McDonald’s: McBusted Business-Smart IT Applications

McDonald’s: McBusted IM Group 3 “ Over and over again, companies take a monolithic approach to these implementations, telling themselves that they're going to spend a lot of money without seeing any real returns until that magical day when they flip the switch and go live five years down the road.” - Andrew McAfee, Harvard Business School

McDonald’s: McBusted IM Group 3 “ No one wants to talk about this project.” “ If you're doing business with McDonald's, you're not going to talk. And if you're not, you're not going to talk because eventually you're going to want to do business with them.” - Former McDonald’s Information Systems Manager

McD’s Core Objective IM Group 3 “ Our Plan To Win is designed to deepen our connection with customers by delivering great McDonald’s experiences in every restaurant, every time. This Plan revolves around five customer-focused business drivers - People, Products, Place, Price and Promotion . Through the ongoing alignment of our owner/operators, employees and suppliers, we will continue to capture our opportunities and drive long-term profitable growth.” Source: http://www.mcdonalds.com/corp/invest/pub/2006_fact_sheet.html

Agenda IM Group 3 1. The Scene In 2003 2. The “Innovate” Project 3. The CONsultants 4. Lessons Learnt

The Scene In 2003 Investor's confidence at an all time low 1 st unprofitable quarter ever in the company's history Absorbed $810 million in charges Out of which $170 million or 21% was the write-off of a real-time digital network called Innovate , which represented the most expensive and extensive information technology project in the company's history Confirmed closure of 719 restaurants worldwide Share price at a nine-year low of $12.38 IM Group 3

Investor's confidence at an all time low

1 st unprofitable quarter ever in the company's history

Absorbed $810 million in charges

Out of which $170 million or 21% was the write-off of a real-time digital network called Innovate , which represented the most expensive and extensive information technology project in the company's history

Confirmed closure of 719 restaurants worldwide

Share price at a nine-year low of $12.38

The Scene In 2003 Customer satisfaction at an all time low Motto was "Right order to the right customer in the right amount of time“ But customers began to wait more and more and then began to defect Customer Satisfaction Index - the lowest in its industry (customer expectations, perceived quality, perceived value, customer complaints and customer loyalty) IM Group 3

Customer satisfaction at an all time low

Motto was "Right order to the right customer in the right amount of time“

But customers began to wait more and more and then began to defect

Customer Satisfaction Index - the lowest in its industry (customer expectations, perceived quality, perceived value, customer complaints and customer loyalty)

"Innovate" - The Golden Goose or Pandora’s Box? IM Group 3 Internet-based network to link 30,000+ restaurants and 300+ approved vendors, 24x7 , to the back-office system Spend $1,000,000,000 Over a period of 5 years To build

"Innovate" - The Golden Goose or Pandora’s Box? Innovate - A " MUST DO " IT project Use technology to return to the company's roots - the speediest, most consistent service in the fast-food industry Existing IT infrastructure was incapable of achieving these critical success factors. It took weeks instead of minutes to act on operations data Build a real-time enterprise by working closely with suppliers and store managers IM Group 3

Innovate - A " MUST DO " IT project

Use technology to return to the company's roots - the speediest, most consistent service in the fast-food industry

Existing IT infrastructure was incapable of achieving these critical success factors.

It took weeks instead of minutes to act on operations data

Build a real-time enterprise by working closely with suppliers and store managers

"Innovate" – Lofty ( Impossible? ) Goals IM Group 3 Strategic Supply Chain HR Ops Esoteric

"Innovate" – Lofty ( Impossible? ) Goals Strategic To create a real-time enterprise Work closely with suppliers and store managers to improve the consistency of the product To check if service goals were being met at individual outlets Supply Chain To monitor the exact usage of food and packaging supplies To see consumption by SKU at any store at any time of the day and to act on the observed results IM Group 3

Strategic

To create a real-time enterprise

Work closely with suppliers and store managers to improve the consistency of the product

To check if service goals were being met at individual outlets

Supply Chain

To monitor the exact usage of food and packaging supplies

To see consumption by SKU at any store at any time of the day and to act on the observed results

