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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617-783-7587Earning 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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reserved. on November 28, 2011 3Tesco 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 2009Tesco 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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