- By Region
It is lunchtime in Louisville, Kentucky and David Novak, chief executive of Yum Brands, strolls up to the KFC in his company’s cafeteria, orders a grilled chicken sandwich and joins a couple of employees for a bite to eat.
Mr Novak has a lot on his plate these days. Yum, which operates KFC, Pizza Hut and Taco Bell, is continuing its push to be the dominant foreign restaurant chain in China while trying to revive a struggling business in the US. In spite of its international aspirations, Yum maintains a rich sense of its history.
Unlike many corporate campuses, which sequester themselves in suburban fortresses, Yum is housed in a sprawling colonial-style complex that resembles – and is referred to as – the “White House”.
Inside the main entrance sits a museum, where a talking mechanical replica of Colonel Sanders, the founder of KFC whose face is immortalised in its logo, introduces guests to the company.
The walls and ceilings in the 59-year-old’s office are decorated with framed photographs of him with hundreds of employees he has rewarded for exemplary work. Winners are given rubber chickens or cheesehead hats or smiling teeth with feet, along with some cash.
“I use my office to symbolise what our business is all about, which is building people capability,” he says. “Our formula for success is you build up people capability, you do that first. Then you satisfy more customers. Then you make more money.”
Yum was spun off from PepsiCo in 1997, when Mr Novak was running KFC and Pizza Hut in the US. He passed on an opportunity to run Frito-Lay, PepsiCo’s snack business, so that he could continue developing his restaurant expertise. Four years later he was named Yum’s chief executive.
Mr Novak now teaches leadership training programmes and recently authored a book, Taking People With You, but his early days did not foretell his fast ascent to the top of one of the best known US corporations.
Born in Texas, Mr Novak lived in23 US states by the time he reached seventh grade. His father was a government surveyor and his family had to relocate frequently, living in trailer parks and changing schools. He studied journalism at the University of Missouri and worked in advertising for a decade before taking a marketing job at Pizza Hut in 1986.
“I think it helped me read situations well, understand people, learn how to get to know people quickly,” Mr Novak says of his frequent moves as a child. “I think it’s been great in business, particularly international business, where you have to go in the countries and understand how people think, and listen to what makes them tick.”
Education: Journalism, University of Missouri
Career: 1975 Copywriter, R. Joseph Harrill
1975-77 Account executive, Ketchum, McLeod, Grove
1977-86 Executive vice-president, Tracy-Locke/BBDO
1986-90 Senior vice-president, marketing, Pizza Hut USA
1990-92 Executive vice-president, marketing and national sales, PepsiCo
1994-96 Chief executive and president, KFC USA
1992-94 Chief operating officer, PepsiCo North America
1996-97 CEO and president, KFC/Pizza Hut USA
1997-2000 Vice-chairman and president, Yum Brands (formerly Tricon)
2000-01 Vice-chairman, CEO and president, Yum Brands
2001 Chairman, CEO and president, Yum Brands
Family: Married for 37 years with one daughter
Yum has excelled at understanding what makes China tick. Mr Novak recalls that in 1997, the year of his first trip to the country, parents would take their children to KFC for birthdays or celebrations but did not have enough money to buy food for themselves. “And now, the biggest thing that I see and the biggest difference when I go to China is that the kids are buying the food themselves,” he says. “The consuming population is growing so rapidly that the business is exploding because of it.”
During a visit to a KFC on that first trip, a Chinese woman came up to Mr Novak and, assuming he worked for the company, implored him in Mandarin to “build more”.
And he has.
Yum had 612 restaurants in China in 2001. By last year it had more than 4,000 in 800 cities. The company built its own distribution system and has been a pioneer by expanding into remote parts of the country and drawing customers with a combination of American flair and local flavours. Yum’s strategy of adapting menus with regionalised options that go as far as offering different spice levels according to the province is often regarded as a case study in how to succeed in emerging markets. The company is now trying to export that model of success in India, localising the menus with sinus-searing spices.
China is one of the few markets in the world where McDonald’s is not the dominant western fast-food brand. However, the hamburger chain’s promise to push deeper into the country represents a challenge that Yum cannot ignore. “We’ve been creating the category,” Mr Novak says. “What we’re focused on in China is not staving off McDonald’s, but it’s just doing a better job of responding to what our customers are telling us we need to do to become even more relevant.”
In spite of Yum’s success overseas, the US has been a sore spot in recent years. When he discusses leadership, Mr Novak says one of his favourite tools is the “hotshot” question, where he asks someone to imagine what a hotshot successor would do with their job.
So what would Mr Novak’s hotshot successor do differently? “I feel we could get even more urgency and bigger thinking in our company,” Mr Novak says after a pause.
He goes on to explain that McDonald’s has done a better job of “leveraging its asset base”, by launching into breakfast, beverages and being open all night.
“I had my entire team around the world go out into McDonald’s, and we called it McDonald’s Immersion Day,” Mr Novak says. “We looked at what they were doing and we said: ‘How can we do something that’s similar with our brands?’ ”
Studying the best practice of other is something Mr Novak values highly. Once a year, for example, he heads to Omaha, Nebraska and treats Warren Buffett to lunch at KFC to pick his brain on business. He was introduced to the “Oracle” by Doug Ivestor, former chief executive of Coke, who agreed on one condition: Mr Buffett would not talk about Yum’s stock.
“He says make sure you talk about the good, the bad and the ugly,” Mr Novak says. “The more transparent you can be about not only the opportunities you have but the issues you have, the more credibility you’re going to get.”
In spite of its recent success, Yum faces tough challenges, from high commodity costs to health advocates who say its fast food is causing obesity and diabetes.
Mr Novak bluntly offers no apologies, saying that fried chicken, pizza and tacos can be part of a balanced diet. Still, the company has been offering more salads, reducing sodium levels and adding grilled chicken items, such as the sandwich Mr Novak sometimes eats for lunch.
“You can’t be something that you’re not,” he says, explaining that Yum, which aims to be the defining company that feeds the world, is constantly trying to improve its food quality. “We’re actually providing a great service to the world.