Chapter 10

DAVID NOVAK

CEO of Yum! Brands, Inc.

Author of The Education of an Accidental CEO

Former top-level executive at PepsiCo

 

 

 

 

 

A lot of successful people are smart, driven, and have a sense of urgency While those are all great traits, I think what separates them, and helps people be all they can be, is to be an avid learner,” says David Novak.

And the Chairman and CEO of Yum! Brands has done a lot of learning over the years. Most of it, though, has been in hands-on roles, making critical decisions while talking to people face to face in the marketplace (after all, Yum! is a fast-food—excuse me, quick-service—restaurant company). It didn’t come in the halls of Ivy League institutions where the pedigrees of business knowledge are traditionally bestowed. He proudly touts his modest roots, growing up in 32 trailer parks and living in 23 states by the time he was in the seventh grade. He says:

I actually think I got a Harvard MBA. I got the training, without the education. I had raw talent, but I was blessed enough to work with people who could pass on their leaming, and I was a sponge for it.

Now he runs the world’s largest restaurant company with more than 37,000 units and 1.4 million team members in over 110 countries. The household names include Taco Bell, KFC, Pizza Hut, Long John Silver’s, and A&W All-American Food. Yum! revenues were nearly $11 billion in 2009. This is a big company.

“I was fortunate enough to be in a field and get into a career where I actually loved what I do,” Novak says. “So it was no problem learning about it. I wanted to learn about it. It was like a hobby to me. And then when you have people mold you, coach you, and help you—that’s a big break in life. And that’s something that I really couldn’t plan.”

In fact, his success—and the success of the company he leads—may come down to his ability to read people. “What my background provided me was much better instincts about people. I may be able to get to the core and size up situations maybe a little quicker than other people.”

And he believes in motivating them, too. Using reward and recognition to drive results is key to Novak’s management style, and he has built Yum!’s entire global culture around it. He created fun awards such as a floppy rubber chicken when he was president of KFC, a cheese head when he was president of Pizza Hut, and his current Yum! Award, an oversized set of walking teeth for employees who “Walk the Talk” of leadership. Fulfilling the human need of workers to feel connected is one of the key tenets in his motivational speeches. From his book, The Education of an Accidental CEO:

It doesn’t matter whether you’re dealing with a highly ranked executive or someone who’s taking orders in a restaurant, you can never underestimate the power of telling someone they’re doing a good job.

But how do you motivate employees within a company so big that you can’t physically be in a location on a frequent basis? You hire the right people and make them accountable. Novak says:

Every one of our businesses has a president or a general manager, and functional leaders, and people below them that support our restaurants. When people are doing their job, you let them run the business, and you flex your leadership style depending on whether somebody needs the help or not.

Novak sums it up: “I think when you have a multinational company the most important thing you have to recognize is that building ‘people capability’ has to be your number one priority. I always say, show me a good business, and I’ll show you a good leader.”

David Novak’s Best Mistake, in His Own Words

I think the best idea I ever had that didn’t work was when I was running marketing and sales for Pepsi. I had just come in from Pizza Hut. In the previous four years we had doubled sales and profits. We had a great advertising campaign, great marketing, and lots of new products at Pizza Hut, so Roger Enrico plucked me out of Pizza Hut and said, “You’re going to go run marketing and sales at Pepsi,” which was a big job.

So I went into the situation, and looked back at all the things that had worked in the category, and it was new products—like the introduction of “Diet” products, or packaging innovations like two-liter bottles or 24 packs, things like that. But at the time, PepsiCo was really focused on trying to find the next Michael Jackson, the next celebrity to advertise the product. They had used Madonna and M. C. Hammer versus trying to get at the substance.

But when I went back to see what had really driven the business, it was really new packaging and new products. So I wanted to put my focus on those two things.

On the product front, what I saw was that Pepsi sales were down. And one of the reasons was that there were these emerging alternative beverages, like Clearly Canadian, and bottled water, and all other kinds of alternative beverages, and people were substituting these other kinds of drinks for Pepsi.

I noticed that the most popular products were all clear. And I was sitting in my office one day and I thought, why don’t we just do a clear Pepsi? I got really excited about this idea. I thought what a breakthrough in the category a clear Pepsi with no caffeine would be, and we’ll introduce a product like that!

Well, we went out did some research on it, and consumers loved the idea. We had a product that was good; they liked the taste of the product; it was very novel; everybody said they would try it. Of course Pepsi is one of the legendary brand names of the world, so when Pepsi comes out with something dramatic like that, you know at least everybody’s going to try it.

We developed this product further. It was a lighter cola taste, with Pepsi notes. We called it Crystal Pepsi. We went in to test-market in Colorado, and it was an overwhelming success. It was a lead story on CBS News, that we were creating a clear Pepsi. People were shipping cases of Crystal Pepsi just like they used to ship Coors beer to where you couldn’t get it, because it was a real novelty and people wanted to try it. The thing was huge.

I’d also done the focus groups and it was great, and the initial test-market results were great, but I hadn’t really done this with input from the franchise bottlers. So I went to the franchise bottlers, gave them a presentation and told them about the results, and they had obviously heard about it, and they said, “There’s only one problem, David. We love the idea—it’s a great idea—but it doesn’t taste enough like Pepsi.”

