You can find his talk on meaning here (the others are not too bad either)

It’s Quality, Not Quantity

What fast-food king McDonald's can teach us about recovery

With all the news coverage today on financial mismanagement, I can tell you from first-hand experience that there is one company that continues to prosper amid all the chaos. And I think it is worth trying to understand why.

I have spent most of my career inside McDonald’s. First, as a crew member, peeling potatoes and flipping burgers in my native Stockholm, Sweden; then, as most McDonald’s executives, advancing through the ranks and learning the tricks of the trade through marketing, training, HR and operations. After nearly 10 years at the helm of the Swedish operations, I moved to the U.S. to assume the role of chief strategy officer.

This was a time when McDonald’s was facing its toughest headwind in the history of the company. Some of it was self-inflicted; some of it was just evolutionary. Most institutions die young, as they fail to reinvent themselves. As we celebrate the 200th anniversary of Darwin, it is important to remind ourselves that only the most adaptable species indeed survive. So it didn’t come as a real surprise that after decades of unsurpassed growth rates, even McDonald’s would stall. It happens to almost everyone. But as I studied the corporate history books, I realized that the rather short list of companies that had reinvented themselves was intimidating and certainly humbling.

At McDonald’s, we tried many things. Some might say, too many things. But at least we tried them with a sincere intention to find our “inner voice” again. The job as chief strategist in times of rediscovery is closer to “corporate psychiatrist/philosopher” than traditional strategist. Your tools are less about spreadsheets and data and more about introspection and deep discovery. If you once were successful, chances are that somewhere in the past are also the building blocks of your future. Your job is to find whatever it was that connected you to your audience in the past and then to adjust it to be more relevant in today’s marketplace — without losing its essential connectivity.

Fortunately, there were many people wanting us to succeed. But there were also many, often loud, voices that couldn’t wait to see us fail. Perhaps, they inspired us to try harder. Few things motivate us as much as proving the cynics wrong.

What emerged out of years of hard work were two important insights. Both are simple and powerful. The first was that there was really nothing wrong with the original premise of our business model. As our chief marketing officer at the time, Larry Light, 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. The second insight was that we had confused size with success. 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.

As we dug in, we realized that growth must be “deserved” in order to be sustainable. 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. In 2003, we launched our new strategy, “Growth from being better.” We aligned the entire company around this very simple idea. Human and financial resources were now being directed at truly improving, not just increasing, their activities.

The rest is really history. The turnaround of McDonald’s has been a remarkable one. To many observers, it has a bit of a surprise. To others, perhaps their own worst nightmare.

To me, it has been a labor of love for a few reasons. First, McDonald’s is an important company. Its success matters to so many — particularly the hundreds of thousands (probably millions) of people who get their first job there and who learn critical skills for life. Secondly, McDonald’s is a decentralized company. It is really a system of companies — thousands of them. Most of them are small entrepreneurs who have invested their savings in a dream to be in business for themselves, but not by themselves. And finally, McDonald’s restaurants serve almost 60 million daily breaks of great value. People depend on getting food served fast. Food they can trust, and food they can afford. What’s even better, McDonald’s is committed to offering more and more healthier choices on its menu and has made significant changes to its line up of “better-for-you” choices in the past few years.

I believe there are important lessons that can be learned from the remarkable turnaround at McDonald’s.

1. How you grow matters as much as that you grow.
Our financial services industry would have benefitted 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.
Start by asking yourself what business you are in and whether customers still have a need for it. If they do, commit to it — fully. At McDonald’s, we knew that people still “deserved a break today” and they 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!
Large businesses, the financial system and the government are all complex systems. They are not top-down. They are colorful and integrated tapestries spun together by cultural, geographical, ethnic and historical threads. 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. McDonald’s is extremely good at this. To some people (me included), it is a frustrating process. It takes time. It requires buy-in and plenty of patience and tolerance from everyone. It also requires adequate policing, oversight and incredibly detailed measurement systems. This is tedious work, and intimidating to those being measured. But it’s needed.

Large systems work best with a hard-wired operating system in the hub that enables innovation, entrepreneurship and decision-making in the nodes. The Internet would not have happened without HTML. Our country would not have prospered without the U.S. Constitution. But it is worth all the pain. 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 — the company I founded — 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.

So often, companies feel a need to change something for the sake of changing it. I say, “If it works, don’t change it.”

2. Do you know who your customers are and whether they are truly benefitting from your products?

3. Is compensation reasonable both in the short- and long-term? In other words, if you succeed, do all of your stakeholders benefit?

This blog was originally posted on LRN's Hows Matter site

Unfortunately, one of the most tragic aspects of human progress is that we only learn the real lessons the hard way. Or as Will Rogers famously said: “Good judgment comes from experience, and experience comes from bad judgment.”

