COMPANY: McDonald’s Corporation CRISIS: Franchising YEAR: 1954 LEADERS: McDonald brothers (Richard and Maurice McDonald) & Ray Kroc THIS CRISIS LEADS TO THE FAILURE OF ONE LEADER & SUCCESS OF ANOTHER.

1. CONTINUOUS INTERNAL ASSESSMENT – 1B
STRATEGIC LEADERSHIP & COMMUNICATION
SIMRAN MONDAL
1918107
COMPANY: McDonald’s Corporation
CRISIS: Franchising
YEAR: 1954
LEADERS: McDonald brothers (Richard and Maurice McDonald) & Ray Kroc
THIS CRISIS LEADS TO THE FAILURE OF ONE LEADER &
SUCCESS OF ANOTHER.
In the year 1940 McDonald brothers started a drive-in food chain restaurant in San
Bernardino, California named McDonald Barbeque with 27 items menu, uniformed staff who
brings food right to the car, it was doing fine at the beginning as drive-ins were popular
during those times, but soon the system began to fail as they realised this system was
expensive (Huge payrolls, large staff required, expenses on plates & dishes {usually broken
or stolen}, extra overheads) & the main problem- long serving time.
The McDonald brothers quickly recognised the problem & set up a speedy service system
(Easy to assemble, Grill to counter in 30 seconds) with only 3 main items on the menu
(Hamburgers, French fries & soft drinks) which made about 87% of sales from their previous
menu. Here the customers had to walk up to the window & get their own food, all paper
packaging, disposable. They created a Family friendly Environment.
In order to setup this system they drew dimensions of their kitchen on the tennis court,
brought their staff & asked them to pretend make burgers & fries, they kept going over &
over for about 6 hrs, changing plans until they found the best fit. They took the layout to the
builders & got it custom made to the exact spaces.

2. Now that they had set up the world’s first ever system to deliver food fast, they placed an
order of eight multi mixers from Ray Kroc (owner of Prince Castle sales), Mr Ray decided to
visit their outlet because he couldn’t believe that any drive-in can sell so many milkshakes an
hour.
He was impressed with the speedy system & suggested the brothers to franchise, so they
mentioned that they had already opened few such outlets in the other parts of the state with
huge golden arches (to stand out) but they failed due to lack of quality control, they weren’t
able to enforce same standards from far, so they had to shut down those outlets.
They believed it’s better to have one great restaurant than 50 mediocre ones.
(Left picture: First outlet, Right Picture: Franchised outlet in phoenix Arizona with the golden
arches)*
By the beginning of 1955 Ray Kroc convinced the brothers & opened the first McDonald's
franchised under his partnership in Des Plaines, Illinois. This time the brothers learned from
their mistakes & drew a contract which stated that every change goes through them & they
would have complete control over the outlet. (Ray Kroc's initial franchising deal looked like
this: a franchise fee of $950 with a 1.9 percent service fee assessed on food sales, 0.5 percent
paid to the McDonald brothers as a royalty, and the remaining 1.4 percent going to Kroc.)

3. Ray Kroc did not stop at this he mortgaged his house & bought out a loan to expand the
franchise, He even tried to strike a deal with Coca Cola to sponsor their menu boards at their
new locations but the idea was rejected by the brothers who believed that this concept was
beyond their core beliefs (McDonalds was found with the idea of families & not
commercialization). Similarly many such ideas were rejected over the years. This led Ray
Kroc to incur huge debts in a short period of time
In the next few years he became the head of franchise & with the help of Harry J Sonneborn-
Financial Advisor, he found out a way to make profits.
Initially the franchisee’s would lease a land on their own for 20years & took their
construction loan (Operator selects site, Franchise provides system). Harry J Sonneborn
advised Mr Ray to shift his income from burger business to real estate business where he
would buy the land & ask the franchisee to lease the land from him & fail to maintain quality
would lead to cancellation of the lease. This led to him having ownership, upfront cash &
capital for further expansion & as brothers had control only over what happened inside the
restaurants & not outside.
He took advantage of this & named the real estate business as McDonald Corporation (real
estate arm), this led to people thinking he was the founder of the fast food restaurant chains &
he let people believe it.
By the time the brother could do anything about it he had become the president & CEO of
this major real estate corporation with land holdings in 17 states.
The brothers had no choice & had to sell the rights for 2.7 million in the year 1961
(calculated so as to ensure each brother $1 million after taxes & retain the original restaurant
at San Bernardino).
McDonald’s trademark was now the exclusive intellectual property of Mr Raymond. A. Kroc
(named himself the founder) with 1600 restaurants in 50 states & 5 foreign countries with
annual revenue of $700 million.
Today McDonald's is undoubtedly the world's largest restaurant chain by revenue,
serving with over 38 thousand locations in over 119 countries.

