A decade and a half ago, Cesar Martinez had just started in human resources with McDonald's when he had the opportunity to work behind the scenes at one of the company's restaurants. He was impressed with what he saw. "When you're working shoulder-to-shoulder with the crew at the grill, you realize who the true heroes of this company are—the managers and employees in the restaurant," says Martinez, who is now Human Resources Officer for McDonald's Latin America region. "They're the heart and soul of the business."

That insight is at the core of an HR strategy Martinez has been spearheading across Latin America—an effort that encompasses 75,000 employees in 1,600 restaurants throughout 29 countries. Focused heavily on the front lines of the business, it's earned the division accolades from a number of external observers. In 2005, McDonald's was ranked as a Best Employer in Latin America in both Mexico and Venezuela by AméricaEconomía business magazine and Hewitt Associates, and the Latin American organization overall was cited by the Great Place to Work® Institute.

Martinez's approach to HR has its roots in a global strategy that focused on driving growth by increasing sales in existing restaurants, rather than opening new facilities. This shift put the spotlight on customer service and made HR's support of restaurant employees more important than ever.

It provided a perfect platform for taking a new HR approach in Latin America. At the time, sales were flagging in the region, and a key HR metric known as Fast and Friendly—a measurement of customer opinions of restaurants—was trending the wrong way. "We had always maintained a healthy lead over our competitors in the Fast and Friendly ratings," says Martinez. "But that lead was shrinking, and in some countries, competitors were edging ahead."

In rethinking the division's approach to HR, Martinez built on the company's global HR strategy with initiatives designed specifically for the region—an approach that McDonald's encourages. "We call it freedom within a framework," says Richard Floersch, Chief Human Resources Officer at McDonald's. "The regional organizations adapt our global frameworks to their local markets—and this is something that Latin America has done very well."

Focusing on the Restaurant
Martinez and his team began by developing a three-year plan. "We wanted to instill a continuous-improvement mentality—capitalizing on our experiences and mastering what we're doing," he says. They also linked the new initiatives to business results, including sales—a move that Martinez says is only logical: "You need to have motivated employees to increase sales, and HR is responsible for creating the proper tools for motivating employees."

The Latin American organization also maintains an HR board made up of HR leaders from each country. "Before, HR leadership in each country did things their own way, but now there is coordination," says Martinez. The board helps ensure that programs are aligned across countries and determines how best to adapt corporate HR strategies to the region. "Each individual on the board has his or her own specific market knowledge and experience; bringing that together in the context of a corporate framework creates a very powerful combination," says Martinez.

Many of the initiatives are designed to have a direct impact in the restaurants. For example, one regional program encourages restaurant employees to earn points that can be redeemed for prizes ranging from a backpack to an iPod® to a vacation. Baseline points are determined by store performance, and crew members can add to those points by logging on to an in-store computer and answering questions about store operations, an exercise designed to reinforce product knowledge and employee skills.

In addition to local initiatives, employees in Latin America can participate in global recognition programs. One program recently sent 300 top-performing crew members from around the world to work at the Turin Winter Olympics—and, of course, attend the games and enjoy special McDonald's-sponsored events. The company plans a similar program for the Beijing Olympics in 2008.

The Manager Connection
Meanwhile, the division has paid particular attention to supporting and retaining store managers. "We've found that manager continuity at the store level is a very strong predictor of store results," says Floersch. "We say that the number one position in our company is the store manager, so we want to develop the most compelling employment value proposition that we can for them."

Martinez's team has taken a proactive approach to shaping that value proposition. Store managers from across the region are brought together periodically to share best practices and learn about company strategies. The division has also established a Latin American Ray Kroc Award program that brings the top 1% of the region's store managers to McDonald's headquarters for management forums and meetings with top executives. "This has proved to be a very powerful experience for the managers," says Martinez.

Development is also a key element in the employment value proposition. "We support the managers with tools and knowledge that go beyond operational skills," says Martinez. In internal training courses, about two-thirds of the material focuses on managing people and interacting with customers. The division also sends managers to universities to take courses for credit toward a business degree. Such programs, says Martinez, "make our commitment clear to the managers."

Finally, the division continues to arm managers with tools to make their lives easier and HR more efficient. "We've been implementing an HR management system in all the restaurants in Latin America that lets managers handle end-to-end people transactions," says Martinez. It lets managers easily file HR reports and accurately track flexible work hours in the restaurant, and is expected to save each restaurant about 600 hours a year in administrative time.

"When you free managers from administrative work, you give them more time to walk through the restaurant—to see how things are working, to hold crew meetings, to talk to employees about promotions and goals, to make sure the proper on-boarding is done with new employees," adds Floersch. "They have more of an opportunity to monitor the overall customer experience and the motivation level of the crew."

Gauging the Impact
Three years into the revamped HR efforts, the division is seeing solid results. In the once-troubled Fast and Friendly category, McDonald's Latin America is nearly seven percentage points ahead of the nearest competitor. Employee turnover among 16- to 18-year-olds—which stood at 90% to 100%—has dropped to approximately 70%; among managers, it's been cut from nearly 40% to around 25%. And internal surveys that measure employees' commitment to the company recently showed an increase of 9%. "In our plan, we forecast that an increase of even three to four points would be a great achievement," says Martinez, adding that the better-than-expected results underscore the effectiveness of frontline retention and motivation efforts.

As for the business metrics, says Martinez, "We had an increase last year of 11.6% in comparable store sales, over a 13% increase the year before—and that is not an easy thing to do."

"It would be pretentious to say that those results are entirely because of HR," Martinez adds, "but in a business like this, we were certainly an element of that success. I think we've shown that HR can really have an impact on business results."

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