Tesco now plays a team game

Citation

(2000), "Tesco now plays a team game", Team Performance Management, Vol. 6 No. 5/6. https://doi.org/10.1108/tpm.2000.13506eab.001

Tesco now plays a team game

Tesco now plays a team game

The transition from a close-knit, family-run company to a global corporation can be a heart-wrenching experience, particularly when strong personalities are involved. But when retailing firms become too big and unwieldy and lose touch with the market, they must hand over control to younger, more dynamic management who must reposition the business in the changing trading environment.

Tesco, the UK's largest retailer and a growing international force, has moved from domination by the family of a brilliant entrepreneur to management by a team of professionals working closely together.

The company's roots began in 1919 when a young First World War flying corps veteran, John Edward (Jack) Cohen, invested his serviceman's gratuity in groceries to sell from a market stall in London's East End.

A move into wholesaling led to the creation of Tesco Stores in 1931. Tesco became a public company in 1947 and opened its first self-service store in 1949. Principally through acquisition it rapidly became a nationwide chain with more than 800 supermarkets and self-service stores by 1976.

Badly positioned in a changing market

But, by then, Tesco was in deep financial trouble and badly positioned in a changing market. After a decade of growth in the 1960s, Green Shield stamps had lost their gloss and the company's image was one of down-market high street stores with brash and gaudy exteriors selling a myriad groceries and household goods.

With extremely low profit margins, the once proud company had certainly fallen on hard times. Clearly, Tesco needed to completely reformulate the business, but the board was still family dominated with the now ailing Jack Cohen still at the helm as life president.

In 1977 the company's board was split over a decision to continue a 13-year association with Green Shield stamps. Introduced to Tesco in 1964, the scheme had been a great boon to the company's growth, but the stamps had run their course and were costing Tesco $40 million a year. Against Cohen's wishes the board was swayed against continuing with Green Shield by just one vote. This proved to be a turning point in Tesco's fortunes and the business started to move forward again.

Largest price promotion

Based on the US experience of coming out of stamps, Tesco mounted its largest ever price promotion, "Operation Checkout". Over a long weekend, store windows were whitewashed, the 900 stores were cleaned and remerchandised, every product was repriced and reticketed, and press and television advertising was heavy. Store reopenings were delayed a day to create public interest and keep the competition guessing.

The results of Operation Checkout were immediate and spectacular. A year later, Tesco had increased its share of the UK grocery market from 8 percent to 11 percent, although profits remained static until the 1980s. This allowed the company breathing space to redefine its business and develop a completely new strategy.

As one of the great UK entrepreneur retailers, Cohen continued until he was 79, but he almost destroyed the business he created. The retailing business was moving so fast and he could not cope with the changes. He became negative, frustrating his senior management. After Cohen's death, they decided that all executives should retire at 60. They also created a team of 18-20 people who were dedicated to turning Tesco into the leading food retailer in the UK, a position it achieved in the mid-1990s.

At board level, directors now never vote on anything. Instead, they have a discussion and come to a consensus. This has become an important part of the teamwork management culture created at Tesco.

Strategy for the new Tesco

Another key to the new Tesco was the clear identification of an exact business goal and the determination to follow this through single-mindedly. In the late 1970s, the company decided to focus uncompromisingly on the business of food retailing based on quality of products and efficiency of customer service.

Stores were expanded, refitted and upgraded. Around 500 smaller, unprofitable sites were closed to concentrate on larger, out-of-town stores. Centralized control using sophisticated computer systems gave head office management clear accountability on store management, consistent marketing and pricing policies, and efficient information management systems.

Centralized distribution resulted in higher service levels and sales, lower store wage costs, lower stock loss and lower delivered costs of goods. Meanwhile, Tesco shifted from a buying and retailing-led organization to a research- and marketing-driven company.

A business driven by customers

Tesco now keeps close to customers through research groups, customer surveys and customer focus groups. By visiting stores unannounced, senior executives have close contact with customers and staff, which helps them understand the marketplace.

The company also keeps in touch with customers through its loyalty card introduced eight years ago. Some 12 million people now have a Tesco Clubcard, which provides information to drive the company's marketing program.

Tesco realized many years ago that retailers of the future would no longer be solely national players, but international players operating in many countries. The company now has interests in Ireland, Hungary, the Czech Republic, Slovakia and Poland, and has also acquired businesses in Thailand and Korea. But in developing its strategy for international expansion, Tesco realized it should never lose touch with its home market because this is the profit driver for the whole business.

Boards of directors that ignore the succession problem imperil the whole organization's survival. Tesco believes that a well-developed succession plan reinvigorates the company, especially when the pace of change has increased. Successors are groomed at an early stage and, when a new management team takes over, financial analysts and institutional shareholders are told what is being done, when and why.

Surviving a difficult transition

Tesco survived a difficult transition to achieve its current position as the UK's largest retailer. The creation of a management culture based on teamwork comes with the following recommendations:

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  discuss and come to a consensus on major boardroom issues; do not vote on them;

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  deal decisively with corporate succession; retire senior executives at 60;

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  clearly identify your exact business goal and follow this single-mindedly;

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  understand the retail market in which you are working; never lose touch with your home market;

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  drive the business with research and marketing;

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  keep close to customers and staff; reward customer loyalty.

Brick walls do not exist in retailing. There is always an opportunity out there somewhere. Tesco took its chances, worked hard on them and continues to look ahead to the new retailing challenges.

(This précis was previously published in Strategic Direction, June 2000. The author was Ian MacLaurin, former chairman (1985-97) of Tesco plc.)