Earning Customers' Lifetime Loyalty: How Tesco Turned Strategy into Reality

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T H E   S T R AT E G Y       E X E C U T I O N                S O U R C E

                                                                                Article Reprint No. B0903D

Earning Customers’ Lifetime Loyalty: How Tesco
         Turned Strategy into Reality
                                         By Sir Terry Leahy

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Earning Customers’ Lifetime
I N S I G H T

                                                                                                                   bit better. It’s not about micro-
                                                                                                                   management—it’s not about me
                    Loyalty: How Tesco Turned                                                                      telling people on the other side
                                                                                                                   of the world how to merchandise.
                    Strategy into Reality                                                                          And we certainly don’t want one
                                                                                                                   leader—we want thousands of
                    By Sir Terry Leahy, CEO, Tesco                                                                 leaders. Our aim is to instill a
E X E C U T I V E

                    An abridgement of CEO Terry Leahy’s keynote presentation at the                                culture where people’s first
                    Palladium European Summit, June 2008.                                                          thought is to take responsibility.
                    The simpler, the better. That, says Tesco’s CEO, is the key to                                 If the business is to move forward
                    change in a complex organization. To set the then-floundering                                  it must take risks. And managers
                    company on a new, focused path—one that its far-flung                                          need to know that they can
                    workforce could clearly understand—he adopted a simplified                                     make mistakes. If they’re going
                    BSC (with “shopping lists” for key objectives) and cultivated                                  to spend all of their time looking
                    leadership at every level. The results are nothing short of                                    over their shoulder because
                                                                                                                   they’ve got to satisfy a checklist
                    spectacular for what is today the world’s third-largest retailer.
                                                                                                                   mentality, they’re far, far more
                    We’ve come a very long way                Our club card is the most popular                    likely to take shelter in the short
                    since Tesco was a market stall            loyalty card, with around 14                         term and in the conventional. If
                    in the east end of London in              million members. We’ve expanded                      it’s safer for their career prospects
                    1919, and indeed since the early          into a whole new range of areas,                     to be wrong with the rest of the
                    1990s, when our competitors were          and we’ve gone online with one                       herd, rather than to risk being
                    running rings around us.                  million active customers. Our                        right on their own, well, what can
                                                              expansion overseas began in                          we expect?
                    Somehow we’d lost our way. We
                                                              earnest just 12 years ago, but
                    needed a new sense of direction.                                                               That’s important in every business.
                                                                                 today, we have
                                                                                                                   But it’s critical in retailing, because
                                                                                 nearly 4,000
                                                                                                                   we need to respond to customers’
                                                                                 stores in 14 over-
                         If it’s safer for their career prospects to                                               everyday opinions. We try to
                                                                                 seas markets.1
                         be wrong with the rest of the herd, rather                                                understand what matters most
                                                                                 Our international
                                                                                                                   to customers. We spend lots of
                         than to risk being right on their own,                  operations now
                                                                                                                   time and money trying to find
                                                                                 account for some
                         well, what can we expect?                                                                 out how to improve shopping
                                                                                 £700 million
                                                                                                                   for customers. And we actually
                                                                                 in profit—put
                                                                                                                   change how the business is run
                                                              another way, that almost equals
                    So we asked ourselves—our
                                                              Tesco’s entire profit just a decade
                    employees—to redefine our core
                                                              ago. In other words, we’ve built a                               A T        A   G L A N C E
                    purpose, our values, our strategy.
                                                              whole new Tesco in the last 10
                    What we came up with sounds
                                                              years.
                    very simple. Our core purpose                                                                     Tesco
                    is “To create value for customers         Now growing fast and in new                             Hertfordshire, UK
                    to earn their lifetime loyalty.”          areas can pose a formidable
                    Our values: “To treat people how          challenge. So how did we turn                           Industry: Retail (world’s third-
                    we like to be treated” and “No            those simple words into the Tesco                       largest retailer)
                    one tries harder for customers.”          that you see today?                                     Annual group sales (2008):
                    Our strategy: “To grow the core                                                                   £51.8 billion
                                                              It may seem odd, but one of
                    business by developing new                                                                        Employees: 440,000
                                                              our first steps was to close the
                    formats, new ways of retailing; to                                                                (280,000 in UK)
                                                              strategy department. I believe
                    expand by growing internationally
                                                              strategy is for the entire business                     Stores worldwide: 3,956
                    and to be as strong in nonfood
                                                              to embrace and to live, day in and                      Markets: UK, China, Czech
                    as we are in food; and to follow
                                                              day out. It should not be con-                          Republic, France, Hungary, Japan,
                    customers into new areas of
                                                              signed to a silo. You achieve strat-                    Malaysia, Poland, Republic of
                    consumption such as financial
                                                              egy with strong leadership, by                          Ireland, Slovakia, South Korea,
                    services.”                                                                                        Thailand, Turkey, USA
                                                              enthusing people, ensuring they
                    Today in the UK, we’re number             know how their contribution each
                    one on High Street [Main Street].         day can make the business a
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Tesco Turns Strategy into Reality (continued)

