Some twenty miles west of Chicago lies the McDonald's corporate campus, forty rolling acres that are developed more nicely than many college campuses. On a late February day it's a kind of winter wonderland, with walking paths winding into snowy woods and around a frozen lake dotted withstrategically decorative geese. Situated next to one of these paths is what's called the Center of Business building, and in the center of the Center of Business—exactly the center—are the cubicles from which president Jack Greenberg runs the world's premier quick-service chain.

Yes, cubicles. The location and layout of the executive center are pure Greenberg. Since taking over the role of chief executive in August 1998 Greenberg has brought the company back in line with the sort of easygoing tranquillity that's reflected in its corporate setting. According to Greenberg's way of doing business, the highest levels of management need to be available to everyone—and everyone needs to see that the top executives are working just as hard as everyone else.

Things are humming inside this Center of Business, sending a message reverberating through an extensive network that several years ago was accused of staid corporate arrogance: We will change to meet the needs of our marketplace. A breakup into five regions—each today as big as the McDonald's system was twenty years ago—has thrust responsibility down closer to the restaurant level. McDonald's owner/operators say they appreciate the quickness that change has brought to decision-making.

Greenberg characterizes his decentralization of the domestic business as a return to the chain's roots of keeping things close to the restaurant level. "It's how we've always run our international business," he says. But Greenberg's other big project—the switch from Dick and Mac McDonald's batch-preparation cooking to the Made for You system—constitutes a root-level change for the chain. "Made for You has made an enormous difference in helping us think through how to change the old processes," Greenberg says. "It gives us a chance to offer more food variety to our customers without injuring our speed of service or morale in the kitchen." More than a third of the chain's 12,500 units have switched to Made for You, which allows them to add regional specialties or new menu items like the Big Xtra burger; completing the rollout is high on Greenberg's to-do list. Now, promotions involving Furby toys and, for the third time, Ty's Teenie Beanie Babies promise to keep McDonald's U.S. kitchens humming this spring.

The international scene is where the real growth potential lies for McDonald's—and also where perhaps the greatest challenges lurk. But in the midst of recessions, currency devaluations, and economic strife, the chain has stuck resolutely to international expansion plans. McDonald's has signed a new licensing agreement that will continue McDonald's restaurant expansion in Japan through the year 2030. In February the chain opened its newest overseas unit in the Republic of Georgia, bringing its global presence to 115 countries and some twenty-five thousand restaurants.

Greenberg met with the editor of QSR to assess what he's brought to McDonald's domestic and international businesses and his goals for the near future.

QSR: Years ago you spent a significant amount of time in the field. How is that influencing what you do today?

Greenberg: That experience influences everything I do. I had done some early field training when I joined the company in 1982 as chief financial officer; it's part of McDonald's corporate culture that everyone gets some operations training. I went through an advanced operations course and graduated from Hamburger University. Later, in 1990, I spent a significant amount of time in the field—first in Kansas City, then in Pittsburgh, for a total of six or seven months.

Then I became the regional manager for the Chicago North Region. That experience was really powerful for me. I was running around 160 restaurants. I thought I knew a lot about the business, but being in the restaurants every day and seeing the business through the eyes of our owner/operators was such a powerful experience. I feel it's a prerequisite to doing the kind of job I've been asked to do. This is a licensing system, and 80 percent or more McDonald's restaurants around the world are owned and operated by our franchisees. And it's a unique franchising relationship because we don't have big companies or passive investors as franchisees. We require individual entrepreneurs, and we ask them to give their full-time best effort. As a result, they are investors in this business every bit as much as our shareholders—they are one of my most important constituents. I've gained insight into the business through working with them, as well as an understanding of the balance required to run a restaurant today that I don't think I would have had through my other experiences.

You kept your field responsibilities far longer than McDonald's required—about a year and a half. Why?

Greenberg: I did that because McDonald's wanted me to actually create a new region. I developed a new staff for the region and managed real estate, construction, franchising, human resources, and other areas. Part of the reason I stayed was to build stability for that marketplace, and part of it was to make sure I went through the cycle long enough to really learn something. Plus, although I was still the chief financial officer during that time, I had a great staff back here in the financial management department that allowed me to get away with being in the field.

The experience has given me perspective on changes in the industry. Today's business has gotten awfully complicated, not just because the basic operations are changing, but because of things like local government issues, health departments, employee issues, labor law issues, and the increasing demands of customers. Today's industry is much more difficult than when I worked in the field. A store manager has to be well rounded, and the quality of training you give your people has to be high. You need to create an environment where people want to stay. We are a part-time and seasonal employer. You're going to have turnover, but we are creating stability among our managers, and that makes a difference in the quality the customer experiences. We're asking a lot of our store managers today. We have to. The average store does over $1.5 million a year—that's a big business to run.

