In N Out vs. McDonalds: Business models

I learned these differing business models originally from the book "Fast Food Nation," but I realize that the overall models apply to all business, not just fast food. The In N Out and McDonalds models simply highlight the division in business between human specialization and technological specialization strategies.

The McDonalds business model is well-known. They use high technology to automate as much as possible, reducing the need for skilled workers. They then hire low-skill workers and underpay them. Because they are underpaid those workers are hard to retain, but the simplicity of the day-to-day operation of the technology makes training time shorter, so the turnover is offset by high efficiency in readying new workers to replace them. The high turnover is actually beneficial because workers stay at a low wage, minimizing employee cost, but the maintenance of the automated equipment is costly. The McDonalds model is driven by technological specialization, and minimal human specialization.

The In N Out food chain does things significantly differently. Food is prepared and cooked by hand, and cooking everything up-to-speed requires significantly more training and longer retention periods, because the longer employees stay the more efficient they become at preparing and cooking. Keeping skilled employees requires significantly better pay, so employee cost is maximized. But the technology costs are low because those skilled workers can operate using simple machinery, and do not require the more expensive automated devices. The In N Out model is driven by human specialization, and minimal technological specialization.

These two opposing models are the two main paths of all modern business. Every business has to choose to what extent they wish to rely on human specialization or technological specialization in order to produce their goods or services. When a classical agency buys an automated phone answering service, it is hoping that the cost of the technology will be offset by the money saved over not having an operator. When a tech company implements a database or works to automate and simplify its own processes, it is increasing its technology cost and reducing the need for company-wide specialization and lowering its training time. When a farmer buys highly productive farm equipment, he spikes his technology cost and reduces the need for additional human laborers. Ideally, a company should have both well-trained employees and efficient, easy-to-use technology. But resources are always limited, particularly because corporations are under pressure not only to turn a profit, but turn a maximal profit, so in most cases, a tradeoff will have to occur between investment in people, and investment in technology that reduces the need for people.

* As a footnote, In N Out's business model is driven in part from a religious basis. The company is Christian and believes that a human-driven model is the right thing to do. It is interesting to note that when maximized, the human-driven model is as profitable as McDonalds' "anti-human" model. Another thing to note is that even though high technology can reduce certain employee cost, it requires radically more highly-skilled workers in order to build and fix the machines. At some point in the food chain, there will need to be specialized and retained workers -- and in general, the less workers you have doing the same amount of work, the higher amount of specialization required, technology or human.