based on what we’ve learned             from thousands of suppliers in         they can apply in their own
from those results.                     dozens of countries. Yet it’s easy     market. Retailing is a very local
                                        to understand and relevant to          business—and it must reflect
Now change is a word that can
                                        thousands of our staff. Besides        local cultures, competition, and
terrify people. It means doing
                                        conveying our commitments, the         tastes. So in each country, our
something differently. It’s the
                                        Steering Wheel
unknown. But in our business,
                                        helps us track
change has to be part of everyday
                                        performance.
life. So when we took our strategy                                The future won’t involve a choice between
                                        Each year, we set
out to employees, we had to
                                        demanding tar-            being green or growing; you won’t be able to
ensure that everyone understood
                                        gets to deliver           grow as a business unless you’re green. So
what the strategy meant to them
                                        change, to identi-
individually, that they understood                                we’ve added a fifth element to our strategy.
                                        fy the improve-
why it was important, and that
                                        ment we want to
they realized and accepted that
                                        see. We review
change was part of routine.
                                        progress against these targets         management teams have tailored
The Steering Wheel                      quarterly, from the store level all    the Steering Wheel to reflect
                                        the way up to the executive com-       what’s important in their market.
The Tesco version of the Balanced       mittee (there are also weekly and      But they have have a common
Scorecard is what we call the           monthly reviews).                      framework—and key performance
“Steering Wheel.” On one sheet of                                              benchmarks. They know where
paper you can understand what           The beauty of this system is
                                                                               they stand within the organization.
the entire business and the entire      that it’s never been a theoretical
                                                                               It’s not just a shared management
team is doing—and how we’re             device that sits yellowing in the
                                                                               tool—it’s a language, a style of
doing.                                  drawer in the HR department or
                                                                               working, a way of thinking—
                                        that I just pull out for speeches.
Critically, the Steering Wheel                                                 something that bonds all 440,000
                                        The Steering Wheel literally
ensures that our approach is bal-                                              people together. That matters in a
                                        steers our business and it allows
anced—that we’re not devoting                                                  global business in which managers
                                        the people on the ground to
too much attention to one aspect                                               move from department to depart-
                                        feel in control. They know that
of the business and weakening                                                  ment and country to country to
                                        they can make the difference
another aspect of the business                                                 gain experience.
                                        in performance.
unintentionally. It ensures that the
                                        When we introduced the Steering        Community Impact
entire business is moving in the
same direction. It’s divided into       Wheel, we wanted to ensure that        Tesco has changed, but so has
four parts: how we organize             the entire team used it. We held       the world. Most people now agree
work, how we look after people,         town meetings for all of our           that we need to confront the chal-
how we take care of finance, and        staff to talk through the strategy.    lenge of climate change by cutting
how we look after the customer.         We wanted a simple means of            carbon emissions. Developed
Each part has equal weight, and         reminding everyone of these com- economies will have to operate
each segment is underpinned by          mitments that we’d be embedding on about one-fifth of the carbon
several commitments. We call            into the strategy. Appropriately,      they use today. Our industry, mass
this our “every little [bit] helps”     we came up with “shopping lists,” consumption, is a big carbon user.
strategy; it’s the way we gradually     using simple phrases like “a great     The future won’t involve a choice
improve the business in ways            place to work,” “want everyone to between being green or growing;
that matter to customers.               be treated with respect,” and          you won’t be able to grow as a
                                        “keen to know your stuff.”             business unless you’re green. So
Some of these commitments
                                        The great thing about the Steering     we’ve added a fifth element to
you’d see in many businesses.
                                        Wheel is that it keeps people,         our strategy and to the Steering
But others are unique to retailing.
                                        both individually and as a group,      Wheel: the community plan.
For example, in the customer
segment, you’ll see “the aisles         focused only on what matters.          This addresses not simply the
are clear” and “I can get what I        And in the heat of battle, that’s      challenge of climate change, but
want” (ensuring the shelves are         terribly important.                    also the fact that as Tesco grows,
stocked). This last objective is a      Everywhere around the world, our       we need to address our impact on
miracle of logistics: obtaining hun-    teams have a clear, tried-             communities. Every customer is
dreds of thousands of products          and-tested management structure        also a member of the community.

