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Size matters! But it’s not necessarily good

I often sit back and reflect on why our industry is in such an economic mess and, even more, how we’re going to recover from it. I recently read “What McDonald’s Can Teach Us About Recovery,” by Mats Lederhausen. It’s posted on HarvardBusiness.org and it offers some applicable and thought-provoking insight for us as boat dealers. 

Lederhausen is a former senior executive with McDonald’s and now is the founding partner of BE-CAUSE, a company focused on building businesses with a purpose bigger than their product. Reflecting on his years with McDonald’s, he recalls they tried many things, some even said too many. But, out of it all, two insights eventually emerged.

The first was that the original premise of the McDonald’s business model was still sound. Lederhausen explained that Larry Light, the chief marketing officer, said: “The time we need a new business model is when we believe that our customers no longer ‘Deserve a Break Today.’” Clearly, in today’s time-starved landscape, this was not the case.

In a similar manner, our business model in the marine industry — to bring the enjoyment of the boating lifestyle to America’s families — remains as sound today as it was 50 years ago. We need more focus on that as our core business.

But the second insight for McDonald’s was even more striking. “We had confused size with success,” says Lederhausen. “Over time, we started to believe that one more restaurant meant ‘job well done.’ And sooner rather than later, all our metrics, all of our incentives and all of our capital were chasing growth — the bad form of growth: growth from quantity, not quality.”

Ouch! Looking back now, could it be that in the marine industry, we got caught up in a race for quantity (manufacturers chasing ever bigger production and dealers pushed to unsustainable inventories) instead of seeking growth from quality? In a word: yes!

So, what did McDonald’s do? “We realized that growth must be ‘deserved’ in order to be sustainable,” explained Lederhausen. “As long as you are getting better, it is good to get bigger. But if you are buying size, particularly at the cost of quality, then you are on a slippery and ultimately unsustainable slope,” he emphasized.

 In 2003, McDonald’s launched a new strategy, “Growth from being better.” The entire company was realigned around this one idea. Human and financial resources were now directed at truly improving, not just increasing, their activities. The rest is history and Lederhausen shares four good lessons from the remarkable turnaround of McDonald’s:

1. How you grow matters as much as that you grow. The financial services industry would have benefited from a focus on “growth by quality, not by quantity.” Clearly, the “growth at any cost” credo of some led to exactly that: any cost.

2. Changing your business model may not be needed, but belief in it is. At McDonald’s, we knew that people still “deserved a break today” and we were willing to let go of all other initiatives (many of them very exciting) in order to demonstrate unwavering commitment to the core business.

3. None of us is as good as all of us. It’s the system, stupid! Understanding that you are leading a system, not a company or a person, is a critical insight if you want to successfully change something large. And it must start with the humility that you are in the service of something larger than your own institution. As we say at BE-CAUSE, a purpose bigger than your product.

4. Plan your work, and work your plan. At McDonald’s we created a “plan to win.” Some would argue that it wasn’t perfect. Perhaps it wasn’t, but we decided that it was. And we haven’t looked back. Even through tragic circumstances — losing two CEOs in less than one year due to tragic deaths — the plan stayed intact and is still central today to the focus and alignment of the organization.

Here’s today’s How I Discovered Boating video: www.youtube.com/watch?v=CFdGNlLb8oA?

Comments

5 comments on “Size matters! But it’s not necessarily good

  1. arch

    GREAT ARTICLE and something I’ve been preaching for years. When you go after quantity and not quality, you are doomed to fail.
    McDonalds has done a complete about face. For the longest time, you couldn’t pay me to go in, now they are really good. Of course, they benefit during a recession and our industry is the opposite, but that doesn’t change the message of the article.

  2. Mark

    Good article. I am often reminded of being a child at lunch with my father listening to two of his friends, both general contractors, arguing over their businesses. One had a plan to be “the biggest in South Florida” the other “didn’t want to be the biggest, but the most profitable”. Anyone care to guess which one was in business five years later?

  3. Bill Thompson

    As I work to help dealers obtain floor plan lending in today’s tricky environment there is one thing that must be proven in order to attract financing. Can your business live another year in today’s environment? That said, let’s look at a marine businesses cash drivers; new sales, used sales, service and storage. In today’s environment it can be argued that the last two, service and storage, are the only reliable cash producers. Being good at these two “back to the basics” tenets may be the only way to stay alive in a world where sales are tough to come by. By taking care of your customers over the years, a strong servicing boat dealer can now prove that they can live another day. In essence, the customers you helped along the way are now helping you. Makes sense to me!