Obviously, 2008 was a tragic year in world economic affairs. As the dust settles, we are like archeologists trying to understand what happened, primarily from studying the wreckages of once-impressive enterprises. With time, the clarity and precision of our understanding will no doubt be enhanced and, hopefully, we can at least avoid making the same mistakes in the future. Rest assured, we will make new ones. Such is life. And that’s a good thing. How boring life would be without the anxiety of the declines followed by the exhilaration of achieving new heights previously unimagined. One just wishes that the pain associated with the falls could be better prevented.

One aspect of this crisis that is particularly troubling is the asymmetric nature of the burden of pain. When looking at the past five years of Wall Street bonuses and other forms of financial rewards, it is clear that most of the financial industry executives are likely to be net positive out of this ordeal: The size of their accumulated rewards prior to the crises most likely outweighs their more-recent loss of stock options, direct compensation and short-term humility. Compare this to the many more innocent investors, homeowners and other businesses that have lost a significant part of their net worth without having had the ability to cash in as the financial agents did.

As an entrepreneur, corporate executive, board member and investor, I have during my career always been fascinated with the financial industry. Clearly, the capital markets play a central role in any modern economy. Providing access to capital is the lubricant of our global economy. Without it there will be no forward motion. But what is the price of this lubrication? I have spent most of my career in the restaurant industry, and food, it could be argued, is of similar importance to human nutrition as capital is to economic prosperity. But we don’t pay restaurant operators nearly what we pay bankers.

In the aftermath of this financial tragedy, we ought to have a constructive public discussion centered on what contributions in society should have the highest rewards. To be clear, this is a discussion — I am not advocating regulation or a committee deciding who makes what; I am not allocating blame, either. People make what they make, and the broader society tends to deserve the bankers, businesses, government and media it deserves. Yet another sobering reality of life.

There are many vectors in society that are mysteriously undervalued. Why do we pay so little for great teachers when we know that a better-educated future population would most likely make all of us much richer? Why do we only spend 3 percent of our trillions of dollars in health care investments on prevention when we know that 80 percent of our chronic diseases, which account for a significant percentage of our total health care bill, could often be naturally avoided? Why did we not invest in — particularly in the aftermath of 9/11 — energy solutions that could not only mitigate risks of global warming but also reduce our vast spending on wars fueled by oil that, to a large extent, is consumed by us? There are many more examples, of course.

One could envision many interesting voices passionately arguing for and against different aspects of this issue. The most common voice heard is that we should let the markets sort it out. But who are the markets? Aren’t we the markets?

Clearly, there is only one solution. As Jerry Garcia so wonderfully put it: “Somebody has to do something, and it is incredibly pathetic that it has to be us.” We all —everybody — have to engage and care about where we put our money, where we shop, what banks we do business with, what we ask from our financial advisors and how we value the most important parts of our lives. When you step aside, it does seem bizarre that we appear almost obsessed with shaving off a dollar or two from many items we buy weekly, when we nearly ignore all of the thousands of dollars that are flushed away by people we don’t know in banks and institutions we don’t visit. When did you last visit with the people who manage your 401(k)?

While I don’t have a solution to the problem itself other than to raise the topic and hope that a constructive dialogue ensues, I’d like to contribute two themes that I believe in, and one of them so much that I have devoted my career to it

The first is the time horizon for our financial expectations. I do believe that the longer the horizon, the fewer the problems — within reason. Sure, there are exceptions to every rule, but in general we all value people who spend a large amount of time creating something of great value. Longevity cures a lot of ills. Anything that has stood the test of time is likely to stand a bit longer, and therefore the risk of a large reward for the creators feels more deserved. I learned this from a union leader in Sweden many years ago when we discussed wealth. He told me: “I don’t have any problem with a neighbor of mine, whom I see every day working hard in his yard, having a much nicer yard than I do. I am not jealous. I am impressed. In fact, he inspires me to work harder in my own yard.” I do think it is important for society to reward people the most that we value the most. That creates less friction, less partisanship and less division.

The other theme is one of purpose — a purpose bigger than your product. As mentor, friend and author Charles Handy once said: “Where there is no vision, there you find short-termism, for then there is no reason to compromise today for an unknown tomorrow.” One possible starting point of self-reflection for members of the financial industry is to try to identify their purpose beyond annual bonuses and returns only. If they saw their industry as the true Jiffy Lube of capitalism perhaps many of the more extreme risks and behaviors that today so clearly have exacerbated our crisis could have been avoided. If mortgage industries saw their job as providing homes, not loans, then perhaps we’d have a different housing market.

There is nothing wrong with making money. But making money is always an outcome of what you do — not just an income. If we continue to reward income more than outcome I am rather certain that we won’t like the result.