Our company-owned store managers get stock options every year. We started that program twenty years ago—it's old news to us, but I see that a lot of other companies are trying to copy us today. It's surprising to me to see how many of our licensees are share owners as well, because it's not required of them. Last time we conducted a survey we found that half of our share owners were McDonald's licensees. That's really significant.

Let's go back to 1996 and early 1997, a time when McDonald's was accused of a sort of corporate arrogance. What's changed since then?

Greenberg: We've recognized that the world is different from how it was ten years ago. This goes for everyone—even myself. Success can make you comfortable and complacent. It's very hard to say that the old way needs to change when you have a business that's got to be one of the greatest success stories in America. How did you get nearly twenty-five thousand restaurants around the world? It couldn't have been such a bad idea, whatever it was. But our success made it even harder for us to consider changing some basic things.

The reality is that in today's marketplace we have a lot more competition. Customers want more variety and are more demanding about that basics—what we've called QSC (quality, service, cleanliness). And the gap between us and some of our competitors has probably narrowed.

More significantly, business has grown tremendously in the United states over the past twenty years, yet we had made no basic structural changes in management. Twenty years ago we were running about two thousand restaurants with a certain management structure; then [as recently as 1997] we were running twelve thousand restaurants in the United States having made no structural changes in management. Over time the fact of the centralization of efforts here at our Oak Brook headquarters had more and more of an impact on the rest of the business. Given our size, it was very hard to stay in touch with what was going on with our stores, or with our customers. Size creates a slower process of decision-making. Centralization means that you're not going to be quite as quick and responsive, and you might not hear quite as well what's going on in the marketplace.

All of that prompted us to reorganize the management structure of our U.S. business. I think really was a function of being so busy opening restaurants and having the kind of success we've had that we spent very little time and attention on organization process and structural issues. We had some catching up to do on the organizational side.

How did owner/operators and restaurant managers contribute to the organizational changes?

Greenberg: When I first got involved in U.S. business in late 1996 I spent three months traveling around the country talking to our owner/operators and restaurant managers. What was really interesting was that I was hearing some of the same things from both groups. They were concerned about how centralized we were. There was a lack of focus, a lack of speed and efficiency in taking a new idea and deciding what to do with it. There was a plodding going on that wasn't good for business, given the marketplace.

That period of time was what got us to decide on a reorganization. It wasn't something where I just woke up in the middle of the night with lightning striking—I wish I were that lucky or smart. Once we understood what the problems were and started to categorize, the solutions were pretty simple. The changes were not easy to do—but exactly what to do became very clear. And I got that direction from just traveling the country and listening to the people who were running the business every day and trying to do a good job.

In the spring of 1997 we began to work really hard at studying all of the ramifications of a major organizational change. Then we announced it officially in July 1997. Really, I had begun working on it in mid-January since there were so many ramifications to the changes from the personnel standpoint—[determining] how we run the business, making sure roles and responsibilities were directed. Then there's an intangible piece to it, too: The more I've learned over the years, the more I'm convinced that behaviors and values are at least as important, or more important, than structure. We've spent an equal amount of time getting the leadership behaviors right; I think that's important. Everybody in the company must understand that they have to put benefits of the systems before their individual division or region. I don't want to wake up ten years from now and have five separate businesses, all looking different and feeling different to the customer. That would destroy what we have. It's a system first. Yet I think the business requires decentralization. Actually it's a return to our roots—that's how we've run our international business all these years. People have to have a very clear understanding of what the expectations are, and they have to value teams. You can't have a lone ranger out there—something that happens in, say, London affects us here in Chicago.

How are you driving those new behaviors and roles down to the restaurant level?

Greenberg: We have a lot of leadership training going on. I think, most of all, that it's a question of the management at the top providing the kind of example of leadership that's required. I believe strongly in the concept of "shadow of the leader." It's not just how one of our executives or I might give a speech in a big public meeting—it's how we behave in a meeting like this one as well. This is all about creating standards of conduct.

How has decentralization helped change your relationship with owner/operators?

Greenberg: The relationship is better, in part because the behaviors are right. I think we've achieved an attitude of collaboration, of respecting the diversity of opinions, and of recognizing that our owner/operators are investors just as our shareholders are. But, more importantly, I think the decentralization allows for quicker decision-making.

The thing that's most important and satisfying to me and our management group is the quality of relationship we have with our licensees. I think today they are in alignment with what we are trying to accomplish. They're motivated and feeling good about the organization and direction, as well as getting a reasonable return on their investments. Our priority is to maintain this relationship. If we want to grow the business and make more progress, we have to do it through people and innovation. If our restaurants are going to run in a uniformly high-quality way, we need to pay a lot more attention to who we hire, how we hired them, how we train them, and how we work at keeping them. That will help them satisfy our customers.

