tion and integration capabilities. Nokia, for example, had no choice but to lookoutside Finland for the technologies and skills it didn’t have at home – which meantit could go anywhere. From its earliestdays, the company went to California formobile phone–design ideas. Did GM think of hiring car designers from Italy 30 years ago?

Nontraditional multinationals have alsohad to fight harder to win recognitionfrom investors. In the absence of devel-oped local capital markets, these firmshave had the difficult job of persuadingskeptical investors in London or New Yorkthat, yes, Italy can create a semiconduc-tor business as good as any in the UnitedStates or Japan and that a South Africancompany can compete with the likes ofAnheuser-Busch. A company like Siemens,on the other hand, enjoys high esteem inGermany and cozy relationships withlarge banks, which undoubtedly reducesits cost of capital.

Nontraditional multinationals faceunique challenges when it comes to lead-ership, too. Executives in conventionalmultinationals tend to get to the top bymoving up the ranks in their home coun-try. (Though only some 20% of Siemens’ssales are in Germany, 80% of the com-pany’s top managers are German.) Butthe leaders of nontraditional multination-als have usually studied and worked out-side their home base, developed strongprofessional networks, and may be fluentin several languages. Nokia’s CEO, JormaOllila, from Finland, was educated at theLondon School of Economics and PoliticalScience and worked eight years at Citi-bank before joining Nokia. Italian nativePasquale Pistorio, who helped buildSTMicroelectronics, was at one point a member of Motorola’s top executiveteam in Phoenix.

Mittal’s top management is a veritableUnited Nations of talent. Founder Mittalhimself started his career as an entrepre-neur in India. Today, the company is underDutch ownership (not Indian), is head-

quartered in Rotterdam and London (notCalcutta, where Mittal grew up), and itstop executives nearly all live outside theirhome countries.

So what lessons can be drawn here?First – and this is particularly relevant towould-be multinationals of the developingworld – global success comes from smartmanagement rather than from the natureof the industry you compete in or yourability to exploit a low cost base. Second,for the managers of smaller, domesticfirms in large developed country markets,it’s not too late to expand globally your-selves: If Mittal and Nokia could take on

the big multinationals, so can you. By thesame token, it’s nontraditional multina-tionals like these that you should look tofor best practices and inspiration, not theGE and Siemens of your industry.

José Santos (jose.santos@insead.edu) is

an adjunct professor at Insead in Fontaine-

bleau, France, and the former CEO of Ital-

ian coffee manufacturer Segafredo Zanetti.

He is a coauthor, with Yves Doz and Peter

Williamson, of From Global to Metanational:

How Companies Win in the Knowledge

Economy (Harvard Business School Press,

2001). Reprint F0704A

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LM

AG

CYA

NB

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hbr.org | April 2007 | Harvard Business Review 21

In the end, the decision by McDonald’s to build a couple of four-star European hotels, with arch-shaped headboards forthe beds and fast-food restaurants on-site, wasn’t as bizarre as it seemed.

The Golden Arch venture in Switzer-land ended in 2003 after two and a halfyears, when the pair of McDonald’s ho-tels closed. But as I tell my MBA studentsand executive-education participants, theforay can be thought of as an inexpensive“real option” that provided the innovation-hungry company with an opportunity tolearn valuable lessons from a controlledfailure.

Relatively few travelers ever stayedin – or heard of – the hotels, which openedwithin a few weeks of each other in thespring of 2001, one near the Zurich air-port, the other in Lully near the A-1 inter-state. They were the brainchild of UrsHammer, chairman of McDonald’s Swit-zerland, who was responding to the par-ent company’s push for diversificationand new ideas.

The Zurich Golden Arch hotel openedfirst, and it was unlike any other hotelaround. The McDonald’s restaurant just

off the lobby was open 24 hours (a rarityin Switzerland). The guest accommoda-tions, for $120 to $160 a night, featured a patented curved wall and a cylindrical,see-through shower stall that protrudedinto the bedroom. The decor was spareand brightly colored. A colleague of minewho stayed there in 2001 recalled franklythat “the entire feeling was one of oddityand discomfort.” The second hotel wassimilar.

The hotels clearly didn’t deliver the ex-pected results. The worldwide economiccontraction – and the appreciation of theSwiss franc – that followed the attacks ofSeptember 11, 2001, contributed to theirdemise, but there were other factors,both minor and major. The showers, forone thing: Families and business travelersrooming together complained about thelack of privacy (the glass was later frostedas a result). Another issue was that theEnglish phrase “golden arches” isn’t as-sociated with McDonald’s in German-speaking countries. Even worse, as theowner of a hospitality consulting firmpointed out, was that the word “arch,”when pronounced by German speakers,

ST R AT E G Y

The Upside of Falling Flat by Stefan Michel

moving forward with them. McDonald’sdid just that. It made a relatively small investment and limited its risk.