Author and columnist Thomas Friedman recently said in The New York Times: “We’ve fallen into a trend of diverting and rewarding the best of our collective I.Q. to people doing financial engineering rather than real engineering. These rocket scientists and engineers were designing complex financial instruments to make money out of money - rather than designing cars, phones, computers, teaching tools, Internet programs and medical equipment that could improve the lives and productivity of millions.”

Dear Friends

A good friend shared this with me today. It is beautifully written and inspired me to share it more broadly. I applaud the Bigelow folks who wrote this. I think it accurately portrays why being a good owner is both challenging and rewarding and why we so passionately want to be known as great owners of aspiring businesses. Enjoy it.

Posted at http://www.bigelowco.com

TERRA INCOGNITA?

Terra Ingognita is the Latin term for "unknown land." The term was used by ancient mapmakers for labeling undiscovered territories, or regions that had not been mapped or documented, or were merely inaccessible to ordinary men. Might that description be apt for the external landscape that Owner-Managers face today?

In this world filled with uncertainty, Owner-Managers of entrepreneurial businesses persist in allocating the vast majority of their waking hours as manager, not as owners. As managers, one cares most about the frequency of correctness of current decisions. Managers seek the positive feedback they get from making decisions correctly, regardless of magnitude. Most management decisions have simple outcomes.

As owners, what matters most is the magnitude of infrequent decisions and less the frequency of being correct. Owners are more affected by the magnitude of the outcomes of decisions as they regard values like legacy, future of stakeholders, need for accumulation of capital, and ultimately: Enterprise Value. Most ownership decisions will result in complex non linear outcomes. For owners it is the magnitude of outcomes that will impact Legacy or Enterprise Value, or both.

Kahneman & Tversky argued persuasively in 1979 that humans are generally a lot happier when we are right "frequently", without regard to the magnitude of the outcome. It is notable that being right frequently does not correlate with an investment outperforming a benchmark in the Owner-Manager world. The number of times that you are correct does not determine your performance as an owner; it is the magnitude of the change that translates into value. Just a few decisions will have a disproportionate affect on value, vastly more than "batting average". Don't get us wrong, we appreciate managements; and good management is better than bad management. It's just that the many decisions in the management domain have generally smaller consequences than the few in the owners' domain.

Is this truly Terra Incognita? It might feel that way. Sure this market downturn is steep and rapid. And we acknowledge the national mood disorder hanging over us, even after the recent election. Yet in every economic correction that we have experienced, inevitably the doomsayers create some extreme theory about how this time it is different, this really is the end of the world as we know it. These theories and dire predictions always pop up with greater frequency near the end of the declines.

IN our roles as Owners-Managers, we must force ourselves to look beyond our comfort zones as managers; past the comforting frequency of good day-to-day decisions. We live in a world of asymetric outcomes. No one is a good predictor of anything. But we can focus on the consequences of our decisions (which we can know), rather than the probabilities (which we can't know). As Owners-Managers we can infuse our decisions with positive emotion knowing we are implementing actions that have the greatest magnitude of outcome to sustaining Legacy and Enterprise Value.

© The Bigelow Company LLC, all rights reserved.

When I read your greenwashing post (about whether implementing chief sustainability officers is a sign of a much-welcomed new approach to larger businesses), it triggered a need to write something about what I believe needs to happen. The problem is less about whether companies are taking ethics or HOWs seriously. I believe they are and I believe they always have been. Most people are honest people. They want to do the right thing. Call me naive, but that is my experience. The issue instead concerns the governance surrounding these officers and who they ultimately answer to.

Most people operate under the assumption that “what interests my boss fascinates me.” In other words they will do what is monitored, measured, and expected. There are two gravitational forces pulling against our natural tendency for doing the right thing. We need to be more aware of them both. First, there is distance in people. Second, there is distance in time.

The first distance has to do with the distance between heart and head that has been created by the many layers of professional managers existing between companies’ owners and their hired executives. The courageous and truly sustainable decisions are often being made by the owners of businesses. They have everything to lose and everything to gain. From that position there is often dilution down the chain of ownership. The further away you are the more tactical your decision-making often gets. Your name is at stake (your reputation is not as much, at least so you think) as long as your numbers are good. Of course this is not true, but it is a persistent illusion.

The other force is the the time horizon we have for our investment activities. I have long been inspired by the Egyptians who decided to build the pyramids. These were people that had a vision so grand they knew that only their grandchildren would be there to enjoy the fruits of that vision. As Charles Handy so eloquently writes: “Set your sights on immortality, or as close to it as you can get, and most of the ethical dilemmas sort themselves out. Today the skyscrapers of business tower over the old cathedrals. We must hope that those who build the enterprises within them are cathedral builders in their turn, for if they fail us then we all fail.”