Learning Business from McDonald's

Paul Facella: Yes, it certainly did. I was very fortunate to be there in a very auspicious time when Ray Kroc was still alive; the company was growing by leaps and bounds. We went from what was called, at that time, a red and white tiled building to what you see today. It was a wonderful 34-year run, and I learned tremendous things about running a business that I've been using in my consulting business, which actually prompted me to write the book because everybody was always asking about those items, so I said, "Let me write a book about it."

Rachel Salaman: So could you not have learnt the same lesson somewhere else, do you think?

Paul Facella: I don't think there's any way I could have learned the variety of things. I talk about the seven principles, you know, recognition, and relationships, and courage, but I also learnt a tremendous amount about teambuilding, about humility, about treating people with dignity and respect, about partnership with people around you. I'm not sure that I would have learned that anywhere else.

Rachel Salaman: In your consultancy business, do you ever come across people who try and denigrate McDonalds in some kind of way? It's one of those companies that has a slight stigma attached to it, probably because it's so successful.

Paul Facella: Actually, never in my consulting business has that happened. Just the reverse happened. Actually, when I first started, I was keeping that to the side, and as soon as the word 'McDonalds' came up, they were very interested. Now, you have to understand that these are people that are running businesses, getting into businesses. As a business model there are few organizations that are more successful from a franchising standpoint, from a relationship standpoint, from a financial standpoint, and from a marketing standpoint. McDonalds hit all cylinders on that, so I've never really gotten any criticism on any of that.

Rachel Salaman: Now it's astonishing that three out of four of McDonald's senior and mid-level managers started out as crew. In the book, you get the sense that there's a pride in the idea that the company is built by ordinary working people. How much does that have to do with the company's success, do you think?

Paul Facella: Oh, a tremendous amount. McDonalds really is, and one of the things I try to bring out in the book, which was true for myself, in the opening chapter I talk about, I'm writing this book on behalf of the thousands, thousands of franchisees, company people, folks that are suppliers, that got not only a tremendous training, but a tremendous career with the organization. We had great opportunities. Mike Quinlan was CEO of the company; he started in the mailroom. The CEO presently right now, Jim Skinner, got out of the Navy and walked into a McDonalds, and he's CEO right now. There's story after story after story. Ray Kroc himself never actually graduated from high school. So it was never about pedigree; it was never about what you did. It was about a meritocracy where, if you understand your expectations, and you achieve them and exceed them, that you're going to move up. So it was really about opportunity. And in the book Good to Great, Jim Collins talks about the great companies: 10 out of 11 CEOs developed within the company. Well, over 53 years, all the CEOs in McDonalds had developed internally, so I think everybody sees that, so there's a great passion for the ability to move up.

Rachel Salaman: And what keeps people at the company?

Paul Facella: Well I think just that idea of opportunity, no question about it. You know, that that is very, very powerful, to know that you can do that, but I also think we underestimate something that we hear a little about in business. McDonalds is a fun place. It's a social organization; if you're in the stores, it's very social when you're up in the mid-management ranks. We had a lot of fun accomplishing, and that sense of achievement is very, very powerful, and people were treated fairly. We enjoy each other's company, and few organizations you can talk about where you actually enjoy going into work, so I think that's an awful lot that has to do with it as well.

Rachel Salaman: Do you think you have to be a certain kind of person to thrive at McDonalds, to respond to that kind of atmosphere?

Paul Facella: You know, the day I walked in at 16, which was quite a few years ago, I distinctly remember the potpourri of individuals: old and young, and different backgrounds. There was an individual 65 years old, here I was 16 years old, and then I fast forward to when I was regional vice president, and the franchisees that I put in business. I had a former gang member; I had a policeman, and a fireman; I had somebody that worked on an assembly line. It's hard to pinpoint a specific person, but I do think there are personality traits. Clearly, you have to enjoy the interaction with people, working with the customer, but also working within your own peer group. The wonderful thing about McDonalds and the restaurant business is you learn very quickly the importance of teamwork. If that busboy is not doing a good job, the waitress up in front is going to hear about it. If the chef is slow on his orders, and it goes on and on and on, and a lot of retail establishments are like that, so I really believe that you have to have a high energy level, you have to enjoy working with people, and that sense of accomplishment, as I mentioned before, I think is very important.

