REV: JANUARY 9, 2006
FRANCES X. FREI AMY C. EDMONDSON
Yum! Brands, Inc.: A Corporate Do-Over
This culture that we have is our secret weapon. It’s why I think we can recruit the best people in the industry, it’s why our turnover is going down, it’s why we’re making progress in every aspect of our business. … Every day we go to work, trying to build a great, powerful culture and build the business around the basic building blocks that we know will drive the business. — David C. Novak, Chairman, Chief Executive Officer and President1
In early 2005, David Novak had ambitious plans for the giant fast food company he had led for the past eight years: We want to have a performance orientation of a General Electric, the people orientation of a Southwest, the recognition orientation of a Mary Kay, and the field orientation of a Wal-Mart. And out of those things, we are creating Yum! Brands, which we hope will become a great company over time. Novak had played a leading role in the creation and organization of Yum! Brands. Previously, the large restaurant business had stalled as a division of PepsiCo. After a 1997 spin-off Yum!, under Novak’s leadership, had grown rapidly, paid off significant debt, and distributed a dividend to shareholders for the first time. Despite this record of rapid growth and success, Novak was not yet done. He had set his sights on a growth platform that he believed would help Yum! – the world’s largest restaurant company in terms of system units – expand further: Given the fact we are the only restaurant company to have a portfolio of leading brands, we have the unique opportunity to offer our customers two great brands in one restaurant… [O]ur customers tell us they prefer multibranding over single brands because it provides more choice and convenience under one roof…However, our biggest challenge for multibranding remains the same. We must continue to get better and better at building the operating capability to successfully run these restaurants. And the plain fact is it’s harder to run a restaurant with two 1 David Novak speaking at annual investor/analyst conference, December 7, 2004.
Professors Frances X. Frei, Amy C. Edmondson, and James Weber, Senior Researcher, Global Research Group, prepared the original version of this case, ‚Yum! Brands, Inc: A Corporate Do-Over,‛ HBS Case No. 605-083. This version was prepared by Professors Frances X. Frei and Amy C. Edmondson, James Weber, Senior Researcher, Global Research Group, and Research Associate Eliot Sherman. Some information has been disguised. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2005 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
Yum! Brands, Inc.: A Corporate Do-Over
brands. With more variety comes more complexity, so we’ve been dedicated to improving the capability of our people to deliver our customers a great experience.2
Yum!’s history started with a spin-off of three of its five brands from PepsiCo. PepsiCo had entered the restaurant business with the acquisitions of Pizza Hut and Taco Bell in the 1970s and KFC in 1986. PepsiCo grew these brands significantly and brought them into many international markets. In the mid-1990s, however, PepsiCo’s overall performance and also the performance of its restaurants began to slip. In 1997, PepsiCo spun off the restaurant business—KFC, Pizza Hut,...