3 Reasons Why A Turnaround Plan Won’t Save McDonald’s

Added on by Kavi Guppta.

McDonald’s is experiencing stale business results as customers shift their eating habits. CEO Steve Easterbrook unveiled a highly publicized “turnaround plan” to get the iconic brand back on track, but will that plan be the right remedy? Let’s take a look at why the future success of McDonald’s will require more than just a turnaround plan. It’s a great opportunity to uncover a few important business lessons along the way.

The fast food giant is experiencing some pretty drastic changes to its business model and value proposition. The new CEO faces many challenges, and it’ll be interesting to see how the company addresses its future success.

So what can we learn from McDonald’s quest for reinvention?

1. A turnaround plan usually focuses on improving the existing business model, not inventing the future

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McDonald’s plans to “reset” its business and trim the fat that’s hurting its performance. “What they’re doing is pruning the tree,” said one former McDonald’s executive. Turnaround plans are important to improve the existing business model and are implemented if a company has been badly managed; the organization is facing cash management problems; or the brand can be repositioned. Turnarounds can work in those situations if the business model hasn’t lost steam. In McDonald’s case, the business model and value proposition has expired and improvements won’t be enough to salvage what’s in steady decline. This is why a dual relationship between the improve and invent spectrums are so important for a business.

Food for thought: Turnarounds aren’t the right remedy for searching, testing, and validating new business models and future growth engines. Your company will benefit from experimentation while it’s still successful. It appears now that McDonald’s will try to strengthen its existing business model before attempting to experiment with unvalidated potential future growth engines. That’s a costly war on two fronts, especially when your existing business model (which finances any future experiments) also needs to be saved.  

2. The value proposition doesn’t connect with customers anymore

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For decades, McDonald’s value pitch has been that customers can enjoy a quick and inexpensive meal. These days, fast and cheap is often associated with low quality; it’s a tough perception to shake when your products are so cheap. Customers now value an emphasis on healthy eating, fresh products, and a customized experience. That’s a tough sell for a company that’s made its mark through cookie-cutter value meals. Customers who want quality, that includes better burgers, have plenty of other options to choose from. Core customers aren’t interested in premium items when they can still buy the cheaper options.

Food for thought: Always be aware of your customers’ shifting priorities. Frequent reassessments of your customers’ jobs, pains, and gains will help uncover what matters to them the most, and allow your company to perform smarter and cheaper experiments in your search for new value propositions and business models.

3. Future growth engines need their own space to develop

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McDonald’s is no stranger to invention and experimentation. The McCafe coffee-house offering was conceptualized and launched in Australia through initial tests back in 1993. The spin-off continues to see success in markets like Australia and New Zealand, where it had been indicated in 2003 that McCafe outlets drove 15% more revenue than a regular McDonald’s. That experimentation has proven successful in other markets like Europe, but failed to generate traction in regions like North America. Despite the mixed success, McDonald’s was eventually able to validate a new growth engine for specifics markets around the world. The future of McDonald’s depends on the searching and testing of concepts like McCafe built in their own unique spaces with skills and resources beyond what McDonald’s does now. Any testing the brand has done--all day breakfast, table service, or customizable burgers--are still centered around the existing business, and not potential future successes.

Food for thought: A space for invention is integral for the searching, testing, and validation of entirely new business models and value propositions. McCafe was a concept initially created by a McDonald’s franchisee, not someone in the C-suite. Imagine if McDonald’s tested a new dining experience that was radically different from its existing offering? We’ve mentioned before how a CEO isn’t the right person for exploring future growth engines, and we’ve suggested that companies hire and create a space where an executive can be tasked with reinvention.

What do you think? Can McDonald's be saved?