8 Lessons From McDonald’s CEO Don Thompson’s Demise

But it didn’t have to be that way for Thompson, who took over from former CEO Jim Skinner in 2012. Here are eight lessons of his tenure that, if Thompson had heeded them better, might have extended his stay at the top of McDonald’s.

1. Past performance is no predictor. When Thompson took over from Skinner, everything seemed to be hunky-dory. But huge problems were lurking as Thompson took the baton. Clearly one of Thompson’s biggest failings was not to understand the fundamental shakiness in his company’s business, which quickly manifested itself early into his leadership.

“Thompson insisted on gradualism both in overhauling the menu in a better-for-you way and in battling scrappy upstarts. Wrong moves.”

2. Get on the right side of history—fast. It was evident coming out of the Great Recession that McDonald’s’ historic position in the fast-food hierarchy not only was being challenged, but also undermined, by smaller players—not just by its traditional rivals Burger King and Wendy’s.

McDonald’s’ problem was that it was on the wrong side of history. And that characterization didn’t just apply to its reputation for unhealthy food while Americans were trending in the other direction. The musclebound giant also was facing new competitors who were more nimble, more focused in their brand positioning, and determined to create a new paradigm in the business. Think companies such as Chipotle, Five Guys Burgers & Fries.

But Thompson insisted on gradualism both in overhauling McDonald’s’ menu in a better-for-you way and in battling these scrappy upstarts. Wrong moves.

3. Great products have no substitute. In every business, this truism holds: Great products produce growth spurts and, in the end, make all the difference. Look at how Boeing has been burgeoning since it got the electrical systems of its new Dreamliner figured out. Apple is selling so many of its new, larger iPhones that it doesn’t know what to do with all the cash. Automakers certainly understand that it’s new sheetmetal that drives their performance.

But Thompson either didn’t clearly understand this, or for some reason wasn’t able to translate this principle into results for McDonald’s. The chain simply hasn’t had a new product that’s a big hit for a long time, arguably since Skinner rolled out McCafé coffees just before he left. And the biggest new-product initiative under Thompson, Mighty Wings chicken wings, failed with a whimper in 2013.

4. Look out below. The ground—or at least the personnel—beneath Thompson has been shifting for a while, and of course, as CEO, he was moving many of the pieces. But as the chain’s leadership, especially in its troubled domestic operations, kept shifting among his underlings, Thompson could have suspected that he might be next.

Indeed, his successor, Easterbrook, is a McDonald’s lifer (with a short stint away) who was noted for successfully leading the chain’s UK and European business units during a prolonged period of economic stress in that market. Lately, he’s been in charge of trying to get McDonald’s’ brand back on track. It might have been only a matter of time before Easterbrook’s talents would win out.

5. Don’t lose millennials. One of Thompson’s biggest problems was that, somewhere along the line and definitely on his watch, the brand lost its once-vibrant connection with young consumers. Specifically, for the generation of American millennials who are 18 to 34, McDonald’s became “uncool.”

Considering that generation Y now comprises the largest mass of humanity in the country, outstripping the numbers of the slowly dying ranks of the baby boomers, losing their loyalty was one mistake that Thompson absolutely couldn’t afford to make. So, now, Easterbrook’s “challenge is immense,” Christopher Muller, professor of hospitality at Boston University, told USA Today. “He’s got a whole generation that wants nothing to do with McDonald’s.”

6. Bring the right skills. Thompson drew kudos and attention as the first African-American CEO of McDonald’s, which was an admirable achievement. He also was noted for his affability. In Skinner’s absence, Thompson actually spearheaded the rollout of McCafé.

Yet as the ultimate leader of the company, his ascension might have been a simple skills mismatch. Thompson began his career as an electrical engineer and ascended the corporate ladder admirably, but it has been evident lately that he simply may not have been the kind of CEO that McDonald’s needed at the time.

“I think Don just wasn’t inspiring the franchisees or people around him in the way that they needed to be,” Bill Smead, CEO of Smead Capital Management, told The Wall Street Journal.

7. Beware disgruntled investors. In after-hours trading once news broke of Thompson’s departure, investors bid McDonald’s stock up by more than 3%. That tells you what they were all thinking: McDonald’s is on more solid footing without him.

Thompson “hasn’t presented to the investment community that he’s moving quickly to solve these problems,” John Gordon, restaurant consultant at Pacific Management Consulting Group, told The Wall Street Journal.

In fact, McDonald’s stock was down by nearly 15% from its highest point in the past year and declined by 3.4% in 2014 while the broader market, of course, rose by double digits.

8. Uphold the brand’s essence. Last fall, Chief Executive magazine asked a handful of CEOs and other experts how they would fix McDonald’s problems. Their responses amounted to a plea to Thompson to harken back to the brand essentials that had made McDonald’s one of the iconic American business-success stories of the last half of the Twentieth Century: good taste, fast speed, smiling service.

In its heyday, McDonald’s was where you went because the food was inexpensive but also because it was good, and they advertised that,” said Brian Cohen, President, Strategic Growth Advisors. “But now they’ve commoditized the food and sent the message that it’s not about good food, it’s about price. They have to go back to doing what they were good at and re-engaging their customers.”

Paul Mangiamele, CEO of restaurant chain Bennigan’s, said it’s all about re-establishing that emotional connection. “No one talks about Ronald McDonald now, his appeal to children, or the quality of McDonald’s food anymore. McDonald’s restaurants aren’t clean anymore and employees don’t deliver service.”

Overall, all CEOs should bear in mind that no matter what your market position or how strong your reputation, there are always scrappy upstarts with refreshing, new ideas looking for just a small window of opportunity into your world. If you don’t want your brand and your products to be a thing of the past, heed these 8 lessons from the demise of McDonald’s CEO Don Thompson, and the competition will find your company impenetrable.

Dale Buss
Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other top-flight business publications. He lives in Michigan.

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