By publicizing the venture mainly insideSwitzerland and using the name GoldenArch rather than McDonald’s, the com-pany avoided damage to the corporatebrand. Moreover, the real estate invest-ment did not result in a significant loss:The two hotels are now managed byRezidor SAS Hospitality, which runs themunder its Park Inn brand. While a P&Lstatement was never made public, theestimated operational losses were in-significant to the McDonald’s portfolio.The decision to exit the hotel businessafter less than three years represents a further limitation of the company’s risk.

The venture also offered insights – or atleast reminders – about diversification andglobalization. First, even for a companywith deep pockets and billion-dollar brandequity, it is extremely difficult to take aname that is well established in one cate-gory (McDonald’s is fast food) and achievesuccess with it in a different, if related,category. Second, for companies goingglobal, the more complex the service of-ferings, the more important the culturalcontext (unlike a fast-food restaurant, afour-star hotel is full of individualized cus-tomer interactions, for which guests havediverse and high expectations).

But there’s another point that’s perhapseven more important. Hammer was oneof the company’s most successful fran-chisees, an entrepreneurial manager witha long history of fruitful business ventur-ing. By supporting him, McDonald’s wasreinforcing and nurturing its bottom-up innovation culture. In the words of a McDonald’s manager who participated inone of our executive education programs,“We try hundreds of things every year,and only a few turn out to be successful.But those initiatives make our businessgrow and keep our spirit alive. Not tryingis not an option.”

Stefan Michel (michels@t-bird.edu) is a

services management expert and an assis-

tant professor of international marketing at

Thunderbird, the Garvin School of Interna-

tional Management, in Glendale, Arizona.

Reprint F0704B

22 Harvard Business Review | April 2007 | hbr.org

DATA P O I N T

Younger Women at the TopWomen may be scarce in senior management, but here’s an intriguing finding: Those

who do make it into the executive ranks get there faster than men. So conclude re-

searchers from Dartmouth’s Tuck School of Business and Loyola University who ana-

lyzed data on nearly 10,000 Fortune 1,000 executives to create one of the most granular

pictures we have of companies’ executive makeup. Though nearly

half of Fortune 1,000 firms still have no female executive officers,

those that do seem to be aggressively hiring and promoting them

into the top ranks. As the chart shows, a much larger percentage

of Fortune 1,000 women have made it to executive officer posi-

tions in their thirties, forties, and fifties than have men their age. What’s more, these

women achieved their executive positions at a younger average age than the men did

(46.7 versus 51.1) and have less tenure on average than men in their current positions

(2.6 years versus 3.5 years). These data confirm and expand on work reported by Peter

Cappelli and Monika Hamori in “The New Road to the Top” (HBR January 2005) and

spotlight a trend that half of America’s biggest companies seem to have missed.

Reprint F0704C

Adapted from C.E. Helfat, D. Harris, and P.J. Wolfson, “The Pipeline to the Top: Women and Men in the Top Executive Ranks ofU.S. Corporations,” The Academy of Management Perspectives, November 2006.

sounds a lot like a vulgar word for a per-son’s posterior.

Beyond all that, the strategy itself wasquestionable. Although the venture re-lated to the company’s food business andrelied on many of its core competencies,such as franchising and real estate man-agement, the McDonald’s brand doesn’tsquare with the image of a four-star hotel.A financial analyst quoted in the WallStreet Journal noted, “I’ve just come backfrom lunch at McDonald’s. But I can’timagine staying at a McDonald’s hotel ona business trip.” Indeed, the company

shifted focus in 2003 away from suchbrand extensions and toward an ulti-mately better strategy of trying to getmore customers into existing restaurants.

But the McDonald’s board knew whatit was doing when it green-lighted Ham-mer’s project in 1999. Its decision was a real option: a fixed investment for an un-certain but potentially high return. Diver-sifying into the hotel business gave thecompany a shot at entering a billion-dollarindustry. Because diversifications aregenerally more likely to fail than succeed,companies need to constrain the costs of

Three-quarters of

Fortune 1,000 women

executive officers

are 50 or younger.

Executives 50 or younger Executives 51 or older

Percentage of male and female Fortune 1,000 executive officers in each age category(relative to the total number of male and female Fortune 1,000 executive officers)

30%

20%

10%

028–40 41–45 46–50 51–55 56–60 61+