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Skinner’s Toughest Challenge: His Succession

Despite the CEO's stunning success at McDonald's, it might be time to change 'Plan to Win'

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But Skinner surprised everyone by staying put and waiting turned out not to be the strong suit for Roberts and Alvarez. Roberts unexpectedly resigned from the No. 2 spot in 2006, leaving the president and COO job to Alvarez. In December 2009, Alvarez retired unexpectedly over chronic knee pain, elevating McDonald’s USA President Don Thompson to the No. 2 spot.

That makes Thompson, a former member of Northrop Grumman’s (NYSE:NOC) engineering management team (who MCD hired in 1990 to design robotic restaurant equipment), the odds-on favorite to succeed Skinner when he eventually does step down. Thompson moved into restaurant operations in 1994 and rose through the ranks rapidly — achieving the coveted position of president of McDonald’s USA in 2006.

Thompson, who in 2000 became McDonald’s first African-American division head, has a reputation as an innovator and brilliant communicator. He also headed groups that identified new markets and determined menu trends and other ideas that could take advantage of emerging opportunities in the U.S. and global markets.

Thompson is a strong believer in tailoring the restaurants and menu items to local tastes — such as the shrimp burger and tuna breakfast muffins McDonald’s introduced in Japan.

Skinner has been successful in staying the course that he, Cantalupo and Bell put in place with their turnaround strategy in 2003. But no business strategy is sufficient for all seasons. And while the quality over growth emphasis of the “Plan to Win” brought the company back from the edge, that’s not likely to be enough to fuel future brand dominance and robust shareholder returns.

Thompson understands that store quality and growth will need to go hand in hand if McDonald’s is to capitalize on global market opportunities. “We’ve got to be able to focus on both,” he told the Chicago Tribune in an interview.

One important area for growth will be Europe, a region that accounts for 40% of the company’s revenue. Breakfast will be a big opportunity for the region.

“We have a lot of room to grow,” Thompson said of Europe during McDonald’s last earnings call in January. “If you look at Europe in terms of the number of restaurants that we are serving breakfast, we have a long way to go.”

Bottom Line

Skinner and the “Plan to Win” — prioritizing quality over growth — have delivered great returns for McDonald’s during the past few years. But no successful business strategy lasts forever, and now might be the time to shift focus toward a more aggressive growth strategy — particularly in Europe and emerging markets.

McDonald’s, which wrote the book on successful leadership succession plans and boasts “a deep bench,” has prepared well for the changing of the guard. Skinner is doing his part in mentoring Thompson, who believes in strong expansion into markets like Russia and China that are poised for growth. It’s a good bet that Thompson could have just the vision the company needs to keep the win streak going.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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