The Golden Arches are on a tear. Recent stories in the popular press have trumpeted how surging sales and a high-flying stock price suggest that McDonald's seems to have broken out of a long slump. Examining two of the key ingredients behind the fast food king's seeming resurgence--a focus on nonconsumption and a well-designed innovation process--provides important lessons for other companies seeking to innovate their way out of a funk.  We've written many times about the benefits of competing against nonconsumption. Companies that can tap into pools of nonconsumption often create strongly additive, profitable growth businesses.  At first glance, it isn't obvious that competing against nonconsumption in its core markets would be a strategic option for McDonald's (nyse: MCD - news - people ). After all, it is almost impossible to drive more than a couple of miles without seeing a McDonald's--and the company famously serves millions daily.  In fact, one reason why McDonald's has struggled recently is that its historical growth strategy of adding more stores just couldn't continue to deliver meaningful results as the company increasingly saturated its core markets.  To break out of this malaise, McDonald's sought to increase sales during parts of the day when its share of total food and snack consumption was low. For example, while McDonald's owns peak meal times in many markets, most people still eat breakfast at home. New products targeting the on-the-go breakfast eater, such as the popular McGriddle product, helped the company grow its share of the breakfast market.  McDonald's historic focus on serving portions that are fit for a meal (or two meals, critics might argue) presented another opportunity: snacking occasions. To get at these occasions, the company introduced products such as its chicken Snack Wrap. The product carries a low price point and can easily be consumed with one hand. The Snack Wrap has been a huge hit, with sales exceeding the company's projections by 20%.  Many McDonald's franchises are now open 24 hours a day. To try to draw people at slower hours, McDonald's borrowed a page from Starbucks' (nasdaq: SBUX - news - people ) playbook, improving the quality of its coffee and making its stores warmer and more accessible, encouraging consumers to linger in the afternoon or early evening.  By exploring untapped avenues for expansion beyond simply opening more stores, McDonald's created new opportunities for innovation.  Of course, identifying opportunities for innovation is meaningless if you can't introduce the right products to seize those opportunities. Fortunately, McDonald's has revamped its innovation process to help it quickly bring the right products to market.  Historically, McDonald's had a diffuse innovation process. An individual franchisee might develop and launch a new food item. If the food item caught on, the idea might spread to other markets. This process produced some big winners, such as the Egg McMuffin breakfast sandwich, the Big Mac and kid-friendly Happy Meals.  As McDonald's grew, this process began to lose traction. The company attempted to respond with a more centralized innovation approach. However, the products it conceptualized often seemed out of step with the market, meaning many new ideas got shelved. Chief Executive James Skinner told BusinessWeek, "We were more willy-nilly then. The attitude was, we'll make it and they'll buy it."  McDonald's has now sharpened its innovation process. It has set clear success criteria: New products must taste good, be inexpensive and be easy to prepare. Consumers provide feedback throughout the process, increasing the odds that McDonald's launches winning products. The company also brought in Dan Coudreaut, a chef who trained in the Culinary Institute of America, to rapidly experiment with new ideas at McDonald's test kitchen.  McDonald's approach helps to ensure that it introduces items that have a strong chance of resonating with consumers and generating attractive returns. After all, it doesn't do the company much good if it creates an idea that isn't scaleable. For example, one idea for a salad with shrimp was nixed because, if successful, McDonald's could deplete the nation's shrimp supply.  A recent Wall Street Journal article described the process in action. Based on a suggestion from a franchisee, senior management asked Coudreaut and his team for a new chicken item that would appeal to drive-through customers. The team produced close to 100 concepts. The first idea that emerged was too complicated and missed the mark with customers, so the team went back to the drawing board and developed the Snack Wrap.  McDonald's approach--featuring clear decision rules, a focus on specific opportunity areas and a mechanism to get fast consumer feedback--seems to be working. The Snack Wrap reached the mass market in six months, an astonishingly short period of time given the company's size and complexity.  McDonald's changing innovation process illustrates an important lesson for companies. When McDonald's was smaller, it was easier for fully conceptualized products to incubate at the franchise level before spreading throughout the system. The more diffuse a company becomes, the more difficult it is for an idea that emerges at the fringes to spread through the system. Companies that grow and become increasingly complex need to consider adopting processes that are better aligned to their new circumstances.  Although McDonald's has had some recent success, there is still room for improvement. Specifically, the company has struggled to move beyond its namesake franchise. For example, last year it divested its ownership of Chipotle Mexican Grill (nyse: CMGB - news - people ) to focus on its core business.  It is a bit perplexing that McDonald's hasn't been able to leverage its acumen managing complicated logistics and producing good food at reasonable prices to create other vibrant food brands.  As it finds its innovation stride in its core business, McDonald's should revisit the concept of moving into adjacent markets. By mixing a dash of its core capabilities with a pinch of organizational autonomy and freedom, it might yet find a winning recipe.  Clayton M. Christensen is a professor at Harvard Business School and the co-founder of Innosight LLC, a Watertown, Mass., innovation consulting company.  Send comments and questions to newsletters@forbes.com.
For decades, a cookie-cutter approach made McDonald's the king of fast food. Now it's innovation that's saving it from a slump.