And I said, “Well, it’s not supposed to taste exactly like Pepsi, because we want to have a lighter taste. If it tastes exactly like Pepsi, we won’t get the incremental volume. This is meant to be a line extension to our portfolio, so it has to be different from Pepsi.”

The franchise bottlers go, “But it doesn’t taste enough like Pepsi and you’re calling it Pepsi. If you call it Pepsi it’s got to taste more like Pepsi.” I kept giving them my answer about wanting to add incremental volume—but! I really wasn’t listening to this.

The other thing was that I really wanted to launch at the Super Bowl. Pepsi always does a big Super Bowl drill, so this is like the fourth quarter and I come in and I really want to make this product go.

I don’t really want to listen. I’m in the “go” mode. I already have enough conviction around this thing that we were going to go national with it.

We move forward. We rush it in to have a national launch. We really wanted to get our business turned around, because it was not doing well. This was my answer to turning around the business.

So we get things geared to launch at the Super Bowl. Now, this is the first product thatwas ever introduced at a premium price. Usually, Pepsi and Coke have really low pricing. But this was introduced at a premium price by our franchise bottlers.

I asked them, “Why are you doing this?” and they said, “Because it’s not going to be around that long.”

They thought it was going to be a gimmicky product.

We went ahead and launched the product. But we had a problem with the bottling system where the quality control wasn’t as good as it needed to be. So it didn’t taste as good as the product we had in our labs and what we had in our test markets. It tasted even less like Pepsi when we rolled it out.

People didn’t like the product. We got a tremendous trial, but it wasn’t well received. And the number one reason was that “it didn’t taste enough like Pepsi.”

Here’s the big thing I learned. A lot of times when you deal with people and you have a big idea, you’ve got to have conviction because when you have breakthrough ideas, not everybody is going to see it as a breakthrough. So you have to have courage and conviction. I’ve always said that some people will say it can’t be done every step of the way. But you’ve got to hold true to your convictions to get things done.

But I learned that while you have to recognize that some people will say it can’t be done every step of the way—and you can’t let them stop you—you’ve got to recognize that sometimes they might be right.

I think it takes humility to recognize that they might be right. You have to genuinely listen, understand what those barriers are, what the real issues are, and then you’ve got to do the homework to make sure that you’re right. And I’ve tried to do that in my career ever since.

In the case of Crystal Pepsi, it was the best idea that had been developed in the beverage category for years. And what you’re seeing right now is all these flavor extensions in the marketplace right now, so the idea was way ahead of its time. But I didn’t execute it well because I didn’t listen.

 

Q. Since there’s always somebody who’s going to fight you every step of the way, was it the amount of negative feedback you got that should have been a red flag?

I think it was that the franchisees were pretty united in the fact that we could create a better product. And I was too focused on making it happen. My sense of urgency, my desire to turn the business around, my passion, conviction—all those things that a really good leader needs to have—all worked against me in that case. As someone once said, your best traits can also be your worst traits. Nothing slowed me down enough to truly listen.

I could have been a part of one of the biggest ideas in the beverage category ever introduced if I had taken the time to get the product right. It could have been a home run. I’ll never know.

About David Novak

David C. Novak is chairman and CEO of Yum! Brands, Inc. (NYSE: YUM), the world’s largest restaurant company in terms of system restaurants, with more than 37,000 restaurants in more than 110 countries and territories. In 2009, Yum! Brands generated nearly $11 billion in total revenues, including company sales and franchise fees.

Four of the company’s restaurant brands—KFC, Pizza Hut, Taco Bell, and Long John Silver’s—are the global leaders of the chicken, pizza, Mexican-style food, and quick-service seafood categories, respectively. Yum! Brands employs more than 1.4 million company employees and franchise associates across its worldwide system. Outside the United States in 2009, the Yum! Brands system opened more than four new restaurants each day of the year, making it a leader in international retail development.

Novak shapes the company’s overall strategic direction, including four key growth strategies: (1) build leading brands across China in every significant category; (2) drive aggressive international expansion and build strong brands everywhere; (3) dramatically improve U.S. brand positions, consistency, and returns; and (4) drive industry-leading, long-term shareholder and franchisee value. Since its spin-off from PepsiCo in 1997, Yum! Brands has established itself as a global powerhouse going from approximately 20 percent of its profits coming outside the United States to more than 60 percent, while driving one of the highest returns on invested capital in the restaurant industry.

In addition, Novak devotes much of his time each year to personally presenting leadership skills training to the company’s management and franchisees, emphasizing teamwork and a belief in people that rewards and recognizes customer-focused behavior, with his trademarked Taking People With You program.

Prior to leading Yum ! Brands, Novak was president at both KFC and Pizza Hut. He also held senior management positions at the Pepsi-Cola Company, including chief operating officer, and executive vice president of marketing and sales.

Reporting to Novak are the presidents of Yum! Brands’ international and China divisions and senior corporate officers. Novak is on the board of directors of JPMorgan Chase & Company, the Yum! Brands Foundation, and the Friends of the World Food Program. He is also a member of The Business Council and the American Society for Corporate Executives. Novak devotes considerable personal support to the United Nations World Food Programme and Dare to Care Food Bank hunger relief. He is also the recipient of the national 2008 Woodrow Wilson Award for Corporate Citizenship.