HOW TRUST SAVED KFC

The former CEO of Yum! Brands explains how he turned around a struggling KFC and the important lesson it offers for anyone in franchising.

- DAVID NOVAK

In 1994, I became the president of Kentucky Fried Chicken. It was a big job, and I was excited. But when the news got out, I got more calls offering condolences than congratulations.

I understood why. KFC had been struggling. It hadn't achieved its business plan and had no same-store sales growth for seven straight years. The company was owned by PepsiCo at the time, and it had become a graveyard for PepsiCo executives. I could have easily been the next one in the grave: I was the COO of PepsiCola, the company's beverage division, and PepsiCo chairman Wayne Calloway had asked me to take this job because of my reputation for turning around struggling businesses.

Now I had my work cut out for me.

To start, I was walking into a deeply distrustful environment. Franchisees owned 70% of KFC restaurants, and they saw Corporate as a bunch of outsiders who didn't enjoy fried chicken and didn't believe KFC could beat its competitors.

Franchisees also held a majority of the marketing votes, which meant they controlled everything from advertising to new products, and they often voted as a bloc-against the corporate executives. Trust was so frayed at the time that the franchisees were suing us over territorial rights.

In other words, I had inherited a business in decline and a broken franchise system waging open warfare.

But I had a secret weapon.

It's called Theory Y.

The term comes from Douglas McGregor, a management professor at MIT. Back in 1960, in a book called The Human Side of Enterprise, he described two leadership outlooks on human behavior: Theory X and Theory Y.

Theory X leaders believe that employees must be coerced, controlled, and threatened to do good work or take responsibility. Theory Y leaders believe that people are generally creative, ingenious, and ready to take on responsibility if they are treated accordingly.

I was always a Theory Y guy.

And now was my chance to prove it.