People often expect their leaders to have all the answers; David Novak built his career by challenging that assumption. On this episode of The McKinsey Podcast, the former CEO and cofounder of Yum! Brands and current chair of Versant speaks with Eric Kutcher, McKinsey’s chair of North America, about the experiences that shaped his leadership—from engaging with front-line franchisees to managing a very public product flop—and how other leaders can learn from them.
This is the first in a recurring series where Eric discusses the practice of leadership with some of the world’s top CEOs.
The McKinsey Podcast is cohosted by Lucia Rahilly and Roberta Fusaro.
The following transcript has been edited for clarity and length.
Learning fast from the front line
Eric Kutcher: Talk us through your journey at Pepsi and starting Yum! Brands. That must have been a formative time for you as CEO and founder.
David Novak: I started out in the advertising agency business, and I became very close with the president and senior vice president of marketing for Frito-Lay. They asked me if I’d be interested in the head marketing job at Pizza Hut, and I said yes. And that was my journey into PepsiCo. I started there, and we turned around the business to great success. Then I was chief operating officer for Pepsi. I went on to be president of Kentucky Fried Chicken [KFC]. And the thing about the restaurant business is that it’s the closest thing to direct-response marketing: If we did something in marketing, we’d find out in a hurry if it was going to work.
Eric Kutcher: You also started a podcast called How Leaders Lead. How do you think about leadership—and, in particular, where has it become too much about theory and not enough about practice?
David Novak: Leadership is all about taking people with you to get big things done. And that’s the only way you can get big things done. The question I always asked was, what consumer perceptions, habits, and beliefs do you have to change, build, or reinforce to grow the business? If I could answer that and get the team to answer that, we could get focused and grow the hell out of the business every time.
When you’re leading people, you have to know them like you know your customers, and then you can understand what the obstacles are.
Eric Kutcher: There’s a quote that sums up the importance of bringing people along: If you want to go fast, go alone; if you want to go far, go together. How do you bring an organization along, especially when you have independent franchises, as you did in your case?
David Novak: First, there’s a law in leadership that everybody should remember: No involvement, no commitment. You need to get people in the room, ask them their opinion, and listen to what they have to say. Then you tell them whether you agree or disagree, but you’ll ultimately end up with the right decision.
I have a people map. It helps me understand who I have to influence. I write down who they are, and then I go through the process of getting their involvement. And when I get it, I have commitment. Once you understand what the reality is, you can come up with a plan to get it done. That’s your strategy. You structure around it, and you make sure your culture reinforces it. The only thing that ever failed me in business is when I didn’t take the time to get people involved. I blew off their insights because I thought I knew better.
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Eric Kutcher: There’s always this debate, right? Strategy versus culture. You mentioned strategy, structure, and culture. I get those ingredients—if I can bring people along, I can go far. But some people argue that strategy isn’t all that differentiating and that you need to go hard on the culture. Others would say that without strategy, there’s no point in having culture, because you don’t know where you’re going. How do you think about this?
David Novak: People who try to force you into those decisions are kind of naive. Strategy without execution is nothing. The only way you get execution is by having a culture that reinforces it and drives the strategy.
That’s why you must understand your resources. You have to make sure that, for example, we do a better job in technology and ensure the right people are in place. It’s all intertwined.
Building a culture where curiosity leads
Eric Kutcher: We’re in this unique moment of technological shift that we haven’t seen in a long time. How do you maintain a mindset of continuous learning—especially when you were CEO, when you probably didn’t get honest feedback from many folks?
David Novak: I got a lot of honest feedback because I really wanted it. I wrote a book called How Leaders Learn, and it was all about learning from your upbringing. We all learn from our upbringing. We learn from pattern thinking.
There are myriad ways that you learn, but you have to drive curiosity. As AI becomes a bigger driver in everybody’s business, one thing you have to do culturally is teach people how to ask better questions. AI is only going to be as good as the questions you ask it. Teaching people how to ask questions is a great thing, and the best leaders have been doing that for years.
Eric Kutcher: Young students beginning their careers often ask me what the attributes of great leadership are, and I say intellectual curiosity. You just have to ask and ask and ask again. It used to be the “five whys,” and it may be the “50 whys” now, right? Because you have the ability to ask so many more questions.