Rachel Salaman: Now the idea of the 'three-legged stool' runs throughout this book as a defining feature of the company. Can you explain the three legs, and why this idea is so important to McDonalds?

Paul Facella: Yes, that actually started with Fred Turner, who was Ray Kroc's original grill man, and became the first operations mid-management person, and moved on through the ranks for CEO, present CEO, chairman of the board, and now is honorary chairman, and still active today. Fred coined that phrase, and he did it with a lot of thought. The culture of McDonalds is deep in relationships and, as you know, there's actually a chapter talking about relationships in the book; that's how important I believe it was to the success of McDonalds. The three-legged stool talks about visually a three- legged stool: one leg being the franchisees, one leg being the vendors or suppliers, and the third leg being the company individuals. And notice the order in which I did that, because there's a distinction on that in their importance. McDonalds always put the franchisees first, and the suppliers were always the last person up, but a three-legged stool needs three legs in order to stay level, and that's the importance – how each leg supports each other. While they're independent, they're interdependent from each other. Few organizations that I've witnessed, and in talking to franchisees and talking to vendors, they tell me again and again, "I am not just a vendor here; I'm not just a franchisee; I am a partner," and that's very unique. There's few organizations that are around that really look at a franchisee as a true partner.

Rachel Salaman: Well, this is a really useful book for anyone in a leadership position in any business, but I do think it's particularly interesting for people involved in a franchise business, as you've just mentioned. Can you explain the McDonald's franchise model, and why it works so well?

Paul Facella: The unique thing about McDonalds – and I always just took this for granted, but found out soon after I started doing consulting that this was unique – was that McDonalds, to my knowledge, is the only one that requires full-time best efforts. From day one, it was very clear from Ray Kroc and Fred Turner, "You're going to be a franchisee of McDonalds; this is what we want you to do. We want you and your team to be in that store every day. We don't want you involved in other businesses, etc, etc. Of course you can have passive investments," but that was very unique; that was very important. The second thing goes back to that three-legged stool. I never have heard, and I've worked with a lot, of a franchise organization that will bend over backwards and support you. Many, many times when I was in charge, and a franchisee was in trouble, for whatever reason, my deal with him or her was very simple: run a good store; be in there full time; best efforts; run a decent operation; run a decent P&L. Make sure that you're in there, and we'll support you on it, and we did an awful lot to support operators in assistance in one way or the other. The thing you find in most franchise organizations is if you're in trouble, you're on your own; there's nobody there that's going to bail you out. And the other thing, the last thing is a strict adherence to standards. While we'll support you, it does work the other way. If you don't run a good store, if you're not that involved, we're going to come after you. Standards were very important; we wanted to make sure that all stores operated the best that they could.

Rachel Salaman: So the company seems to have been built on some really strong values, which vendors and franchisees, as well as employees, need to sign up to in order to feel part of the McDonald's family. In your time with the company, how aware were you of that ethical code?

Paul Facella: I was quite aware of that. There were, like in most organizations, a lot of stories or tales that were told about ethics, but I also witnessed some very, very powerful actionable items that happened there. As an example, one of the things that was ingrained in us that as an officer, if we made a commitment, by and large, the company would stand by the commitment. That may seem like, oh yeah, everybody does that, but I'm not talking about writing; I'm talking about verbally. For all intents and purposes, if you got transferred out, and two years' later a franchisee went to the company, and said, "You know, this guy told me I would have this and this," that in fact that the company would support that to the best of their ability. I don't think there's many organizations that would do that. The other thing is, clearly, there was a feeling that you were honest because you were part of the family. You don't steal from family, the moral code of that, and I talk about a time I was asked about a bribe or something, and I was dumbfounded that anybody would do that, but, in fact, it was something you just didn't do; you just didn't do.

Rachel Salaman: Well, you mentioned the importance of standards earlier, but you also, in your book, talk about how there's pressure to be more and more efficient, to serve more and more people per minute, etc. How do you marry those two things?

Paul Facella: Yeah, the way to do that is balance, and no matter what the contest was, no matter what the goal was, we always would balance it. It was great that you were fast, but did you do it in a quality manner? So there was always the balance of the two there, and I always said that running a restaurant was the quality service and cleanliness, the operational level, developing people, financially making sure that it was profitable, and building sales – those four pieces, so we would always make sure that those four were balanced. And the other thing we also did is we tried to emphasize much more of a team approach, rather than a singular person. So it was the whole concept of the team; the synergy of the team that actually was able to achieve the goal that was established.

