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Nine management lessons from Terry Leahy, former CEO of Tesco PLC

Terry Leahy, former CEO of Tesco

Known as one of the most remarkable business turnaround stories in British history, global retailer Tesco grew from being half the size of its two biggest competitors to six times the size of either of them. In fact after reporting £2 billion in profits in April 2005, its CEO until a year ago, Sir Terry Leahy, faced protests that the company was “too successful.”

Now Tesco is one of the largest retailers, operating in 14 countries, with more than 500,000 employees and serving millions of customers each week.

I had the pleasure of hearing Leahy talk about nine management lessons from this transformational business experience at The Premier Business Leadership Series in Amsterdam.

“These are the key lessons that came out of building this business to what it is today, and interestingly, many of these lessons are founded in the use of data. Tesco essentially is a story of using data to transform performance in an industry [retail] that has historically been slow moving and beyond the stage of lending itself to innovation,” Leahy said.

  1. Find the truth – Humans are very socialable: they inherently work on subjective impressions. Until recently, that’s all we had. With the availability of hard data, those impressions turn into facts. You now have a reference point for what is actually happening to make more substantive decisions from there.Some leaders don’t acknowledge that the world is changing, and so must their decision making. Those leaders constantly look for information to confirm their beliefs, rather than seeing the truth through facts.Many employees see the truth in the data but don’t want to speak plain, simple truth to the CEO. The CEO is oftentimes the most isolated to what’s really going on.The most reliable voice is the customer. If you’re prepared to listen to them, they’ll tell you about their lives, what they need, what is good about your business and what’s not, how your business can be improved, the list goes on. If you bring in data that reflects those customer-centric findings into sales, marketing and upper management meetings, I guarantee they will be better received.
  2. Audacious goals – You have to push people farther than they want to go or you’ll maintain the status quo. Examples of Tesco’s ambitious goals include:
    • No. 1 choice in the UK.
    • Grow a non-food business, which was a new strategy to be as strong in non-food as food.
    • Invent Retailing Services: Research showed that people actually spent more on services (travel, insurance, banking, education) than they did on products (cars, food, clothing). So, we needed to retail service like banking in the same way we retail actual products like food.
    • Become a leader in global retailing by expanding our reach and opening new locations.
  3. Vision, values and culture- The soft side of management matters more than the hard side – culture determines whether or not the company will be successful.Tesco developed core values by using information on what drives employees in their role. This was a data-rich exercise in which we built tools within HR to track employee feelings about the organization. It’s these values that motivate people and release their core talents.
  4. Follow the customer Customer lives and preferences constantly change. Use data to know what’s happening in their lives, what’s important for them – in addition to knowing more about the community and society.For example, retailing is all about bigger stores to offer as many products to the customer as possible.Our research reflected that customers actually are feeling busier and busier these days. They don’t have time to plan for the big shop and big store. Young men in particular, just want to see food that’s already prepared immediately and have the tendency not to shop.We started building “Tesco Express” miniature shops in communities and universities to make it more convenient for our customers. Convenience is one of the best benefits a business can offer the customer. The Tesco Express model was most successful and came about from a single observation – customers felt busy in their everyday lives.
  5. The steering wheel– A common question I receive is “How do you link the very large – purpose, goals, values, strategy – to the very small – what they do each day at work”? How can you make people feel a part of the bigger picture?Tesco has had a balanced scorecard for many years; we call it The Steering Wheel. It’s a terrific, data-rich, tool that connects the big business targets to the small world that employees interact with each day … to make people feel they make a direct contribution to the company.You will see The Steering Wheel in the Tesco stores and it can also be applied at different levels, regions and departments. It shows everything from grand measures to small measures like how many people were upset that day in a store. This was a great way to link strategy and goals to measurable targets. Here are the key areas we highlighted on The Steering Wheel.
    • Customer
    • Community
    • Operations
    • People
    • Finance
  6. People, processes and systems- How do you actually make your business different and make that come to life on the shelf edge? To make a strategy turn into a reality, you need a motivated organizational culture and thoughtful processes.Both require a huge amount of data on profitably, delivery time, etc. that comes from a well-designed system. Keep in mind that people are not robots but there is a need for both the systems and associated culture and practices to make it work.
  7. Data is priceless - When I started at Tesco, we couldn’t even get hold of our data. We developed a wealth of customer information through the Tesco Clubcard loyalty program. This provided tons of data to monitor shopping habits and movements of the customer. The card could even predict insurance purchasing habits just on what items they buy.This created a club of Clubcard holders that increased customer loyalty, giving them a sense of community by shopping at Tesco.
  8. Competition is good –It forces you to do a better job day in and day out. The trick is to learn from your competitors quicker than they can learn from you. Always look for your competitors’ strengths. They are the best management consultants we ever had … and they didn’t charge.
  9. Leadership – It’s all about the impact you have on other people. You need to have thousands of leaders within an organization – not just a handful. These leaders will deal with the customer, project, etc. as a leader.

The bottom line is that customers want to look good and live forever. If you can latch on to their trends and interests, you will do well. Companies who can use data to gain better insights of the world around them and what sits beneath them will be successful.

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  1. [...] is a point that was echoed in Sir Terry Leahy’s (former CEO of Tesco) presentation when he talked about ‘Following the Customer.’ Leahy used the example of how Tesco’s [...]

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