CEO of the Year David Novak: The Recognition Leader

David Novak sees himself as the chief teaching officer of Yum! Brands and believes that recognition is the foundation for motivation—which is the only way to make big things happen.

June 27 2012 by JP Donlon


David Novak

Yum’s success internationally tends to eclipse the U.S. market, which seems to be struggling. Is it a question of too many restaurants chasing too few customers?

Our U.S. business is actually very good. For example, Taco Bell, which was struggling under PepsiCo, has been turned into the second most profitable brand in the U.S. Pizza Hut is the leader in the pizza business. KFC has struggled somewhat in the U.S. and we’re working on it. The U.S. business is much more competitive and unforgiving. You’ve got to be right every day. You make a mistake and competitors will take you on. Outside the U.S., it’s basically McDonald’s and us with KFC, Pizza Hut and Domino’s. We don’t have a lot of global, multinational competition. The U.S. is much more crowded and developed.

Having said that, we have plans to take Taco Bell from 5,000 restaurants today to 8,000 restaurants. We think we can have another 2,000 more Pizza Huts in the U.S. KFC will take a while to grow new units, but we believe that the U.S. business is going to be better than what people think.

Many CEOs face the challenge of getting good ideas from one silo in the organization to another, where they may be needed, even if the value isn’t perceived at the time. How do you solve this requirement in a far-flung company such as yours?

We made know-how sharing a major win-together principle in our company. I give discretionary bonuses to people and to teams around the world who share ideas. I give additional bonuses to people who take ideas. We reward the behavior. And then I tell everybody in the world that I did it, so everybody knows.

In addition, we bring teams together from different markets and share what’s working. Shortly, Sam Su will be hosting all the emerging markets in Shanghai, talking about the China success story. We’ve got the UK leading the way in terms of developed markets. For example, I went to Australia and learned about the big-box idea, where we packaged up a meal in Australia consisting of a pizza, breadsticks and wings for a good price. I came back and told the people in the U.S. about it. The U.S. now offers a $20 big box and a $10 box and is doing extremely well with it.

The other thing that we do is use internal technology. We created our own internal social networking site, called [iChing], which is all about sharing know-how. So, if you’re working on breakfast, you click on breakfast and find out what people are doing on breakfast ideas. In addition, when I travel to different markets, I blog about what I see, take a picture of it and talk about what’s going on.

Where will growth come from over the next five years?

First, about 60 percent of our profits today come from emerging markets. China accounts for about 40 percent of our overall profit. The good news is that over the last 10 years, we’ve achieved sufficient critical mass to allow us to grow in other, significant parts of the world. India, now a separate division, will see well over 100 new restaurants. We have 660 restaurants in South Africa and just bought more to give us a base because we’ll be in 20 additional countries in Africa by the end of this year. We’re on the ground floor in a continent with another billion people.

We have about 170 restaurants in Vietnam, which has 80 million people. McDonald’s isn’t even there yet. We have 400 KFCs and 400 Pizza Huts in Indonesia, with well over 400 million people. We’re excited about Russia, where we bought out our franchise partner, Rostik’s, and are in the process of converting them all to KFCs. Now we have about 165 restaurants in Russia.

It took us 10 years to get to 100 restaurants in China, and it’s taken us 10 years to get to scale in these other countries that I just mentioned. Now we’re ready to really take off.

The other thing that’s interesting for us, besides the emerging markets, are the developed markets like France and Germany. McDonald’s makes well over $1 billion in those two countries alone. We make under $100 million today, and France has the highest average unit volume in the world, with Germany not far behind. It’s still early days in Germany and France. Yes, it’s a more developed market, but we’re on the ground floor there, too. It’s no longer just China. Going forward, we’ll have China and a whole lot more.

One of your famous pieces of advice to leaders is to ask oneself, if a hotshot replaces me, what would he do? Then do it first, yourself. So, taking your own advice, what would you do?

There are three things that I’m trying to do right now. One is to make operational excellence our foundation. We historically have been more of a marketing company, marketing and innovation, but we haven’t been as operationally focused as we need to be to be even better. We’re good operators, but we’re not great operators, so we’re really trying to get better at just delivering the basic service every single day and making that a higher value, higher priority in our company.

Two, we need to do a better job of leveraging our assets throughout the day, which is what we talked about earlier with respect to McDonald’s, to leverage our same-store sales growth.

Three, we want to evolve the culture into what we call our second set. We went 10 years doing extremely well. What are we going to do in the next 10? Often, you win the first set, but you lose the second set because you won the first set. We need to put more edge in our company. We need to make our culture even more focused on breakthrough results, urgency and sharing know-how.

Culture Is No Accident

David Novak

“It’s the CEO’s job to create new memories. At PepsiCo when I paid a visit to a bottling plant that we had bought five years prior, one of the things I noticed when I walked in was a trophy case with plaques for Employee of the Month. The most recent one was from 1988. This was 1993. So I said to them, “Has there really been no one you wanted to honor in the past five years? If that’s the case, you should rip out that trophy case, because it’s really depressing.”

“The more I talked with people there, the more I understood what had happened. PepsiCo had taken ownership of the plant in 1988. Before that, there had been family picnics and holiday parties. People kept saying to me, “I remember when we used to do such and such.” There was so much nostalgia for the old days, it was palpable. And it was a huge problem. These guys had been so much happier working for the previous owners that it affected their performance. And who could blame them? To turn things around, I asked the plant’s management to develop a plan for recognizing people every month and bringing back a family atmosphere, which they did. It’s the leader’s job to make sure those memorable moments happen.”

—Excerpted from David Novak’s Taking People With You

Read: Why the 2012 Selection Committee Choose David Novak?

Read: Previous CEO of the Year Recipients