David Novak: I think the statistic is that almost 80 percent of people say they have a toxic work environment. Why? Leadership sucks. Leadership is not doing the job it needs to do. The best leaders have an uncanny combination of confidence and humility. I say uncanny because a lot of people can be really confident and even appear that way, but they’re not humble.
Here’s the thing about confidence: It must be rooted in competence, because people are not going to follow you off a cliff. They’re going to follow you once they know you understand what you’re talking about and that you can lead them to victory. But that confidence is rooted in humility. And the humility says, “I need you. I can’t do it by myself.” When you have confidence and humility, that’s an uncanny combination. The very best leaders all have it.
They also have one other thing: They have a healthy dissatisfaction with the status quo. They are never, ever satisfied. But on top of all that, you need curiosity, because that curiosity is going to make you competent over time.
Eric Kutcher: As a leader, how do you balance that dissatisfaction with the status quo with change fatigue? How do you get people focused on a mission and bring them along on that journey when they feel like the goalposts are always changing?
David Novak: I never really did.
Eric Kutcher: I’m asking because I haven’t figured that out either.
David Novak: You know what’s the worst fatigue of all? Losing—the losing fatigue.
What I wanted to do was to create a winning fatigue. The way I balanced it was by getting people really motivated about being a part of greatness and winning every year. I called it “Yum Dynasty–like” performance. We wanted to be like a dynasty.
Nobody wakes up every day wanting to be a part of something mediocre. People want to be a part of something special. So I was always selling the dream and the excitement of pursuing the dream. We can’t stand still, because everybody else is trying to kick our butts. If you want to win, you hire winners. The people who talk about change fatigue and all that, I like managing them out.
Eric Kutcher: And part of your point is, if you’re going to pursue excellence, you need excellence around you, and everyone has to want the same thing. You can’t tolerate mediocrity.
David Novak: In fact, the best way to demotivate your team is to tolerate mediocrity and let people slide by. You have to have standards; people are motivated by them. People want to be on the A team, and you want to make everybody feel like they contribute.
I always said: Be the leader; act like the leader. I don’t care what level of the organization you’re in—you can lead. If you’re an administrative assistant and you’ve got a better way to drive productivity, bring it forward. You’re leading.
Don’t wait for someone to tell you what to do, no matter what your job is.
Eric Kutcher: I’m smiling because I remember early in my time as a leader, I made a comment like, “Here’s what it’s going to mean to be the best.” And someone said to me, “Eric, I don’t understand. Why do we need to be the best?” And I said, “I don’t understand the question. How could you not want to win?”
David Novak: But you know what, Eric, there are always people in any business who ask the “Mother of God” question—the kind of question there’s no answer to. And you just have to run the business for the 85 percent of the people who definitely want to win.
What happens when you don’t listen
Eric Kutcher: What are some of the failures you had along the way that became your greatest learning moments?
David Novak: Like everybody says, I always had a hundred of them, but the one I’m probably most well-known for is Crystal Pepsi.
Pepsi was really struggling [in the early 1990s]. Carbonated soft drink sales were down. And I was brought in to come up with the big ideas. I studied the category, and we started working on packaging innovation because that always drove the category. The other thing that drove the category was product innovation. So I looked at what was already growing in the space.
All the clear beverages, like Clearly Canadian, were growing, and different waters were just starting to take off. Everything seemed to be clear. So I was sitting in my office one day, and I said, “What if we make a clear Pepsi?” And I thought, oh geez, this is the greatest idea I’ve ever come up with in my life.
I called up Roger Enrico, chairman of Pepsi, and said, “What do you think, Roger?” He’s a big marketing guy, and he said, “I really like it. That could be good. Take it out to customers and see what they think.” Customers loved it. So I went to the lab with [PepsiCo R&D executive] Surinder Kumar.
I said, “Surinder. Let’s make a clear Pepsi.” So he made a clear Pepsi, and it tasted pretty good.
We were excited.
We rushed it into test market because this was all happening in June, and we wanted to time the release for the Super Bowl.
So now I had this huge idea. In Boulder, Colorado, the first day that we sold it, it was coming fresh off the bottling plant lines. Dan Rather from CBS News reported on it as the lead story.
Everybody wanted Crystal Pepsi. People were asking for it, “Send me a case from Colorado.” It was like Coors beer. It was the hottest thing going.
I hadn’t talked to anybody about this except for Roger Enrico and a few people on my team, and I was a heat-seeking missile. I was going to get this on the Super Bowl. So finally, I went to the Pepsi-Cola Bottlers Association, and these bottlers are like franchisees—we would sell them the concentrate, and they would bottle the beverages.