Is the new decentralized management structure helping McDonald's compete on a region by region basis?

Greenberg: Certainly the decentralized structure gives us more focus in the marketplace. We have five separate divisions in the United States, but underneath that divisional structure are forty regions, each with its own regional president. They're all very decentralized. So, it's much more powerful than just five national operating units. As you mentioned, everybody is a competitor today—yet they are all different. The power lies in actually going below the regional level because in each market the competition can be very different. In a given market your pricing strategy and promotional ideas might be very different from those in another market. As part of the changes we've made over the last couple of years, there is more emphasis allowing an individual market to make their own judgments, say, in the area of price/value. Rather than reach a consensus nationally, maybe we should sell a Big Mac for 99 cents in a certain region. The freedom to have more control over the advertising promotional calendar is an important part of the changes we've made.

You stated that McDonald's has more competitors today than ever. Which competitor are you watching most closely these days?

Greenberg: I think, first of all, that all of our competitors are better managed today than they were years ago. They're more sophisticated. So I worry about every one of them, but it's really does vary by marketplace. And these days I don't think just about the hamburger segment because the truth is people are fighting for the same customer with a much broader variety of foods. On a national level, there's not anyone that I would say sticks out. But in terms a running a business day to day in every marketplace, there are probably two or three to watch more closely than others. One of our competitors has adopted a strategy that's trying to out-McDonald's McDonald's. That's kind of an interesting thing. I'm not sure what the customers think about that, but we'll see what happens.

Personally, I think it's flattering. They lack a little creativity, but it's flattering.

What has the formation and success of Tricon—which rivals McDonald's in size and worldwide presence—meant to McDonald's?

Greenberg: They are the only competitors that have a true global presence, at least with one of their brands. But when you look at their international business—although they are doing better today than they were before the spinoff—my sense is that they are having a difficult time competing with us.

Let's talk about McDonald's international business. How have you managed to keep the ship steady over the past year?

Greenberg: The economies of other countries have affected us, yet we've done a lot better than other chains have. James Cantalupo, our chief executive of international for about the past eleven years, has developed a fabulous team. In part, our U.S. management structure was remodeled after how we run the international business—it goes right back to our roots of decentralization. When you have local entrepreneurial people running individual departments, they are going to be more nimble—which is the point of the decentralization—and able to make changes that are needed to respond to operating conditions.

In Japan for example, in the midst of the deepest recession they've had since the war, our profits and sales are up. But our partners there are very aggressive. They decided that in these times of difficult economic circumstances for their customers, they will deliver a real value, by price, using aggressive expansion, taking advantage of the circumstances, real estates is less expensive, more vacancies and so he's combined it all and growing the business dramatically. In Korea, our business is quite strong, partly because we introduced the Chicken McNuggets there. Chicken is quite popular with the Asian cultures.

Indonesia is a country that's in serious difficulty at the moment, but McDonald's is going to be there for long run and try to stick it out. We've done a lot of things to try to manage through a difficult time. We're probably doing as well as anybody can do there. I attribute that, first of all, to the fact that people have to eat. Second, despite the economic circumstances we're going to maintain high standards of QSC, which I really think does differentiate McDonald's from so many competitors, especially internationally. Third, we do give local management a lot of flexibility. In Indonesia the only food items they were importing were french fries, and when the currency was devalued french fries ended up costing five to ten times as much. You can't do that to people who are out of jobs and have no money, so the Indonesian operators substituted rice for french fries. That idea came from the market level upward, and the decentralized structure allowed them to move quickly with it.

Is having been the trailblazer in the international quick-service development serving McDonald's now?

Greenberg: Yes, it is, partly because of the way we went about it. People think we did it so fast. We were, in fact, very deliberate in building our supply infrastructure so that the quality of our products would remain consistent. In other things, like the selection and training of people and the quality of the buildings we built, we were far more deliberate and careful than most people know. Other chains have tried to develop international markets by licensing the brand and providing little or no other support—then they wonder why they have differences in quality and customer experience. What we have is unique. No one else to date has gotten the kind of global supply infrastructure that can maintain the consistency and quality McDonald's has. It isn't perfect—nothing's perfect—so we're working at it just as hard as ever. We spend enormous amounts of energy trying to make [international operations] better, and I think it is in a class of its own.

We go into some of these countries and just because we're there it creates a whole new industry—say, a refrigerated warehouse industry—that didn't exist. So people start to eat better and have better options ten years later because McDonald's showed up there (not because we forced it, but because our needs were such). We bring them from where they were to the modern era. It's a value-added proposition that's not very well understood.