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                                                                          Balanced    28, 2011
                                                                                   Scorecard Report March–April 2009
Tesco Turns Strategy into Reality (continued)

People want us to be a good             expected of him or her. Our train-       3. Training and education are
neighbor. We’ve drawn up annual         ing program is accredited by the         fundamental. Your team must
community plans for each country        Qualifications and Curriculum            understand what they’re doing,
in which we operate against a           Authority.3 We’ve recreated an           and why. Each person must
clear set of targets. For example,      apprenticeship program, and now          know the role he or she plays,
in the UK we have 11 performance        have a higher qualification—a            and be equipped and confident
targets in our community plan;          foundation degree that you can           to play that role.
stretch targets include reducing        achieve by working through
                                                                                 These lessons, and the Balanced
carrier bag usage by 50% by             Tesco.
                                                                                 Scorecard, have helped us create
year-end (2008) against a baseline
                                        Training matters to me, not just         a company that I believe fulfills its
of 2006 (that’s two billion fewer
                                        because I want Tesco to be a             core purpose—to create value for
bags), increasing the sales of
                                        successful business. I want Tesco        customers to earn their lifetime
locally sourced products to
                                        to be an engine of social mobility.      loyalty. I
£1 billion, and testing carbon
                                        I want to motivate our people, to        1. Sir Terry’s original figures were updated for this
labeling on 100 products this year.                                              article, based on company data (at tesco.com).
                                        widen their experience and raise
We’ve already halved the carbon
                                        their aspirations. Last year, we         2. Statistics are as of mid-2008, at the time of Sir
footprint of our stores by 50%                                                   Terry’s presentation.
                                        filled 3,500 management positions
since 2000, through such improve-                                                3. A UK public agency sponsored by the Department
                                        from within. Over the last three
ments as new refrigeration, light-                                               for Children, Schools and Families that maintains
                                        years we’ve appointed 27 directors,      and develops the national curriculum and associated
ing, and air-conditioning systems.2                                              assessments, tests, and examinations.
                                        200 store managers, and 8,000
To ensure everybody understands         department managers from within.
what the community plan means           Anyone can rise up; there are
in practice and how it affects          only six levels between me and
people’s day-to-day jobs, we’ve         the person at the checkout. But
introduced a new “shopping list”        training is a very vital part of this.
for what people want us to do in
                                        The Steering Wheel has helped us
the community. They want us to
                                        change, and it itself has changed.
help them look after the environ-
                                        We’ve achieved this evolution by
ment, to be open and honest in
                                        abiding by a few simple lessons:
how we buy and sell products, to
help them with diet and health,         1. Make everything as simple as
and to create good local jobs.          possible. Our business is very
                                        complex, and gets more complex
One example of our approach to
                                        each year. Our challenge is to
being a good neighbor is in staff
                                        make it simple, because doing it
development. Training our people
                                        isn’t easy. A simple aim provides
is critical; it’s really how you win
                                        clear focus; a simple proposition
in retailing. Marketing, logistics,
                                        is easy for people to understand.
property can all be copied. But
                                        Simple acts take less time to learn
the commitment of your people,
                                        and do—and actually cost less.
their skills—that’s hard to copy.
                                        And simple systems take less time
Our future depends on our staff
                                        to establish. Simplicity is a very
delivering what customers want,
                                        effective route to change in a
and 400,000 staff can—if they
                                        complex organization.
are trained to and believe in the
values of the organization.             2. Implementation matters as
                                        much as strategy. You can have
Training means learning new
                                        a great strategy, but if it never
skills—whether it involves new IT
                                        leaves the page to become a
systems, new processes, or people
                                        reality, it remains just that—a
management. It also means under-
                                        piece of paper sitting on a desk.
standing how to deliver strategy
                                        Constantly ask yourself, “How will
and make things happen. That
                                        I make this idea work?” We ask,
entails learning the importance of
                                        “What difference will this make to
simplicity and clarity and ensuring
                                        the customer?”
each person knows exactly what’s

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