  4. LARRY RODRIGUEZ

    SOMEHOW ALONG THE WAY WE LOST SIGHT OF THE AMERICAN DREAM. “QUALITY OF LIFE” AND THE ABUNDANT OPPORTUNITIES TO ACHIEVE IT, WERE CENTRAL FOCAL POINTS OF INTEREST TO THE MANY THAT “CAME TO AMERICA”.
    WHAT MADE THIS COUNTRY GREAT WAS THE QUALITY OF ITS PEOPLE, THE QUALITY OF THE PRODUCTS THEY MADE, SOME OF YOU MAY REMEMBER WHEN “MADE IN AMERICA” STOOD FOR “THE BEST”. PEOPLE WERE PROUD, THERE WAS PRIDE IN WHAT THEY BUILT, IN THE LIFE STYLE AND REWARDS THEY ENJOYED, CARS MADE IN DETROIT WERE SOUGHT ALL OVER THE WORLD, AS WELL AS THE DOLLAR WHICH WAS THE STRONGEST IN WORTH, (quality?). WHAT HAPPENED WAS DRIVEN BY THE GREED OF WALL STREET AND CAPITALISM GETTING OUT OF HAND, WERE “MORE & MORE” WASN’T ENOUGH TO SATISFY THE STOCKS! THE STOCKHOLDERS STARTED RULING COMPANIES, AND EVERYTHING SHIFTED TO “SATISFYING THE STOCK HOLDERS”, RATHER THAN MANUFACTURING THE BEST, INSTEAD SHIFTED TO MAKE IT QUICK, CHEAP AND AS MANY YOU CAN TO KEEP COST DOWN, TO MAXIMIZE RETURN ON THE STOCK!
    PRODUCTS BECAME SECONDARY, GROWTH WAS WHAT WALL STREET LIKED, AND THOUGH SOME GROWTH IS VITAL, AND CREATES MANY BENEFITS, THE WALMARTS & MCDONALDS WHERE MOST MAKE MINIMUM WAGE, & SOME MAKE 10% ABOVE MINIMUM WAGE IF THAT MUCH, AS THE NORM TODAY.
    MCDONALDS ONLY TAUGHT ME ONE THING, I CAN’T AFFORD TO LIVE FROM WHAT THEY PAY, AND WOULDN’T WANT MY CHILDREN TO WORK THERE EITHER.
    MCDONALD IS NOT AS GOOD AN EXAMPLE AS WE WOULD LIKE TO BELIEVE, IT IS NOTHING MORE THAN A SECOND RATE, VOLUME SEEKER, AND PROVIDES A MEAGER & MEDIOCRE LIVING TO THE MAJORITY OF THEIR EMPLOYEES. IF THEY ARE GOOD AT WHAT THEY DO, IT IS SIMPLY BECAUSE THEY ARE EFFICIENT IN KEEPING COST DOWN OVER THE BACKS OF SO MANY PEOPLE, AS WELL AS MANY OTHER ESTABLISHED BUSINESSES.
    WHEN YOU THINK OF ALL THE MOM & POPS RESTAURANTS THEY FORCED OUT OF BUSINESS, (same with Walmart, for when was the last time you walked into a small hardware store?), THEIR ABUSIVE STRONG MASSIVE PURCHASING POWER, (or do you think you are eating American beef?).
    WELL THE WHOLE THING LEAVES A BAD TASTE IN MY MOUTH!
    THE TRUTH IS THEIR GROWTH IS BEING PARTIALLY CURTAILED BY THE COMPETITORS, BK, WENDY’S, KCF, ETC., ETC., WHO JUMPED ON THE SAME WAGON,(or haven’t you noticed there’s usually an array of these close to each other EVERYWHERE?).
    ASK ALL THOSE PEOPLE WHO USED TO HAVE FAMILY RESTAURANTS AROUND THE TIME MCDONALD’S CAME IN, AND THE BREAK (in their pocket book) LARRY LIGHTS REALLY GAVE EVERYBODY.
    SORRY NORM I USUALLY AGREE WITH YOU, AND RESPECT YOUR OUTLOOK, BUT WHAT THE MCDONALD’S PEOPLE MAY WANT TO TEACH ME, THEY CAN KEEP & SHOV……

  5. Komrade Carl

    Larry is still yelling (in Caps)… & I have a question for him. Who were the folks that kept going back to the golden arches, the big orange or blue box hardware/home inprovements stores, Walmarts, and Disney amusement parks that made them sucessful (profitable)? Yea Larry you for got to mention how good old Walt Disney put all the funky local summer amusment guys on their knees – that SOB mouse!!! ;-)) The answers was everybody- no one is or was forced to go to any of these places- THEY MADE IT EASY!!! (sorry for yelling)
    So Larry If I take your theory one step farther then the remaining boat dealers should all go over and protest infront of & run Marine Max out of town – that Damn Bill McGill ;-))) or to the Bass Proshop – that son of of gun Johnny Morris ;-))) Right????
    No we don’t do that. You live under and around the giants, we all do in our lives. We feed off them. Belive me the big mass merchandisers or big dealers throw off a lot of what they think are crumbs but in reality they are really very tasty profitable (to a smaller nimble organization) morsals. Same is still true today. I know dealers who are selling product (new & used) every day and making profit. Like Mark above eluded to- you must never loose sight of making profit. It is the best word & goal in any company or organization as it is the security (the glue) that holds everything togeather. Without it you just have something called government. They live off Taxes and do not understand the word & infact try to make it a bad thing that they want to regulate(take) out of existance.

    Would you like fries (profit) with that?

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