MBA's often get a bad name in the press. Enron, Lehman Brothers, the financial crises in general, the list goes on and on. As is generally the case in these situations It's not the MBA degree itself that is to blame, it's people. An MBA provides a set of skills that aide a person in accomplishing things in business. What one does with those skills is where the human element enters, and where any story tends to get interesting. This extends to anyone running a business, not just MBA's.
For those of you who don't live towards the west coast of the United States In-N-Out is a fast food restaurant chain that was founded in 1948 in the Los Angeles area not that far in space or time from where McDonald's got their start. One other thing both these restaurants have in common is Burgers and fries at the center of their menu. From there things diverge rapidly. These are two companies with very different DNA and very different stories.
McDonald's has tens of thousands of locations worldwide. They are ubiqoutous in the fast food arena and are a publically traded company that adopted franchising as a business model early in their history. They strive for consistency of experience and value. Employees are generally low paid and receive minimal benefits and don't stay with the company very long. If you frequent a particular McDonalds you're unlikely to recognize many of the people manning the cash registers from one visit to the next. None of the things I've mentioned are good or bad in and of themselves. They are simply one way to run a sucessful business.
In-N-Out has taken a very different path. They are a privately held company with fewer than three hundred locations who's reputation extends well beyond the current reach of their restaurants which can only be found as far east as Texas. Every location is owned by the parent company and their pricing is very competitive with other similar venues. Employees receieve some of the best wadges in the industry and beneifts. Fresh ingredients are used, nothing is frozen. You can frequently see them slicing the potatos they use to make the fries while waiting for your order. If you go to a particular In-N-Out regularly the odds are good that you'll start to recognize many of the employees since they tend to stay around for years instead of months.
I haven't bought anything from a McDonalds since I saw the movie "Super Size Me" and wasn't a frequent visitor even prior to that. I stop by my local In-N-Out two or three times a month in spite of the fact that I don't eat Beef. Recently In-N-Out won over McDonald's in a survey run by Consumer Reports. This isn't surprising to me. Employees at In-N-Out are generally upbeat and hard working. They clearly care a whole lot more about what is going on than the vast majority of employees I've encountered at the various McDonald's I used to eat at. That contrast is a direct result of how these two companies choose to operate.
By rights In-N-Out should be charging a lot more for their products than McDonalds since they pay their employees more and use fresh locally sourced materials while McDonalds has the advantage of volume and ingredients and require minimal preparation. Superficially there is no way that In-N-Out should be able to compete given the differences in cost of labor and operations. I don't know for sure how they do it, but I'm always wiling to speculate.
Happy employees are more productive. Happy employees are less prone to theft and other actions that negatively impact the bottom line. Happy employees who have been doing their job for awhile generally learn how to do them better. I suspect that if we could come up with some kind of model that measured productivity per dollar spent on labor that In-N-Out would at least be even with McDonalds in spite of their higher costs.
The other big factor in play here is that McDonalds is a publically traded company. They have to please analysts and do whatever it takes to meet their quarterly number. Publically traded companies tend to live in the short term. Long term planning either isn't done or quickly goes by the wayside if it comes in conflict with meeting a short term objective; that isn't planing in any meaningful sense of the word. Institutional investors have their own goals and pressures. They frequently have no interest in the long term prospects of their investments since they will be in and out in a relatively short period of time.
In-N-Out is not a publically traded company. All they have to worry about is being able to pay their bills and meeting the expectations of a small group of share holders with a very strong vested interest in the companies long term viability. Offering their employees a higher level of compensation than most or all of their competition does is easy so long as they feel that is key to both the short and long term success of the company.
It's probably clear which of these two models I prefer.
To be fair, McDonalds has been very sucessful from a business perspective. Many people love their food and view a trip to Mickey D's as a welcome break from an otherwise stressful life. Kids in particular love the place. I'm not casting any aspersions at fans of McDonald's or the company even if I'm not a fan. Their business model doesn't appeal to me as a consumer or as somebody who likes to study how and why businesses succeed.
When you start a business there are a lot of choices that need to be made. In this case McDonalds took a path to rapid growth while In-N-Out took a road to much slower growth. Either path has pros and cons. Personally though I prefer the road less traveled.
Image via Wikipedia
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