In the early 1980’s Roger Smith took on the market Challenges facing General Motors. (see chart here) In bold strokes, he expanded GM beyond its old Success Formula including the acquisition of a high tech information company (EDS), a high tech electronics company (Hughes Electronics) and creating an entirely new auto company built on a clean sheet of paper (Saturn). These actions created the opportunity for GM to escape its past and become something entirely new.
But Roger Smith did not change the Lock-ins at GM. He did not Disrupt the organization and attack Lock-ins based on old biases related to what many employees thought GM should be. He did not change the company’s decision processes, its core metrics, its information architecture, its dependence upon a common prototypical GM manager, its relationship with labor nor its hoarding of knowledge in isolated silos. As a result, the White Space projectes survived only a few years after his retirement. EDS and Hughes are once again stand-alone companies, and Saturn has been "integrated" into GM causing it to lose its cache and much of its early loyal fan base.
As a result, GM today is much like it was in the 1970s – and much to our chagrin. (a look at the referenced chart will show that the company today is worth what it was in 1971). The company is a perennial low-player on the return-on-capital pole. It’s market share has steadily lost ground in the traditional auto market to imports. And P&L losses have mounted to the point that in 2005 and 2006 some questioned the very survivability of GM.
Similarly, a decade ago Jack Greenberg took on the market Challenges facing McDonald’s (see chart here). In the early 1990s he began acquiring Boston Market, Chipotle Mexican Grill, Donato’s Pizza as well as equity interests in Fazoli’s and Pret-a-Manger. Some of these were breakout performers, not only doing well in restaurant sales but even in the frozen food case at the grocer (particularly Boston Market). But Jack Greenberg did not Disrupt McDonald’s, nor did he attack its Lock-ins. Then he retired.
In January, 2007 executives at McDonald’s told the leadership of Boston Market they intend to sell the company (see full article here.) Once completed, this will completely reverse the White Space projects previously implemented. McDonald’s will once again be a "focused" franchisor and operator of hamburger establishments. The company is pinning its future hopes on yet another hamburger – the $3.99 Angus Third Pounder (see full article here). The old Success Formula – sell sandwiches -is once again dominating all activity at McDonald’s.
In the short-term, management is bragging about how its back-to-basics "Plan to Win" campaign has improved profits at McDonald’s. In reality, management has captured huge gains from the earlier diversification moves, in operating profits and in one-time gains from selling the businesses, which have all been booked to the bottom line in support of Defending & Extending the old McDonald’s Success Formaula.
But long-term, we know what to expect. This is the GM story, only with ketchup on it. Within a few years McDonald’s will be back again to fending off predators in its "core market." McDonald’s is in fact late with this latest burger, coming over 2 years after Burger King launched its Angus Steak Burger and after more than 8 variations of such products have been launched at Hardee’s and Carl’s Jr. since 2003. And the company is still vulnerable to the kinds of Challenges which sent them spiraling downward 6 years ago – potentially a renewed Mad Cow illness, or another attack on trans-fats or other health concerns, or franchisees complaining about no growth, or simply from the in-kind competitors it recently sold off grabbing a larger share of market.
We can’t predict the issue that will next stumble Big Mac. But we can be sure that the old Success Formula has already proven it has hit diminishing returns – and the future for McDonald’s looks a lot like GM’s. And that should scare a lot of people.