Blue Ocean I learned from McDonalds — And Ray Kroc
Sorry, I can’t find a better title, so I just modify my previous article’s 🙁
In my first ‘long-and-in-english’ article that I wrote on medium, I’ve already poured some of my insights after I watched ‘The Founder’ movie and did a little research about the history of McDonalds. I’ve tried to map those insights with one of core tools in Blue Ocean Strategy, which I’m about/going to share with you in this article.
Before reading the whole article, I want you to know that this article wasn’t meant to be ‘scientific’. This is just another lightweight article that I wrote to satisfy my brain. I’ve been doing so by writing notes on my Google Keep or creating slides since I joined Beon Intermedia. You can find some of them on my Slideshare. It was just recently that I decided to write on Medium. — Moving on.
First of all, I won’t give you so much detail about what blue ocean strategy is. If you want to know more about it, you can read the book or go to their website for basic understanding about blue ocean strategy. There are also a lot of articles or videos on youtube (like this one) that have deeper information about that matter. But in order to make this article make senses, I will explain it a bit.
Blue Ocean Strategy’s goal is to make the competition irrelevant. The strategy states that if you want your business to get into the ‘blue ocean’, you have to create a value innovation. This value innovation will differentiate you from your competitors. At least, on the early stage. Because you know, nothing lasts forever (that’s what Diffusion of Innovation theory said).
Value innovation is created by doing both dragging down the cost structure and lifting the buyer value. Cost saving is made by eliminating and reducing the factors an industry compete on. Buyer value is lifted by raising and creating elements the industry has never offered. Many business failed to do this. Most of them who failed were indeed increasing buyer value, but their cost structure were also increased. Revenue is raising, so is the cost structure. If you are experiencing similar case, then maybe you need to ask yourself: “Is this really okay?”.
In short, what I did here is mapping what McDonalds Brothers and Ray Kroc did into the ‘Four Actions Framework’ tools.
The picture above shows the brothers’s four actions framework. For the record, you don’t have to follow the order of each box. You can start with whichever you want. So, as I wrote in my previous article, they eliminated a lot of things. Their goal was to speed up the serving process. They started by reducing their menus from everything to only burger, fries, and milkshakes. This helped them to focus on how to raise the serving speed for those menus, which they managed to do by creating the ‘Speedee System’.
Their operational cost was too high at the time. They saved more money by reducing cleaning effort and eliminating carhops, cigarette vending machine and music box. They knew those actions would drive away their current customer segment — youth, but it resulted in a cleaner restaurant. No more beer bottles & cigarette butts scattered all over the area, which means that their restaurant became a family-friendly restaurant, that resulted in an increased number of people coming to eat. I think this was quite a daring move — if not crazy. FYI, the brothers literally moved their restaurant’s building 65 km away from Monrovia to San Bernardino. Yes, they were crazy.
So, as you can see, their initial goal was to speed up the system. But it resulted with much more than that. Faster service means more people to serve, and — yeah baby! — that means more money to come.
To summarize, the brothers’ value innovation is: The Speedee System and family-friendly environment.
Ray Kroc’s actions shown on the picture above are some takeaways for me in order to understand his strategy when he ‘snatched’ McDonalds from the brother. Yes, the brothers successfully created a family-friendly restaurant environment. But it was Kroc’s idea to make McDonalds “A place where American Families get together”. In the movie, he described it as a ‘church’ which opens everyday. He is the one who brought McDonalds nation-wide. He opened numbers of franchise outside its original home base. Thus, he was the one who widely-known as the owner of the business.
According to the movie, Kroc’s first two franchisees were pure businessmen, who did as they pleased and didn’t follow McDonalds’s core value. But then he met with Leonard Rosenblatt — which later I found that this character is fictional — a bible salesman. He offered him and his wife to be a franchisee. This is where Ray Kroc realized that only happy family can carry out the company’s value. He also limited the license ownership rights to only one per franchisee so he could manage the chain better. Sponsorship programs with Coca Cola were created to reduce beverage operational cost.
Harry J. Sonneborn helped him with the idea of owning and leasing the land used for the restaurants to franchisee. Property leasing company was created, which later helped him to take over McDonalds from the brothers. Owning the land means that he has control outside the restaurant and more profit to gain. It places the brunt of the liability and risk for operating restaurants on franchisees, while they have the power to close the store whenever they want. Nonetheless, they will still gain profit from leasing.
To summarize, Kroc’s value innovation is: The Family as core value & the property leasing business.
Eliminate, reduce, raise and create are fundamentals in implementing Blue Ocean Strategy. Observing the right metrics is very important. And I will say it again, set your goal CLEARLY before you do anything. Different goals will result in different Four Actions Framework. I usually use ‘impact vs effort’ matrix to help me mapping which things to eliminate, reduce, raise, or create.
It’s important to understand which stage of Diffusion of Innovation your product is in. It will help you to decide when to use blue ocean strategy. Because sometimes, you have to drive the market. Other time, you need to be driven by the market. At some point, you’ll need to do both. The BCG Growth-Share Matrix will be a great help if you happen to be at a stage where you need to drive the market and get driven by the market at the same time.
So, that’s it. Don’t take this article too ‘scientifically’, because it’s not. All of the insights above are based on what I learned from the movie and a little research. Its just to help me understand what their value innovations are. If you find it useful, I’m glad. If you don’t, please, forgive my lack of competence. Please also note that many details from the movie are different from the facts. If you have a deeper research about McDonalds strategies, please kindly tag me, it will help me to get better perspectives.
Oh, I did the same thing for Tesla’s, and currently learning about Nike’s. I will share them here soon.
NB: I’m not a native english speaker. I hope you can bear with my english, hope it won’t give you cancer. My sister helped me improving my english in the writings. Thank her later, lol! 🙂
