By CONOR  CUNNEEN

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(Feb. 18, 2008) McDonald’s continued resurgence offers credible support to the notion that the Oak Brook, Ill.-based company has performed arguably the most impressive business turnaround this decade. The resurgence of an American icon provides a number of valuable leadership lessons for corporate America.

Those lessons include:

• Having a clear and compelling vision

• Making restroom marketing critical

• Realizing innovation does not have to be innovative

• Staying focused

• Executing a relevant strategy that drives corporate health

• Maintaining good bench strength

In January 2003, incoming McDonald’s chairman Jim Cantalupo announced the corporation’s first quarterly loss of $343 million. McDonald’s brand was in trouble. It had seen a consistent sales decline for the previous two years. Worse, consumers were not just boycotting the Golden Arches, they were also bad-mouthing the brand. Investors marched from the stock as it tumbled from almost $50 a share to a low of $13 some months after Cantalupo’s appointment as chairman.

McDonald’s problems were primarily self-inflicted. After all, the foodservice market continued to grow and competitors Wendy’s, Jack in the Box and others were posting positive numbers. The chain’s problems were numerous.

The implementation of an aggressive expansion plan had resulted in poor operational performance and standards. Nearly 2,000 units were built annually in the 10 years leading up to 2002. During that time the chain went from 13,000 to 31,000 units.

Franchisees were dissatisfied due in part to rapid growth that impacted existing restaurants.

The legendary McDonald’s mantra, QSC&V—Quality, Service, Cleanliness and Value—did not pervade new or even old restaurants. A business that prided itself on customer satisfaction seemed to have forgotten the customer. Indeed, the chairman’s letter in the five years from 1996 to 2000 referenced the “customer experience” just once.

The chain had not had a successful major menu change since the introduction of Chicken McNuggets in 1983.

McDonald’s was being painted as the evil poster child by those campaigning against obesity.

Also, the McDonald’s brand was not always center-stage as management endeavored to create a multibrand corporation.

Five years ago, few were optimistic about the fortunes of the company as it swapped one McDonald’s veteran, Jim Cantalupo, for the exiting Jack Greenberg. Cantalupo had retired in April 2002 as vice chairman and president. His appointment was hardly greeted with fanfare by Wall Street analysts. After his first conference call, during which he announced plans to revitalize McDonald’s, reaction was muted. Analyst’s comments ranged from “unimpressed” to “plans were vague and did not inspire confidence,” to “missed our wish list on almost every issue.”

Lesson 1: Clear and Compelling Vision. One of the reasons the chairman’s plans received such poor responses was that he appeared to be saying nothing new. As a 28-year McDonald’s veteran, Cantalupo also shouldered some of the blame for the Golden Arches’ performance. However, after just eight months of retirement Cantalupo returned with a very clear and compelling vision as to what a successful restaurant might look like.

At his first conference call, he told his audience, “Clean restrooms and hot, fresh food served in our restaurants would be a change.” McDonald’s had forgotten the basic vision that customers wanted clean restrooms and hot food. Few would suggest it was a new or dramatic vision, but it was clear and it was compelling. Cantalupo energized the giant corporation around that vision and demanded improvement in standards across all aspects of the business.

Lesson 2: Restroom marketing is critical. Restroom marketing relates to the “non-negotiables” that businesses must get right. Failure to do so will result in customers boycotting your business.

Cantalupo and his successor as chief executive, Charlie Bell, told franchisees, investors and analysts at every opportunity that McDonald’s would have the “cleanest restrooms in the industry.” It was a “non-negotiable” for restaurant success and also a career in McDonald’s. Failure to identify and understand what is non-negotiable for your customers will result in significant customer dissatisfaction and ultimately lost business.

Lesson 3: Innovation does not have to be innovative. One of the most intriguing aspects of the turnaround—and indeed the improved overall perception of the fast-food sector—is that it owes much to lettuce, tomato and regular protein. It really is extraordinary that the most successful menu innovation in the sector in more than a generation is something as basic as salads. The lesson: Innovation that drives growth does not have to be complex, just new and relevant.

The other rule breaker in this context is that McDonald’s was not even the first to market with good quality salads. The launch of McDonald’s Premium Salads came more than a year after rival Wendy’s introduced Garden Sensations, which did prove to be just that—a sensational success for the Dublin, Ohio-based chain. The aggressive launch of McDonald’s Premium Salads not only encouraged customers back to the chain but also helped change consumer perception. In a sense, they proved to be the ultimate in innovation: VIP products, which result in incremental volume, incremental image and incremental profit. VIP products are the Holy Grail of innovation. They occur rarely, but McDonald’s has hit VIP standards with salads, white chicken strips, coffee and snack wraps. Why? Because the products are relevant to the customer base. Interestingly, “relevant” was a very popular word in the vocabulary of Charlie Bell and now Jim Skinner.

Lesson 4: Stay focused. Cantalupo’s predecessor, chairman Jack Greenberg, wrote in 2001, “We know that there are a number of distinct meal occasions that McDonald’s does not meet—when you want pizza or ethnic food, for example…so we are developing new concepts to…capture additional meal occasions.”

McDonald’s brand was not always center-stage as management endeavored to create a multibrand corporation by investing in Boston Market, Chipotle Mexican Grill, Donatos Pizza and the United Kingdom-based sandwich chain Prêt A Manger. As management appreciated that McDonald’s could legitimately offer healthier options and compete comfortably against the fast-casual sector, these other concepts were no longer deemed relevant to a growth strategy.

Lesson 5: Execution of a relevant strategy drives corporate health. Cantalupo also changed strategy. Primary growth in the future, he said, would come through “adding customers to restaurants” rather than adding “restaurants to customers.” The corporation went back to basics to make this happen. Indeed, it is a lesson in Marketing 101. Today, the corporation in its “Plan to Win” emphasizes five P’s–People, Product, Place, Price and Promotion. The five P’s are being executed in very disciplined and effective manner and producing the results for chief executive Jim Skinner and shareholders. One example of quality execution is coffee, where McDonald’s packaging—insulated cup and lid with closure—is significantly better than that of Starbucks.

Strategy does not have to be innovative or exciting—simply relevant. The most profitable auto company in the world, Toyota, does not have an exciting strategy. But it does provide relevant products for its customers and executes incredibly well against that strategy. Autos or restaurants: Execution of a relevant strategy is what ultimately drives profitability.

Lesson 6: Bench strength. Few companies could move through three chief executives—Cantalupo, Bell and Skinner—within a seven-month period and do it seamlessly. McDonald’s USA president Ralph Alvarez replaced Mike Roberts in 2006 when he unexpectedly resigned, and just recently the corporation announced that corporate controller Peter Bensen would replace the retiring Matt Paull. In “Good to Great,” author Jim Collins wrote about the importance of having the right people on the bus. McDonald’s has a big bus!

Conor Cunneen is a professional speaker, humorist and consultant. He is author of “Why Ireland Never Invaded America—An Insightful Unique Look at Corporate Strategy,” and a winner of Chicago Toastmasters Humorous Speaker of the Year title. He can be contacted at cc@sheifgab.com.

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