Executive Insights | May 2012 | By Barney Wolf

David Novak’s Global Vision

How the CEO and chairman of Yum! Brands is still dedicated to growing the world’s leading restaurant brand.

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The photos are the first thing people notice when they walk into David Novak’s office.

Hundreds of pictures cover the walls and even the ceiling. They show Novak, Yum! Brands Inc.’s chairman and CEO, with smiling restaurant managers, office staffers, and other employees honored for noteworthy achievement.

The winners get more than just a picture. They also win cash and the Yum! Award, a set of plastic smiling teeth with legs, denoting they “walk the talk” of leadership.

It’s the latest incarnation of a lighthearted employee-recognition award that Novak began in the mid-1990s—back then it was a floppy rubber chicken—when he was president of KFC, one of Yum’s three global brands along with Pizza Hut and Taco Bell.

The current award is often signaled by the appearance of a band that roams the halls of Yum’s three-story, colonial-style headquarters—dubbed the White House—in Louisville, Kentucky, looking for people who have excelled.

“We have a lot of fun with our individual recognition awards,” says the casually dressed, 59-year-old Novak, who oversees a massive system of 37,000 restaurants and 1.4 million employees in about 120 countries. “You need to tell people you appreciate them.”

Motivating employees is important to any company, and Yum’s boss made that a key point in his recently published book Taking People with You, a guide for successful leadership based on principles Novak developed during his years at the company’s helm.

“It’s an action plan of how you take the single biggest thing you’re working on and actually get it done,” he says.

The book—a mix of personal experiences, observations from other CEOs, and practical lessons—became an instant hardcover business best seller.

Blurbs of praise for the book include one from the Oracle of Omaha, Warren Buffett, who called Novak the “best at leadership whether teaching it … or practicing it.”

One reason Novak wrote the book “was that I’ve been teaching this for 15 years, but I’ve only reached 4,000 people,” he says, just a fraction of Yum’s worldwide leadership.

Now he’s expanding the book’s concepts to the entire enterprise by making 2012 “the year of taking people with you for operational excellence.”

The book’s tenets have been converted into a training guide to help Yum franchisees, restaurant general managers, and operating leaders select the biggest thing they’re doing to drive operational improvement and develop a plan to accomplish that.

“This will be cascaded all around the world,” he says.

That’s no overstatement. The manual was created in eight languages, which says something about how Novak has built Yum’s international presence.

In fact, most of Yum’s profit and growth come from outside America. Since being spun off from PepsiCo in 1997, Yum has seen profits from its overseas operations soar from 20 percent of company profits to more than 70 percent last year.

China alone contributed half of Yum’s $1.8 billion operating profit during 2011. Another 5 percent came from emerging markets like India, Indonesia, and Vietnam.

The result: The company last year chalked up net income of $1.3 billion, or $2.74 per share, on revenue of $12.6 billion, all records. Per-share earnings rose 14 percent, marking the 10th consecutive year of double-digit growth.

Yum’s international strength is one reason every top Wall Street restaurant analyst has a positive or neutral rating on the company’s stock, which rose 20 percent last year.

Focusing on emerging markets makes sense, says R.J. Hottovy, a restaurant industry analyst for Chicago-based investment firm Morningstar Inc.

“First and foremost, the demographics of these markets merge well with the quick-service restaurant business,” he says. “You’ve got a growing young population with increasing spending power and strong demand for foreign goods.”

China, with a population of 1.3 billion, “represents the retail opportunity of the 21st century,” Novak says. “And we have a dominant presence.”

Yum operates more than 3,700 KFC restaurants in China after adding 587 last year, and outnumbers McDonald’s nearly three to one. About 60 percent of those units are open 24 hours a day, and a high percentage of their general managers are college graduates.

The restaurants offer quick-service chicken, beef, seafood, and rice dishes, like the Dragon Twister, a wrap with fried chicken strips, cucumbers, scallions, and duck sauce. Breakfast features western items and local favorites like congee, a rice porridge.

Meanwhile, Pizza Hut is the largest Western casual-dining concept in China with more than 625 units selling pizza, pasta, rice-based dishes, and even escargot.

Yum also has Chinese quick-serve concept East Dawning, with about 30 units, and last year acquired Little Sheep, a 450-store leader in China’s $5 billion hot-pot cooking business.

Yum’s China stores are so successful that they have three-year cash-on-cash returns, meaning unit development costs are recouped from profits within three years.

Part of the company’s success is that it built a strong supply chain and training staff in China, allowing Yum to add new restaurants easily, Hottovy says.

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