You're reportedly on the lookout for best practices to bring back to the United States from the overseas business. What's the best thing you've seen an international operator do recently?

Greenberg: There was an idea for a dessert, the McFlurry, that was developed by an owner/operator in Canada. We tasted it and then had a bunch of owner/operators and company people test it. Soon, without a whole lot of publicity or marketing, the McFlurry was rolled out. It is now in 36 countries and about 15,000 restaurants. This was an idea we thought was so good for the customers and so profitable—all we had to do was make it available. We made it available in the U.S. just a year ago, and it's now in about 90 percent of our stores.

It happened so quickly for a couple of reasons: It was a good idea, and decentralized structure allowed us to share information. This was an idea that came out of the international business, and people have copied it more quickly than they would have been able to do in the past. There are a lot of great ideas out there. I love the innovation I see going on.

Some innovations from the recent past were less successful. What did McDonald's learn from the Arch Deluxe era?

Greenberg: I learned that people didn't like the Arch Deluxe as much as we did. We've changed dramatically the way we test a new product. I think we thought we were getting customer feedback, when in fact it was pretty narrowly done in what was a long and elaborate process. What we're doing today [in product testing] is much quicker and more customer-focused. It even involves developing recipes with customers, as opposed our traditional practice of developing something we thought was good. Today we do a lot more recipe interaction with customers before we put a product in the test market. It doesn't necessarily mean that a given product will have a higher degree of success, but I think we will make decisions more quickly and raise our chances at success.

The Made for You system has made an enormous difference in helping us think through how to change the old processes. We are now engaged in improving the existing menu and new products based on the Deluxe line. We're testing the Big Xtra—a sandwich that shows the power of the Made for You production platform. The Big Xtra has a beef patty bigger than the Quarter Pounder's and with a steak-like seasoning. It's on a bigger bun with lettuce and tomato. What happens in the Made for You production environment is that the sandwich is made to order, which gives us a chance to offer more food variety to our customers without injuring our speed of service or morale in the kitchen. If it is nationally successful—which it's not yet—the Big Xtra could be a substitute it for the Arch Deluxe. One year ago we offered a Fish Deluxe sandwich to our stores across the country. It's a new, improved Filet-O-Fish with a fish patty that's 30 percent bigger. We're also testing two new chicken sandwiches [a grilled breast and a fried breast]. If those are successful, they could be the replacement for the Chicken Deluxe sandwiches.

Are you keeping an eye on KFC's testing of chicken sandwiches?

Greenberg: I'm looking to compete with them. I think you need chicken on the menu, and chicken sandwiches are important to our customers as a variety issue. We need to satisfy those customers who have to have chicken.

Will the veggie burger ever catch on in quick service?

Greenberg: We've got veggie burgers in the United Kingdom, the Netherlands, Switzerland, and, of course, in India. But we've also added it to six restaurants in parts of Manhattan where customer demand is high. I don't think the product is right yet, although the sales in the six stores in those New York neighborhoods are actually quite high. It will sell in other places like Chicago—but as for places like Peoria, I have my doubts. It's not a bad idea, but when you can only sell so many items during the course of a day you have to make sure the items on the menu have enough of a minimum demand to justify it. And I'm not sure most of the people who want us to offer veggie burgers really intend to eat at McDonald's, even if we do offer them.

Is it better for McDonald's food to be consistent or taste great?

Greenberg: It's got to be both. Consistency is a given because that's what we are but this not the food. Forty million people visit McDonald's every day. They go because they like the food—not just because it's convenient. The food is the key.

We have to keep the restaurants clean—people expect that at McDonald's. If we don't do it, it will hurt our business. We must give good, fast service. That's what people expect. But if we get you to visit our restaurants often, it probably be because of the food. We can, however, prevent you from visiting more often by messing up our consistency and not running our QSC right.

The way McDonald's can best satisfy customers is by running outstanding restaurants through QSC. It is cleanliness, it is speed of service, it is the smile. The biggest complaint we get is rude or indifferent service. People want hassle-free service; they don't want to be aggravated.

What will you concentrate on for the near future?

Greenberg: For the United States, my top priority is the people. We have a lot of things going for us. We're well known as a training ground—that's one of the many building blocks we have going for us. Innovation is another. When you look at McDonald's forty-year sales track, the real increases in sales all came from innovation—not necessarily products, although that's part of it, but also other moves, such as when we enclosed the dining room, added a drive-thru, became the first restaurants to advertise on national television and the first chain ever to create a national television cooperative. People made those innovative contributions, and in all of those areas we need to continue to innovate. All of us want to create an environment that encourages innovation and at the same time create a process so that we are rigorous about making sure we get it right. That is no simple task for a big company, but we are working hard at it. It will make an enormous difference over time.