4. LEADERSHIP STYLES & EFFECTIVENESS IN MANAGING THE
CRISIS
Leaders Crisis Management Result Leadership Style
McDonald
Brothers
(They were
born in poverty
& learned
everything on
their own; they
set up several
businesses
before they
could set up
McDonalds.)
1. The Drive-
in model had
few in built
problems
When they saw their initial
McDonald’s wasn’t working
they did not give up or ignored
the facts rather they innovated
the restaurant. (Able to
recognise the problem,
Innovation, valued customer
experience)
Created the
world’s first
ever system
to deliver
fast food
Visionary &
Directing style
(while training
the employees to
adjust to the
innovated
method)
2. Franchising Mismanaged: As they
franchised they couldn’t keep
Ray Kroc in control, they had
no idea about American
consumerism, refused to
switch to commercialization,
they were more concerned about
the quality & experience &
didn’t care about the growth
(Slow growth)
The entire
business
was bought
out from
them at $2.7
million
Tried
Bureaucratic
leadership
instead,
should have tried
Democratic &
Affiliative style
(Build consensus
with Ray Kroc &
solve problems)
Ray Kroc
(He worked
variety of jobs,
as a salesman
he sold a lot of
things likes
Wax cups,
folding forks,
multi mixers)
1.Franchising
(money &
quality)
Mortgaged his house for
capital.
He approached his rich and
retired friends from his country
club to franchise & within a
month he helped open 3
franchise around the state.
This idea wasn’t successful as
these franchisees weren’t
maintaining the standards (they
saw this as a lifestyle business
and were not interested in
standardisation and service).
Ray quickly learnt & started
approaching struggling middle-
class couples instead (they were
hard working and committed to
the brand standards).
Rapid
expansion
of business
& also
became the
head of
franchising
Coaching style to
maintain
standards
Visionary
Leadership style
(Knew to push
through when
times were tough,
focused on the big
picture)

5. (Able to recognize the right
people for the business)
To maintain quality Kroc trained
the franchisees (in the
basements) & granted the right
to only one store.
Training included how the
restaurants were to be kept
properly sanitized at all times,
and the staff must be clean,
properly groomed and polite to
children. The food was to be of a
strictly fixed, standardized
content and restaurants were not
allowed to deviate from
specifications in any way. There
was to be no waste of anything,
every condiment container was
to be scraped completely clean.
No cigarette machines or pinball
games were allowed in any
McDonald's.
(making a huge number of
innovative changes to set &
impose quality standards to
maintain brand name,
increase commercialization &
rapid expansion)
2. Contractual
Obligation
(The brothers
also
consistently
told Kroc he
could not make
changes to
things such as
the original
blueprint)
Kroc became frustrated with the
McDonald brothers' desire to
maintain a small number of
restaurants. With the help of the
financial advisor he bought the
land on which the franchise
would be built, it gave him
complete control over the
business.
(Knew how to make use of
resources to get himself out of
the contract)
McDonald’s
entire
business &
trade mark
was now his
exclusive
property.
Named
himself as
the founder.
Situational &
Autocratic
Leadership style.

6. KEY LESSONS
The biggest lesson from both the leaders:
Never Give up
Value Experience
Strive for Perfection
Apply Fresh Perspective
Innovate &
It’s never too late
(The brothers started McDonalds when they were 38 and 31 years, Ray was 52 years old
when he met the brothers)
Other learning’s:
McDonald Brothers:
• Explore new ways
• Think Big: created an efficient system (Worlds first fast food business)
• Have a vision: Vision of creating the best quality hamburgers in the fastest time
• Learn what matters: Their menu consisted only of 3 items because they saw 87% sales
in those items (they measured what mattered)
Lessons from mistakes:
• Align interests with partners: The brothers wanted quality & Ray Kroc wanted big
• Have a proper communication channel
• Never tolerate frustration: The brothers were frustrated with Ray Kroc’s continuous
ideas for commercialization & kept tolerating & never acted which led Ray Kroc to
take complete control of their business.
Ray Kroc
• Even though you might have higher goals to expand never forget to maintain
standards & value customers.
• Think big: With his hard work & persistence, he was able to expand the business
worldwide.
• Align your goals with your vision

7. • Align interest with partners: He found people who would value his vision (Middle
class individuals for franchising)
• Seek expert advice and fresh perspectives (Help of the financial advisor )
• Adherence to the system approach
• Relentlessness: For a business to succeed it is important to be relentless sometimes.
He took complete control of the business to fulfil his vision
Failure Lesson:
• Give credits to others / acknowledge contributions: He named himself the founder
instead of the brothers.
“Luck is a dividend of sweat. The more you sweat, the luckier you get.”
– Ray Kroc
Bibliography
Brancaccio, D. (2017, EB 9). The true origin story behind McDonald’s. Retrieved from
Marketplace.org: https://www.marketplace.org/2017/02/09/ray-kroc-mcdonalds-fast-food/
Hancock, J. L. (Director). (2016). The Founder [Motion Picture].
Karia, B. (2020, Jan 13). Naukri Blog. Retrieved from Naukri.com:
https://www.naukri.com/blog/4-leaders-whose-leadership-qualities-skills-changed-
everything/
MIRANDA, L. (2017, June 9). Forbes India Blogs, Lessons for entrepreneurs from the
McDonald Brothers and Ray Kroc. Retrieved from Forbes India :
https://www.forbesindia.com/blog/accidental-investor/lessons-for-entrepreneurs-from-the-
mcdonald-brothers-and-ray-kroc/
Our History. (n.d.). Retrieved from mcdonalds.com: https://www.mcdonalds.com/us/en-
us/about-us/our-history.html
STICE, J. (2019, March 15). The tragic real-life story of the McDonald brothers. Retrieved
from Mashed: https://www.mashed.com/147897/the-tragic-real-life-story-of-the-mcdonald-
brothers/