They said, “David, this is a really good idea, but there’s one problem: It doesn’t taste enough like Pepsi.”
I said, “I don’t want it to taste exactly like Pepsi, because we want to get an incremental user.” And they said, “David, you’re calling it Pepsi, so it better have more Pepsi-Cola flavor notes.”
I didn’t listen to what they had to say. I said, “We’re going with this. We will develop the product and put it in the marketplace.” The product at that time was the only carbonated soft drink in the history of Pepsi-Cola that was introduced at a premium price, because Pepsi was always the loss leader. You know, stack them up, sell it low, and the bottlers sold it at a premium price.
I said, “What are you doing?” Because they could control the pricing. They say, “We’re going to make a ton of money on this, because everybody’s going to want to try it. But in three months, it won’t be around.”
So we launched it during the Super Bowl, and three months later, the repeat sales were very, very low. And the number-one reason why was because it didn’t taste enough like Pepsi. But I didn’t listen.
The other misstep was that I rushed it into market to get it out by the Super Bowl. And we had some product quality issues. You can think you have everything nailed, but you really don’t.
My big learning was that I didn’t really want the input. I was so convinced I was right and that I knew better than everyone else. I thought I was the smartest guy in the room, and I wasn’t.
Eric Kutcher: Yum! Brands was a very decentralized organization. You had all these franchisees who actually own the business. How does one lead that kind of business, and at what point does it not work to think about that idea of subsidiarity, or the decentralized orientation to management?
David Novak: I’m going to tell you my best story about franchisees and knowing their business. When I went to KFC, some of the restaurants had buffets. They were in about 1,000 of our 5,000 stores, and they were terribly unprofitable. The most important thing you can do in a buffet is manage your food costs, but how do you manage the food costs when people can eat as much as they want?
The most interesting statistic for us was the piece count [the number of food items per customer]. The average was around 3.1 or 3.2 pieces per person. But we had this guy named Billy Ball in Clinton, Arkansas, who had the best KFC buffets in the entire system, and his piece count was only about 2.7. So I went down to see him.
I said, “Billy, I can’t wait to see your buffet.” We went into the store, and he had a woman up front taking care of all the customers going through the buffet. Then you got to the chicken, which was at the end of the line, and it was stacked two or three pieces above the rim. And I said, “Billy, I’m coming here to learn, and here you are, stacking the chicken up so high. What the hell are you doing?”
He said, “David, you just don’t get it.” And I said, “Well, tell me what I’m missing.” He said, “I sit here and watch my customers every day, and what I’ve learned is that if you put out a lot of chicken, they won’t take as many pieces because they know they can come back for more.” That’s why his piece count was 2.7.
The other thing he did was fill the first things you’re seeing on the buffet line, like Jell-O and mashed potatoes, which are very low-cost. He knew his business and had the courage to put up all that chicken. Now, I tried to get that done, and nobody would believe it. I couldn’t sell that idea anywhere. But I used Billy as an example.
What AI might change—and what leadership still needs
Eric Kutcher: You’ve had the privilege of studying hundreds of different leaders. What’s the one widely held leadership trait you think is flat-out wrong?
David Novak: When you become a leader, people think you have all the answers, and you don’t. You actually become a better leader when you tell people you don’t have all the answers.
Eric Kutcher: If you were leading a company today, what would you do fundamentally differently than what you did as Yum! Brands’ CEO?
David Novak: I’d be much better at technology. I was not as proactive and aggressive enough at technology.
Eric Kutcher: That’s the perfect lead-in to my last question. We are living in one of the most innovative technological moments we will ever get to lead through. What is going to change about leadership as a result of AI? And what are one or two things that absolutely won’t change?
David Novak: I think things will happen quicker. You can get unbelievable data so quickly. I think that the winners are going to take their curiosity advantage to a whole different level. That curiosity, that learning mindset, is what will really separate the best leaders of all.
But in my mind, the best leaders have a great respect for human dignity and make people feel valued and appreciated. I built my career on recognition, and if I were leading a team or a company, I’d ask, what are the three to five behaviors I know will drive results? What are the three to five things people have to do to drive growth?
It could be customer focus. It could be curiosity. You can pick the behaviors that are most important to you. And then, as a leader, you should recognize those behaviors, because people will do more of what you recognize.
