Tesco – The Appliance of Science
We probably choose to quote the former and ever controversial late Conservative MP, Enoch Powell at our peril, but his defining thought that “all political careers end in failure”, might just be true for business bosses in an economic downturn.
The real trick for any leader, but especially in business, is knowing when to leave.
Power is seriously intoxicating, and after a period of sustained success, it takes a really special leader, or those who have surrounded themselves with ‘strong critical friends’ within their leadership team, to step off whilst still at the top and still successful.
Two rock solid UK banking giants, John Varley and Stephen Green, both rather surprisingly left after successfully steering their respective banks, Barclays and HSBC, through the rapids of the global downturn, leaving a platform for on-going success.
Many might say Tesco’s super boss, Terry Leahy did a similar thing, but some doubts are beginning to appear.
Some relevant, ‘jaw dropping’ and legend forming statistics of Leahy’s leadership:
- Terry Leahy was CEO for over 14 years – a ‘tour of duty’ increasingly unheard of in modern times
- Under his leadership Tesco went from sales of £13.8bn to a gargantuan £62.5bn – an increase of 350% and delivering a remarkable 30% market share in the UK
- One out of every seven pounds spent on the British retail High Street is spent at Tesco
- Tesco became the highest private employer in the UK, employing some 472,000 people worldwide (with 287,000 in the UK)
- The number of UK stores increased four-fold from 568 to 2,482
- The Tesco Clubcard became the dominating strategy for retail in the ‘noughties’ in the UK
- He not only turned around the business, but he also turned around a failing and ugly brand
Did he leave at his peak? Or did he leave a ship that was beginning to list quite badly?
There has been enough sensible comment about the various strategies that are and aren’t working at Tesco, but we think ‘culture’ is the major underlying issue.
Leahy’s classic ‘stack it high and sell it cheap’ approach was underpinned with the ground breaking use of customer data supplied by the Tesco Clubcard.
The increasing use and dependency on this data has created a culture that has become perhaps quite prescriptive and ‘mechanical’. This coupled with a strong cost cutting discipline in the UK, has maybe eroded the necessary inherent retail and entrepreneurial competence necessary in the stores.
The culture has become a little ‘workmanlike’ with slavish adherence to the ‘spot welded rules’. This has meant continued trimming of staff in stores, underinvestment in the upkeep of the stores, whilst struggling to maintain competitiveness other than price, with a resurgent Sainsbury’s, an ever challenging ASDA, a quality fixated Waitrose, and a stabilised Morrison’s all belligerently ‘laser focused’ on Tesco.
Both Sainsbury’s and Morrison’s needed new strategic thinking, but Justin King and Dalton Philips, their respective CEOs, have also focused on changing rather hierarchical, reactive and inward looking cultures.
It has manifestly taken time, but time is essential in building a cultural change platform for the ultra-competitive supermarket landscape in the UK.
Philip Clarke, CEO of Tesco, appears to be doing all the right strategic things, and has started to pointedly unravel the existing culture.
Many of the Tesco executives, who enjoyed such overwhelming success under Leahy’s stewardship, leading the business for many great years, have been necessarily and in the main, quietly moved on.
The next steps will be all about “changing the way things get done around Tesco”; we call that culture, and we know it usually takes nearly as long as it took to set up, and build in the first place to turnaround.
We only need to look at the recent travails at that other once much admired British retailer, Marks and Spencer. It required a powerful and visionary leader, Sir Stuart Rose, to confront the failing culture, and build a sustainable platform for change.
He had to go as far as moving the head office away from the prime location, and low cost of Michael House to Waterside House in Paddington; as the ‘immovable corridors of power’ were so synonymous with the preeminent incumbent culture.
Rose left M&S in much better shape financially, and vitally, he had eroded the ‘old culture’, and set a new approach off to a very good and solid start, but culture change demands constant oxygenation and engagement from the leadership.
This will be Clarke’s challenge; will he be given the time to change the culture of such a large and disparate business whilst the financials continue to tumble?
Addressing a culture that has been so successful through clear and unarguable instruction, strong processes and clear procedures that everyone adhered to, so much so, that perhaps the ability to think creatively and behave differently has been somewhat lost – is THE huge leadership challenge.
We call the prevailing Tesco approach ‘management’.
The move from a ‘not wanting to lose’ attitude, adopted by many strong and unchallenged market leaders, coupled with having the ‘muscle’ to constantly batter the opposition through lower pricing, is very difficult to change quickly.
A more customer centric approach with better shopping environments, are critical, but having a new generation of leadership who ‘role model’ and inspire a new culture is vital to Tesco’s continued success.
They might just have something to learn from Sainsbury’s and Morrison’s time in their own large shadow.
The larger the organisation, and the longer the sustained success, the more radical and time consuming the culture change will have to be.
It is seriously hard enough to do when the business is relatively small, and the workforce is all in one place.
Tesco’s unparalleled growth means this might just be the toughest cultural change challenge the UK has ever seen.
Just maybe Leahy saw this coming as his pension pot does not start paying out for another three years, but of course, that’s just media speculation.
“Culture is still more powerful than strategy”.