDonald’s, but the company negotiated to gain discounts on behalf of the franchisees, not to get discounts and then gouge franchises. Poorly operated franchises would not get a second unit and had no guarantee of a contract renewal.

Each side needed the other to succeed. Each side needed to give and have autonomy backed by trust. In the late 1970s, when many franchises became restless and unhappy, the company didn’t bury or ignore the problem — it revamped the structure and power of its regional managers, creating a franchisee advisory board, appointing an ombudsman to arbitrate disputes between operators and/or the company. This was on top of the long-standing practice of  franchisees controlling most marketing and advertising efforts through independent councils. By giving additional voices, forums and power to franchises, McDonald’s improved morale and saved itself legal battles.

Training and guidelines

As mentioned, McDonald’s gave tremendous leeway to its people to act as they saw fit, to experiment, to be daring. The standards of quality, service and cleanliness were non-negotiable, but those boundaries left considerable space in which to be creative.

Those standards were also easy to learn, remember and implement because of Hamburger University, a thorough training problem McDonald’s created for its store managers in 1961. Hamburgers were a serious business for McDonald’s, and instilling pride in providing a great product and service was essential.

Rewarding initiative

Suppliers who discovered a better way to do things were rewarded, not scolded or ignored. Franchisees who suggested a product received ample opportunity to make it work. And even if a product failed to catch on, there was no penalty. Try again.

Bigger companies had trouble being this nimble. In 1973, Heinz famously shorted McDonald’s during a tomato shortage, which led to it losing the then-90% share of McDonald’s ketchup business; four decades later, Heinz is still paying for this decision.

On the other hand — three entrepreneurs spent years working to convince McDonald’s to adopt frozen hamburgers. They eventually put a quarter-million each into a company called Equity Meat Co. and went to work developing a reliable, high-quality frozen hamburger. The experimentation and development process took the better part of a year, with no guarantee that McDonald’s would buy. Even after Equity Meat cracked the code and won over most of McDonald’s operators, there was another hurdle — McDonald’s wanted the company, as with all its suppliers, to share this breakthrough with the other four major meat suppliers. Equity Meat took this risk, shared the secret, and McDonald’s didn’t betray that trust. In 1990, Equity Meat, renamed Keystone Foods and no longer a fledgling startup, had more than three-quarters of a billion dollars in sales, with McDonald’s as its sole customer.

What McDonald’s in the Ray Kroc era did, simply, is keep its word to demand constant improvement while rewarding risk-taking and success. Honesty, clear expectations and follow-through: Those are three steps most of us can take today to improve workplace morale.

James daSilva is a senior editor at SmartBrief and manages SmartBlog on Leadership. He edits SmartBrief’s newsletters on leadership and entrepreneurship, among others. Before joining SmartBrief, he was copy desk chief at a daily newspaper in New York. You can find him on Twitter discussing leadership and management issues @SBLeaders.