Rachel Salaman: So can you describe how that actually worked on a day-to-day basis when you were there running the store?

Paul Facella: Well, we would track everything and going back to management - how many obviously, in sales. But customer counts, we would track how efficient each register was, and the person that was on it, how that team was. We would monitor how the operational levels were taking times and temperatures in different areas, so we were always looking at how the standards were being met, who was behind them, how it could be improved, and taking that against a baseline and seeing how well we could do. It was always the recognition that was attached to the achievement of those goals as well.

Rachel Salaman: So it was about measuring performance. Was that something that was spread throughout the whole company? This ethos, and in fact the systems – were they shared throughout the company?

Paul Facella: Yeah, it's interesting, 'cause going back to the first question, did I really learn all these things? One of the things I learned very early on, and at a very early age, was how they measured everything. And if you could take $50 in at the time I started, that was a lot of money in a register, and how, as soon as I found that was $50 dollars, that I wanted to do $52 or $55, so it was always a challenge. And I think most of us really enjoyed that challenge to see how good we could get, so it was, kind of, inbred in it. It's great to have a goal, but it's got to be measurable.

Rachel Salaman: In a way, McDonalds seems to have achieved something quite surprising in that it doesn't reward its people on the frontline financially. There are other awards going on to make them want to pull together, and bring in that money for the company.

Paul Facella: Well, actually, it does. If we had a record hour of sales, or a record day, we would get time and a half, so there were financial incentives. And, in individual stores, obviously they vary, but there's a lot of financial incentives, or even something as simple as a movie ticket for a winning team that was backed by the grill area. Everybody gets a movie ticket, or goes bowling or whatever, so there were all those kind of incentives that were in there, but also remember, it goes back to the word about opportunity. Those people that perform best were looked at again and again, and they were probably the people that were going to get selected for the next position, whether that be a crew trainer, or a shift person, or assistant manager, and finally onto management and then moving up through the ranks. So there was a clear definition of how you could move up through the ranks, if you wanted to. Many people don't: They just want a part-time job, and that's fine too.

Rachel Salaman: You mention a lot of the things that sets McDonalds apart, and have contributed to its success, and one of them is the idea of an ombudsman. How did that work?

Paul Facella: Yes, that was very unique. That came out in the 70s, and again, to my knowledge, I don't believe there's any other organization that has an internal ombudsman. The idea of the ombudsman was that there was an individual and the first ombudsman. All the ombudsmen are officers, but the first ombudsman was a senior vice president level, who uniquely didn't report to anybody, as silly as that sounds. The chairman of the board basically set the position up at the time in the 70s, and basically that person was hands off, and went in when there was a dispute, or any kind of an issue between an operator and the company. And if there was a company employee that had an issue with the company, they would go in and take a look at it. What was unique about it was McDonalds is a franchise system: 75% roughly of the stores are franchised, so there's a lot of issues that come up over expansion and stuff like that – and there would be some times when two sides just couldn't agree. The ombudsman would come in and arbitrate, and make recommendations to management. Now, what was unique was the ombudsman, a company person, would choose an operator from a selected list of operators throughout the country, and would accompany him, so there was again, a system that we always called 'checks and balances' to keep the system on the right road. That was very unique and very powerful, and I think it sent a very strong message that McDonalds wanted to do the right thing. They wanted to be fair. They wanted to be a good partner, and again, as I say, no other organization, to my knowledge, has ever done that, and it's still in effect today. As a matter of fact, there's a number of ombudsmen that do look into those things.

Rachel Salaman: What kind of a difference do you think that made to the people within the company, knowing that system was there?

Paul Facella: I think the idea that there's an ombudsman, even if you don't use it, to know that there's someone that you could talk to if you have an internal dispute with the person above you, again, whether you're a company employee or a franchisee, that is a powerful subliminal message that's there and it came up again and again in interviews how – yeah, and some people actually told me, "I never went to the ombudsman, but I knew I could if I wanted to," and I think that's real important. And I think that's something that could be adapted tremendously to other businesses, to have some kind of an internal person. And some people do outsource that – have an external person that could listen and usually arbitrate. And, in most situations, as you know, if you take the emotions out of it, usually you can come to a compromise.

