value insights

Discovery and Knowledge Funnel- Valutrics

THE UNITED STATES in the years after World War II was a restless place, engaged in an audacious social experiment that would eventually transform how and where Americans worked, played, and consumed. Victorious with the Allied nations against the Axis, then instrumental in the rebuilding of Europe, the United States had become the West’s undisputed military and economic champion. Not all was cheery, mind you. Communist powers posed a new threat, the nuclear age had dawned, and Cold War anxieties ran high. Yet Americans felt confident in their place atop the global order and free to invent new ways to enjoy their burgeoning prosperity.

The automobile was central to the sense of open-ended possibility shared by America’s rapidly growing middle class. Spurred by the development of the Interstate Highway System, new roads were rolling out from the cities to the suburbs springing up at their edges. The number of cars sold in America leapt from just seventy thousand in 1945 to more than six million in 1950. A mobile, moneyed lifestyle was taking root, with the automobile at its center.

Some of the first entrepreneurs to see the opportunities in this cultural change planted their flags in California, where so many American trends first take root. Drive-in burger joints began to spring up across southern California, where the nascent car culture cross-fertilized a leisure culture centered on the beach. By 1955, a strong-willed salesman named Ray Kroc was able to make a good living selling milk-shake mixers to a wide collection of mom-and-pop California restaurants. His biggest account was the McDonald brothers, who operated a small but thriving chain of drive-ins in the Los Angeles suburbs. 1

The brothers had opened their first restaurant, a barbeque and burger drive-in in San Bernardino, in 1940. It wasn’t much different from other drive-ins, which had been popping up ever since A&W first delivered root beer to car windows in 1923. But it was popular. The McDonald’s outpost attracted throngs of teenagers, with harried carhops serving up to a hundred twenty-five carloads at a time.

Within the decade, though, the McDonald brothers realized they had to revamp their restaurant or find a new line of work. Some of their best customers were families giving mom a night off from the kitchen. But now these families were driving right past, turned off by the loitering toughs that drive-ins attracted. Many of the remaining customers complained that the food got cold on the journey from kitchen to car. The McDonald brothers needed a new approach, but what? How and what did Californians want to eat when they set out in their Fords and Buicks and Studebakers in determined pursuit of sun and surf ?

The brothers experimented with different menus and store formats until they arrived at a winning approach. They filled in the barbeque pit, cut the menu to only twenty-five items, and standardized the burgers; each one was served with ketchup, mustard, onions, and two pickle slices. The carhops were eliminated, replaced with service windows where customers ordered and picked up their own food. Productivity enhancers like Kroc’s five-at-a-time milk-shake mixers enabled them to turn food orders around quickly. The brothers called their new concept the Speedee Service System. It was the prototype of the quickservice restaurant.

It wasn’t long before the brothers had opened four additional outlets. They might have been content to stop there, but Kroc was not. He looked at the crowds packed into the brothers’ stores and imagined the scene repeated from coast to coast—and even around the world. He bought out the McDonalds and set about improving and standardizing the mass-production system they had developed.

Kroc saw that the Speedee Service System, innovative as it was, left too much to chance and judgment. He refined it meticulously, pursuing a vision of a perfectly standardized operation. He simplified the McDonald’s system down to an exact science, with a rigid set of rules that spelled out exactly how long to cook a hamburger, exactly how to hire people, exactly how to choose locations, exactly how to manage stores, and exactly how to franchise them. Under Kroc, nothing in the McDonald’s kitchen was left to chance: every hamburger came out of a stamping machine weighing exactly 1.6 ounces, its thickness measured to the thousandth of an inch, and the cooking process stopped automatically after 38 seconds, when the burgers reached an internal temperature of exactly 155 degrees. In every phase of McDonald’s operations, judgment was removed, possibilities were removed, and variety was removed.

Kroc relentlessly stripped away uncertainty, ambiguity, and judgment from the processes that emerged from the McDonald brothers’ original insight. And by fine-tuning the formula, he powered McDonald’s from a modestly prosperous chain of burger restaurants to a scale previously undreamed of. Within a decade, McDonald’s grew from a successful local business to a ubiquitous cross-country chain and, in another few decades, to a globe-girdling behemoth.

The path taken by the McDonald’s and Kroc—from pinpointing a market opportunity to devising an offering for that market to codifying its operations—is not just a study in entrepreneurship. It’s a model for how businesses of all sorts can advance knowledge and capture value. I will argue in this book that the McDonald brothers and Kroc took the same route followed by successful business innovators in every domain. My term for that path is the knowledge funnel. My purpose is to map that funnel in detail and investigate its implications for organizations, individuals, and thinking processes. Along the way, we’ll meet innovators in business, science, and the arts, all of whom are advancing understanding and creating exciting new opportunities for people and organizations.

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