min read
October 27, 2016

How McDonald's CDO is Guiding their Digital Transformation

Digital Transformation

When McDonald's announced that they had hired Atif Rafiq straight from Amazon's Kindle division to be their new CDO, it signaled the arrival of new era of digital transformation in the fast food industry.As the wave of digital transition continues to sweep through every industry, it's illuminating to examine how traditional companies are successfully riding that wave. For instance, although they are one of America's most iconic businesses, McDonald's is still experimenting with new ways of streamlining how they connect with customers. Just three years into his tenure, the vision of their Chief Digital Officer (CDO) is already paying off.

A Tradition of Innovation

First opened in 1940 by the McDonald brothers as a barbecue restaurant, McDonald's has thrived throughout the decades because of its culture of adaptation. When it became clear that their profits were largely coming from hamburger sales, the brothers adapted their menu and streamlined their delivery technology. Eliminating carhop service for the faster and easier self-service method attracted new customers, as did hiring a well-known designer to create the familiar branding of the Golden Arches.Ray Kroc, founder of today's McDonald's empire, went on to oversee the national and then global explosion of McDonald's fast-food franchises. Over the years, test marketing and a willingness to experiment led to such innovations as the nation's first fast-food breakfast sandwich. By 1987, McDonald's was serving one-fourth of all restaurant breakfasts in the United States. In the 21st century, McDonald's continues to maintain its agile edge, and in 2013 it hired the first Chief Digital Officer (CDO) in the fast food industry.

Executive for a New Era

When McDonald's announced that they had hired Atif Rafiq straight from Amazon's Kindle division to be their new CDO, it signaled the arrival of new era of digital transformation in the fast food industry. Not only had fast food chains never focused so explicitly on their digital initiatives, but hiring an executive whose past had never intersected with any sort of restaurant was revolutionary. Rafiq's background was squarely in product management, marketing and design -- all within the context of emerging digital technology. With experience at Yahoo and AOL, Rafiq also had a track record of advising dozens of Silicon Valley startups. He was tasked with leading McDonald's global digital strategy, focusing on future growth in e-commerce in order to modernize the restaurant experience and better engage with consumers across the digital landscape.

Digital Is the Relevant Expertise

Despite the fact that Rafiq's experience was not in the restaurant industry, he was the right choice to spearhead McDonald's digital transformation. Today's digital strategy skills are industry-agnostic, because the ability to streamline operations and improve customer experience can be readily translated into new contexts. In an interview, Rafiq comments, "We think, how would Google do this? How would Amazon do this? Those are future partners. That's the bar."

The Role of CDO Is Evolving

Some companies see the CDO role as being a temporary one, where the expert parachutes in and spearheads the early phases of an organization's digital initiative. Whether you need a permanent CDO may depend on the degree to which your company is already shaped around a digital experience. If you've started up in a tech-related space, you probably established your digital ecosystem from the very beginning, and you may be less likely to need a CDO. For a traditional restaurant like McDonald's, however, the CDO plays a "super-sized" role in exploring all the ways in which customer experience can be updated and made seamless.

McDonald's Customers Notice a Difference

Since Atif Rafiq's arrival at McDonald's, customers have already seen how new technology applications have changed their experience. McDonald's locations across the world have installed automated self-serve kiosks to take orders. Customer feedback on this innovation has been positive, as families with restless children find the ordering experience to be more relaxing and less stressful. Furthermore, kiosk ordering goes hand-in-hand with table service, so that customers are able to choose a table and sit down to wait until their food is brought to them.Pierre Woreczek, McDonald's chief brand and strategy officer, points out that these changes result in a new relationship between staff and patrons. This digital transformation initiative has made workers feel less stressed, and they are being trained to use their new freedom to provide more personalized support to customers.Remote ordering via mobile app is also being instituted in many branches, similar to the convenience offered by chains like Starbucks and Domino's. Keeping the focus on every aspect of customer experience, some McDonald's franchises in Chicago are planning on offering table service. Defining the McDonald's brand as being highly agile and adaptable is the philosophy behind Rafiq's digital roadmap. "We're constantly looking at major trends," he explains.