Rachel Salaman: Another unusual feature of McDonalds is the Hamburger University. What did you learn there? Did you go to it?

Paul Facella: Oh yes, actually many times and I have, let's see, two Bachelors of Hamburgerology, and one Masters of Hamburgerology. But we laugh and we joke about it, but Ray Kroc coined the phrase, you know, "We take the hamburger business more seriously than anybody else." And, within two years of founding McDonalds in 1955, he started Hamburger University, which has grown to be an institution that's so well regarded. A lot of people don't know this – it actually is accredited by colleges for 42 college credits. There's no other organization – restaurant organization anyway – that has that accreditation. It's had that accreditation since the 1970s, so it is unique and it again, I think, talks to the point of how high the bar is set, and people work up to that. You start training in a store, you go through different stations, then you go into classroom for management and learn soft skills, and you slowly work your way up. Usually, in about a year or so, up to Hamburger University, which is a week-long course, soft skills, technical skills, case studies, again you learn to work as a team and you graduate from that, so it's quite an experience, and it just goes to show you again how seriously this business is taken by the organization.

Rachel Salaman: How many people take advantage of the Hamburger University?

Paul Facella: Actually, every store manager is required to have attended Hamburger University. So you can see that –I forget the exact number – I believe that 50,000 was the number that they graduated a number of years ago, over the years how many folks have gone through that program.

Rachel Salaman: Did you ever find there was a problem with people perhaps sniggering a little bit about the idea of a Hamburger University, and how was that dealt with?

Paul Facella: Yeah, I remember my father way back when, kind of, sniggering at that. But then when he realized that the company was flying me out and how serious this really was, you know, he said, "Wow, that's pretty interesting." And, you know, that's, kind of, how it's been. You know, people snigger a little bit, but then you tell them some of the courses that you take, and the depth of curriculum that's there, and you show them your notebook and, you know, usually they say, "Wow, you learned a lot," and I think that's one of the great things about McDonalds. Whether you stayed there for 10 years, and became an officer of the company or whatever, or you just got to mid-management and then your passion was something else, that's okay. Again and again in the book, I had interviews with people that went on to bigger and better things in their mind, or an occupation that they felt they wanted to pursue, but they still looked fondly back at the time they spent with McDonalds; the people skills, the management skills, the leadership skills that they learned, and I think that's the legacy of McDonalds, that you get such a grounding, such a foundation in the basic skills of working with people and managing that's very profound.

Rachel Salaman: We talked a little earlier about recognition and reward. Was there a formal recognition process that was spread throughout the company, or was it in a way up to each manager of each store?

Paul Facella: Actually, it's both. There's tremendous latitude within the individual stores, within the individual organizations to do recognition. But the company has – and I searched this 'cause I wanted to see what the number was – actually the company tracks 23 different awards that it gives out on an annual basis to vendors, to franchisees, to store managers, to suppliers; 23 different awards, which I think is incredible, and some of these are very prestigious. There's a President's Award, as an example, that's given to the top 1% of all company employees each year. A secretary can get nominated for that award, goes all the way up, and the president of the company finally signs off on that. I actually averaged almost one President's Award winner every year. We had a tremendous team. And then we have the Freddy, which is taken from the Oscars and the Emmys – the Freddy in recognition of Fred Turner, which is given to individuals that possess some of the strong traits of our chairman and co-founder of McDonalds on it. So there's a ton of recognition that's done there, and I talk about it in the book and again, it's an entire chapter, the importance of it. It's always done with fanfare. It's always done first class. It's taken very seriously. We always try and invite the spouse or the significant other. We try and make it special – and recognition, in a lot of ways, is the glue that keeps people together.

Rachel Salaman: You mentioned the importance of relationships a bit earlier on – relationships between whom?

Paul Facella: Well, relationships, I flip back to the three-legged stool a little bit 'cause I think it explains it best: relationships between the franchisee and the franchisor; relationships between the supplier and the franchisor and the franchisee; so all of those three. But also relationships with the customer as well, which is extremely important, 'cause at the end, those three entities are there only to serve the customer, so relationships are very important between all of those and how we communicate, and how we establish our expectations of each other, and how we take care and nurture each other; very important.

Rachel Salaman: How does McDonalds nurture those relationships?

