VideoIf you ask CFO Michael L. Conley, it's McDonald's Corp. that deserves a break today. The fast-food giant has come under heavy criticism from Wall Street and the financial press for sagging domestic performance, confusing marketing campaigns, and insufficient attention to changing customer tastes. Yet, at the same time, the Oak Brook, Illinois-based multinational has racked up record sales and earnings for 129 consecutive quarters, thanks to its dominance in the international arena. And its stock's compound annual total return for the five years ended in 1996 was 20 percent.
Still, getting the good news out has been difficult for the 49-year-old Conley, who took over as CFO and executive vice president of the nearly $32 billion company last October, when longtime CFO and vice chairman Jack M. Greenberg was promoted to chairman of McDonald's USA. Small wonder. In the second quarter, the company's U.S. operating income declined by 2 percent. One of its most successful promotions ever--April's Teenie Beanie Babies promotion--was marred by reports of customers buying Happy Meals just for the toys, not the food. And the promotion that followed, Campaign 55, was arguably the company's biggest marketing failure. Designed to offer large sandwiches at 55 cents as long as they were purchased with certain other products, it served only to confuse customers and anger franchisees. The scheduled long-term campaign was halted after just two months.
To Conley, however, the criticism has as much to do with the status of McDonald's as the world's largest fast-food provider as it does with poor performance. "You can't control the press. So instead, we are working hard with investors and communicating where we are and where we are going," says Conley, who joined the company in 1974 and served as corporate controller for 11 years. "We've told them that we aren't happy with our U.S. performance, that we can do a lot better--and that's what we're trying to do."
How quickly McDonald's can turn it around in the United States is another question. "We've set 1997 as a transition year for our U.S. business," says Conley, pointing out that the company is retooling its kitchens and speeding up product rollouts. In addition, the company announced a major reorganization in July that saw the resignation of Edward H. Rensi, McDonald's USA president, and realigned its domestic organizational structure.
But as Conley told CFO senior editor Lori Calabro in a recent interview, "The reorganization itself will not achieve a result. It's an infrastructure change to better position us to get results. We have to exploit it and make it work." In the meantime, he says, earnings will continue to be buoyed by the Golden Arches' international appeal. "If you look at our track record outside the U.S., we're way ahead--and we intend to stay there," declares Conley, noting that of the 2,400 restaurants scheduled to be built this year, 80 percent will be erected overseas. As Conley notes, even giant McDonald's serves just 1 percent of the world's population. "There's an unlimited market out there," he declares.
In July, McDonald's announced a major management reorganization--its third in two years. Why are you reorganizing again?
In the U.S., we've grown up to more than 12,000 stores. But we always had a staff that was centralized. Over the years, the staff got very large. And it got more bureaucratic than the demands of the business today can afford to be. We found that we couldn't move as fast-- there were too many people who had to get involved with decisions--and the line organization in the regions didn't have enough control of enough resources to move really fast or really decisively.
The reorganization is geographic in orientation. It creates five new divisions, each of which could be a Fortune 500 company by itself. Under these divisions, we're going to keep our regional structure of 40 regions. [But] we expect to be able to move faster, make decisions better, and take more risks.
What specific effect will the new structure have on finance?
There will be a full financial function in each region; each division will have a financial officer. The financial-processing functions won't move out of a central place. But you don't have to control the processing to run the business effectively.
I understand the reasoning behind this is to add more flexibility to your domestic business. Is that correct, or is it more a question of getting closer to the customer?
It's both of those things. If you get closer to the customer, you're going to make faster decisions, you're going to make better decisions. It might lead you to take more risks, be more entrepreneurial.
Our international organization grew up very entrepreneurial, like the U.S. grew up. But it's grown up within a country structure, so we have very entrepreneurial, autono-mous countries. No individual country is that big; they're still very light on their feet. They are accountable to Oak Brook [McDonald's headquarters], but they have all kinds of latitude to do what's right for their business and they have all their resources within the company. So, this has been a tremendously successful model for us.
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