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21 July 2012

Management in 10 words

Tag(s): Business, Leadership & Management, People

Sir Terry Leahy, the son of Irish immigrants to Liverpool, joined Tesco when he was twenty-three, became the company’s first marketing director and was responsible for the introduction of the highly acclaimed Tesco Clubcard. As CEO he oversaw Tesco’s expansion into everything from electrical goods to insurance, built a £1 billion clothing business and was one of the first to see the potential for selling groceries. He was knighted in 2002 for his services to food retailing and has received many industry honours and awards including Sunday Times Business Person of the Year in 2010. After stepping down as CEO of Tesco in February 2011 he has put down his thoughts on paper about his career and about management in general in a book he calls Management in 10 Words.[i]I was recently invited to a launch event for the book. Normally one dreads such books as they seem to be full of platitudes about business and boasts about the author’s career. Sir Terry’s book is better than that. His thoughts about business, and in particular how it contrasts with the public sector which he has had occasion to observe at close quarters, are particularly interesting, and while the book is not without personal claims about innovations it is also imbued with a degree of humility and respect both to his colleagues and to his customers.

Sir Terry has obviously read widely because he often quotes from other founts of wisdom not all of which are obvious. He is particularly fond of Second World War Field Marshalls Bernard Montgomery (perhaps obvious) and William Slim (much less obvious).  Bill Slim wrote the first book about the war I ever read, Defeat into Victory[ii]which told the remarkable story about the Fourteenth Army which reconquered Burma from the Japanese. My father fought in that army as a young captain under Slim and so had the book at our home. Many years later I had the pleasure of sitting next to Slim’s son who inherited his viscountcy, at a lunch at the House of Lords. I was able to tell him that my father had served under his and was also hoping to write the history of his regiment. Unfortunately he never completed the project.

Sir Terry’s 10 words are Truth, Loyalty, Courage, Values, Act, Balance, Simple, Lean, Compete, and Trust. A chapter is dedicated to each one and stories told both from his own experience and that of others to illustrate the meaning and importance of each one.  He thinks organisations are terrible at confronting the Truth. It is so much easier to define your version of reality, and judge success and failure according to that. His experience is that Truth is crucial both to create and to sustain success. I use to put it even more succinctly than that. I would tell people not to believe their own bullshit. In the early 1990s Tesco suffered more than most of its competitors from the recession. Leahy was given the new job of Marketing Director and after a series of ineffectual tactical initiatives he commissioned the biggest piece of market research the company had ever done. The results were painful reading. The Truth was that in trying to emulate Sainsbury’s and Marks and Spencer Tesco had left its natural customers behind. One said: ‘I like Tesco, but I just can’t afford to shop here anymore.’  Sir Terry writes “The truth was that customers had lost trust in us, and no amount of clever one-off marketing tricks, or better logistics would save us. We had to go back to square one.” But having identified the problem it was much easier to act on it.

The bigger truth is to find the purpose of a business. Sir Terry notes that this is the toughest question of all and one that many avoid. Again he returns to Field Marshal Slim for his inspiration. Slim argued that armies (like businesses or any organisation) are only as strong as the morale of those who work within them. At the top of the list of foundations for morale “there must be a great and noble objective.” Sir Terry knows that this is not quantifiable; it must appeal to the heart not the head. He concluded that for a retailer like Tesco their core purpose was ‘to create value for customers to earn their lifetime loyalty.’

So his second word is Loyalty. Winning and retaining loyalty is the best objective any business – indeed, any organisation – can have. The search for loyalty has, at its heart, an age-old idea: you reward the behaviour you seek from others. Thus this objective transcends that of sales, market share, profits, satisfied staff, good returns for investors or an excellent reputation. Analysts tend to look at these hard indicators yet they follow, not precede loyalty. Loyalty has an intangible aspect, harder for the analysts to measure, but it is much more powerful.  Sir Terry argues that customers have never had more choice and that in some markets churn is so high that a business may turn over its whole customer base in three or four years. But here I must just strike a warning note that choice in supermarkets is severely restricted versus say, forty years ago when I started selling to supermarkets and none of the chains had more than 4% market share.

 Leahy persuaded his Board to launch the famous Clubcard in 1995 and many have attributed much of Tesco’s success to this so-called innovation. To some old hands in Tesco it just seemed a return to their old policy of giving Green Shield stamps, itself just an alternative to the Coop’s divi. To the data mining experts it meant that the customer provided huge quantities of data in return for some discounts. Ian Maclaurin, who had staked his career on ditching stamps and putting the money into more competitive prices, acknowledged that Dunn Humby, who created the Clubcard, knew more about Tesco’s customers than they did themselves. But was this really true? I had a Tesco Clubcard and on one occasion received a discount off dog food. The computer must have noticed that I had not bought any dog food for a few weeks. It must have concluded that I was buying my dog food elsewhere and sought to bring me back with this special offer. Actually our dog had died and we were no longer in the market for dog food. The fact is these computers don’t know what they think they know.

Sir Terry Leahy’s book is excellent and a good read. It has useful lessons drawn from a highly successful career.  But there is a strange hole in it. He quite rightly puts the customers at the heart of the business. He quite rightly talks eloquently on the right way to treat employees. But he makes very few mentions of the suppliers. There have been several investigations into the practices of dominant supermarkets in the treatment of their suppliers, particularly the local ones like farmers who have few outlets for their fresh produce. Unfortunately these investigations rarely reach any conclusion that would change things for the better because few suppliers are willing to blow the whistle and so put themselves out of business. Years ago at Sony we were invited in to discuss supplying Tesco with our consumer electronic products. At the time we supplied supermarkets like Tesco with our cassette tapes and batteries but not with our more sophisticated products like televisions and camcorders that require demonstrations and after sales service. Nevertheless we already had a trading relationship with Tesco and so were willing to make the visit. We were greeted with the statement “We’re Tesco. We **** the **** off brands.” We replied “We’re Sony and we only deal with dealers who are prepared to invest in our brand.” The meeting came to a premature end.

One particularly interesting chapter is that on Lean. Here Sir Terry talks about efficiency and getting rid of bureaucracy. He is particularly proud of cutting the levels of management between him and the shop floor to just six which is remarkable in Britain’s largest private employer. He believes this is applicable to any organisation. I challenged him on this pointing out that oil companies seemed to have got into difficulties after hollowing out their safety management while banks had had massive computer failures after outsourcing their IT departments but Sir Terry stuck to his guns.

I have not had the space to deal with all of Sir Terry’s 10 words but some wags in the grocery trade have alternatives such as “Tesco’s management style means always asking for absolutely unjustified pricing discounts.” The customer has undoubtedly benefitted. As The Economist points out in its highly favourable review of the book “The cost of groceries fell by a third in real terms between 1975 and 2007. The range of products available increased more than tenfold over the same period. And the British diet improved beyond recognition. When Sir Terry joined Tesco, customers spent as much on butter as on fruit and vegetables. Now fruit and vegetables outsell butter by a factor of 40 to one.”[iii]

In conversation with Sir Terry afterwards I told him that my own experience of Tesco predated his long career there. My first full time paid work was stacking shelves in Victor Value, later acquired by Tesco, back in 1967

[i]Management in 10 Words Sir Terry Leahy Random House 2012

[ii]Defeat into Victory Field Marshal Viscount Slim Cassell & Co 1956

[iii]Terry Leahy’s management – one to ten. The Economist July 7th 2012

Copyright David C Pearson 2012 All rights reserved


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