Paul Facella: They nurture them by developing that culture that says, "Your opinion counts. I care about you and how you do." One example of this: as you can imagine, you know, the clout of McDonalds, purchasing is huge, and there's a lot of suppliers that obviously are going to go in and cut their prices as best as possible because they want the McDonald's business, 'cause it's such a huge piece of business. Many times, we would look at a vendor and after, you know, they'd been around a while, and they're doing a good job or something, and we know that the economics are getting tougher and tougher. I actually witnessed where the company and the licensees said, "You know, vendor, you've got to raise your prices a little bit because we want you to be successful. We don't want you to go under, and we care about you. It's going to cost us some money, and we're not happy with it, but you need to do that in order to stay the quality of what we want." Again, I don't think a lot of organizations would do that because they don't really care, "Hey, I'll get somebody else in here." So long term, and in the book, I interview people that have been second and third generation, 30, 40, 50 years as a bun supplier, as a milk supplier. You don't get those long-term relationships overnight. They're nurtured because there's a culture that says, "I really care about you." So to answer that question, I think it's subliminally that we really care about their success, and we want them to be successful, that is unique.

Rachel Salaman: People will be fascinated to hear that an employee can still phone the CEO and get a call back within 24 hours. Is that really the case?

Paul Facella: Well it certainly was when I was there, and I can't say as I make a lot of phone calls there, but I do get returned quite quickly. The 24- hour rule was something that again I think generally in business is something everybody should employ 'cause I think we all know, when you're on the other side, and you're trying to get hold of somebody, how difficult that could be. And, by the way, the 24-hour rule was before BlackBerry, before email, before everything else. The truth of the matter is we felt that our franchisee was our customer obviously, and we wanted to serve that customer with the same care and attention we wanted them to serve the ultimate customer, the people that are coming in his store, so we would get back to them. We knew it was important, and we would get back to them. So, in answer to your question, I am sure that the CEO, Jim Skinner, if a licensee calls him, he will do his best to get back in 24 hours, that that still is the case.

Rachel Salaman: What about if a member of the crew calls him, will he get back to them?

Paul Facella: Well, you know, with 1.6 million people worldwide, I think that might be a little difficult on it, so that might be a little tense, but I think the average crew person wouldn't call the CEO, but certainly would call other people within the organization or within a span of control and again, that 24- hour rule getting back is part of the culture of the system.

Rachel Salaman: So, what's the most useful business lesson that you learnt at McDonalds?

Paul Facella: Well, one singular one is, kind of, tough, but I would say, at the end of the day, it's about team. I think that's the most important thing I learned. You know, people talk about bringing their children up, and sending them to play soccer or football or baseball, or whatever it may be, and while I did that, I learned more about team when I walked into McDonalds. I learned how important it was to rely on each other, and how I didn't want to let that team down. I learned about building a coalition of individuals when I was regional vice president, that were smarter than me in different areas. I learned about synergy, and how you put those smart people together in a room, and I throw the problem out and I let them resolve it, and how powerful that is. That's what I learned, and that works everywhere. I was chairman of the board of a large prestigious non-profit in New York. The teambuilding I learned at McDonalds, I applied there. I'm in a number of businesses now that I own. Again, I learned that teambuilding, so I'd say the importance of team, that 'we' is much more important than 'I,' and having humility, and having the understanding that working collaboratively we can come up with the best possible solutions.

Rachel Salaman: When did you last have a McDonald's hamburger?

Paul Facella: Actually, I have to confess, last night I did. I walked in, and I got into my hotel room, and there was a McDonalds across the way, and I had to check it out and it was great, and that was my dinner last night.

Rachel Salaman: Any changes from the time that you were at McDonalds?

Paul Facella: Oh, there's been a lot of changes you know, on the menu, certainly in different products. You know, McDonalds is always evolving. One of the very smart things Ray Kroc said way back when was, he said, "I don't know what McDonalds is going to be selling 20, 25, 30 years from now, but I know we'll be selling more than anybody else," and that, kind of, was the mantra that I think McDonalds continues to look at. We'll figure it out, and we're going to do the best we can to be successful.

Rachel Salaman: Paul Facella, thank you very much.

Paul Facella: Thank you.

Rachel Salaman: Paul Facella, talking to me in London. You can find out more about Paul and his work at his website www.insidemanagement.com. I'll be back in a couple of weeks with another Expert Interview. Until then, goodbye.