"Innovate" – Lofty ( Impossible? ) Goals Operations To monitor the temperatures of cooking, freezing, and other appliances and to apply corrective measures To automatically generate historical temperature logs for food safety reports required by the FDA Human Resources To streamline the delivery of employee training and benefit data and to control attrition To allow the store manager to pick and choose the specific employees he or she wanted working at the different spots on the burger assembly line The automation of one job could save $900 million a year system wide IM Group 3

Operations

To monitor the temperatures of cooking, freezing, and other appliances and to apply corrective measures

To automatically generate historical temperature logs for food safety reports required by the FDA

Human Resources

To streamline the delivery of employee training and benefit data and to control attrition

To allow the store manager to pick and choose the specific employees he or she wanted working at the different spots on the burger assembly line

The automation of one job could save $900 million a year system wide

"Innovate" – Lofty ( Impossible? ) Goals IM Group 3 To downright crazy! Executives wanted to know: “ Are potatoes being baked at the right temperature in that corner McD outlet on Elm Street?” “ Has the CO 2 fizzled out in the soda tower in that money spinning McD outlet on Wall Street?”

Implementation – What went WRONG ? Innovate scrapped after $170 million was gutted Innovate did not address the most pressing needs viz. Speedy Customer Service, Quality of Food Big-Bang Approach in the very first major IT project No Feasibility Checks No stakeholder buy-in IM Group 3

Innovate scrapped after $170 million was gutted

Innovate did not address the most pressing needs viz. Speedy Customer Service, Quality of Food

Big-Bang Approach in the very first major

IT project

No Feasibility Checks

No stakeholder buy-in

Implementation – What went WRONG ? Inexperience in IT Cultural Issues Pushed IT to the LIMIT Miscalculated ROI The only RIGHT thing – MPower Group, a Sourcing system to negotiate rates with professional services (40% down) and tech vendors (60% down) IM Group 3

Inexperience in IT

Cultural Issues

Pushed IT to the LIMIT

Miscalculated ROI

The only RIGHT thing – MPower Group, a Sourcing system to negotiate rates with professional services (40% down) and tech vendors (60% down)

The CONsultants – Bearing Point Set up McDonald’s for a BIG fall right from the start Initial analysis and scoping for the project Viability study for the project Estimated ROI – although undisclosed Known for suggesting MEGA solutions Core strength in Strategy Consulting Profit driven engagements IM Group 3

Set up McDonald’s for a BIG fall right from the start

Initial analysis and scoping for the project

Viability study for the project

Estimated ROI – although undisclosed

Known for suggesting MEGA solutions

Core strength in Strategy Consulting

Profit driven engagements

What could have been done? Appropriate Scope and Milestone Definition Feasibility Check Change Management Plan User Buy-In; Business People on board Phase-wise Implementation Risk Management Checkpoints IM Group 3

Appropriate Scope and Milestone Definition

Feasibility Check

Change Management Plan

User Buy-In; Business People on board

Phase-wise Implementation

Risk Management

Checkpoints

Lessons Learnt Points to be considered before diving into a mega IT implementation project: Does the project have the right scope for which it was envisaged in the first instance? Does the project address the current pain points? Are the returns worth the investment? Are the users convinced about the benefits they would derive out of the project? What were the outcomes of the POC? IM Group 3

Points to be considered before diving into a mega

IT implementation project:

Does the project have the right scope for which it was envisaged in the first instance?

Does the project address the current pain points?

Are the returns worth the investment?

Are the users convinced about the benefits they would derive out of the project?

What were the outcomes of the POC?

Lessons Learnt 6. Are we asking IT to wash our butts? 7. Who’s the sponsor and who owns the responsibility on a day-to-day basis? 8. Is there an efficient Change Management in place? And have the users accepted the foreseen changes? 9. Do we have real data for pilot tests? IM Group 3

6. Are we asking IT to wash our butts?

7. Who’s the sponsor and who owns the responsibility on a day-to-day basis?

8. Is there an efficient Change Management in place? And have the users accepted the foreseen changes?

9. Do we have real data for pilot tests?

IM Group 3 Q & A