Engineering a Turnaround With Digital Tools

In 2014 and 2015, McDonald's was in the headlines because revenue had fallen by 2.4 percent and net income was down 15 percent. New CEO Steve Easterbrook, who took the company's helm in Spring 2015, identified digital as the key element to the turnaround that he planned to execute. While other factors played into McDonald's decline, such as the growing popularity of "fast casual" dining, Easterbrook and Rafiq had confidence that the linchpin of sustainable success would be improving customer experience.,/

"An Internet Company" Within McDonald's

The digital innovation team at McDonald's grew from 3 to 130 employees within just 18 months as they geared up to reinvent the customer journey. Zaki Fasihuddin was recruited to open a McDonald's office in Silicon Valley, making use of local expertise there to "create an internet company inside this company." The idea, he explains, was to bridge the offline and online worlds. Given a mandate by CEO Easterbrook to "reimagine the restaurant experience of tomorrow," the group expanded to encompass tech hubs around the world.

Analyzing the Customer Journey

Under CDO Rafiq's guidance, McDonald's has a clear company-wide awareness that going digital means far more than simply some changes in marketing. Instead, the restaurant chain has focused its digital transformation on what it terms the "customer journey." They divide this journey into two parts:

  • Customer experience: Offering products that streamline interactions, such as new options for paying and ordering remotely. The in-restaurant experience is increasingly personalized, so that foods can be easily customized when ordering with the "Create Your Taste" initiative. Home delivery of orders is even being introduced in Asia, as part of a seamless "food anywhere" vision.
  • Customer engagement: Giving customers a reason to continue coming to McDonald's, by engaging them in social media or encouraging them to download apps. The "Uberification" of food means that the whole experience has to stay with the customer in whatever channels they prefer.

Steps to Becoming a Digital Organization

As one of the 2015 sponsors of the South by Southwest festival, McDonald's is well aware of the complexity of digital transformation. Rafiq offered the opportunity to tech startups at South by Southwest to compete with one another to work together with McDonald's and help the big company maintain the agility it needs. The fast food chain was one of the original partners in the Apple Pay program, which became part of the architecture for its kiosks.

The Challenge Posed by Franchises

The fact that McDonald's is a franchise company adds a challenge, because thousands of individual franchise owners have to be part of the change equation. These owners are responsible for paying for technological innovations, and they are far from the mindset of the company's Silicon Valley tech team.

Loyalty Needs to Move Beyond Price Tags

As McDonald's follows a path shared by outlets such as Starbucks and Dunkin Donuts, it faces a unique brand challenge. Unlike those other chains, McDonald's has traditionally built customer loyalty through basic pricing and affordability. It needs its mobile-based affinity program to encourage customers to order premium items, rather than simply becoming a new outlet for providing discount offers. Following the model of Starbucks and Dunkin Brands means incorporating loyalty points and free items within its mobile app, and the restaurant chain is still developing its pathway forward in this space. Millennials expect those perks to be part of a restaurant app, as they anticipate streamlined remote ordering and social media sharing to also be integrated.

Brick-and-Mortar Challenges

Another area that McDonald's' digital team is working on is the integration of mobile order-ahead features with the physical lineup of cars at the drive-thru window. The frictionless customer experience of remote ordering is impacted by a long line of cars waiting for their turn at the window. Solutions such as a designated parking area in which orders are brought out to car windows by McDonald's employees are being tested in some markets, ironically bringing the customer experience back to the carhop arrangement. Motley Fool simply suggests that "McDonald's should take due time and roll out the various phases of its platform slowly and methodically."

Willingness to Take Risks Is the Secret Sauce

Every company faces unique challenges with going digital, and McDonald's is ready to be upfront about its digital transformation journey. Steve Easterbrook points out the importance of having a high tolerance for risk. He states his strategy in this way: "The company is seeking progress over perfection. If we want everything to be just right, we'll never quite get there. So let's get out there and try things, let's test things. We can fail fast and spot the successes and scale fast." This type of youthful flexibility is essential in a traditional franchise operation if it's going to reinvent itself for the digital age. Through the insight of CDO Rafiq and his team, McDonald's is doing it right.

Centric Digital