Delivering Success: How Tesco is Managing, Measuring and Maximising its Performance

Introduction  

Tesco has delivered impressive performance. Good  performance and business success is underpinned  by the right strategic objectives, which have to be  communicated to all staff. However, even more  critical are:  

  1. Making sure everyone in the company is  actively engaged in trying to improve company  performance - all the time.  
  2. Having the data and analytical skills to test  ideas and turn insight into customer and  business relevant actions.  This case study outlines Tesco's performance  management journey, which so far has been an  extremely successful one.  

About Tesco  

Tesco is an impressive company. The British-based  international grocery and general merchandising  retail group operates 4331 stores across 14  countries, employs 470,000 people, and in 2009  generated £59.4bn in sales. Tesco is the largest  private sector employer in the United Kingdom, and  is currently the third largest global retailer based on  revenue and the second largest based on profit.  Over the years the company has been transformed  from a 'pile it high, sell it cheap' market trader to a  world-leading retail group. While it originally  specialised in food and drink, it now offers a wide  range of products including clothing and consumer  electronics and offers an increasing range of  services such as telecoms, health, Internet,  insurance and financial services. In addition to its  stores, Tesco has created a very successful online  supermarket offering among other things groceries,  home retailing, and music downloads. Even amidst  the current global recession Tesco is performing  extremely well with a 15.1% growth in annual sales  and a 5.5% growth in profits.  

Drivers of Success 

What is leading to Tesco's global success is that it  gives customers what they want. Sir Terry Leahy,  Tesco's Chief Executive, puts it in simple terms  when he says "Let me tell you a secret, the secret of  successful retailing. It's this: never stop listening to  your customers and giving them what they want."1  Tesco makes it very clear that its philosophy, which  is captured in the phrase 'Every Little Helps' is more  than just words or a marketing slogan. On its  website it states:  Every Little Helps is behind everything we do. It's  not just something we say, we really do mean it.  Really.  Based around its Every Little Helps philosophy,  Tesco has created two key values which are seen  as their central code of conduct and the way it does  business. They are: 'No one tries harder for  customers' and 'Treat people how I like to be  treated'.  No one tries harder for customers2  The aim of this value is to instil a customer focus in  everything people do. As part of this, Tesco aims to understand customers better than anyone else and  therefore deliver unbeatable value and service.  Treat people how I like to be treated3  Tesco wants its people to be well managed and to  work in an environment that is based on trust and  respect. The company has learnt over the years that  well motivated and managed staff will give  customers great service. 

 The Performance Management Framework 

When Sir Terry Leahy joined Tesco as their chief  executive he made it clear that in order to deliver on  its strategy of growth the organisation needed a  clear direction, a map and a compass. The  management team decided to create a performance  management framework that would provide the map  and outline the key strategic objectives of the  company. Together with this it created key  performance indicators to act as the compass  enabling the organisation to check whether it was  on track or not. The main purpose of the  performance management approach was to help  steer the organisation to success. Tesco decided to  appropriately name its performance framework the  Corporate Steering Wheel.

The Corporate Steering Wheel 

Today, the Corporate Steering Wheel provides  strategic focus by communicating what matters the  most in a simple and easy to understand  framework. It includes 20 corporate objectives  across five perspectives. The perspectives are  arranged in a circle around the central philosophy of  'Every Little Helps' and the two values of 'No one tries harder for customers' and 'Treat people how I  like to be treated'. Figure 1 shows the 2009  Corporate Steering Wheel with the following  Objectives:  Financial Perspective:  • Grow Sales  • Maximise Profit  • Manage our Investment  Customer Perspective:  • Earn lifetime loyalty  • The aisles are clear  • I can get what I want  • The prices are good  • I don't queue  • The staff are great  Community Perspective:  • Be responsible, fair and honest  • Be a good neighbour  Operations Perspective:  • We try to get it right first time  • We deliver consistently every day  • We make our jobs easier to do  • We know how vital our jobs are  • We always save time and money  People Perspective:  • An opportunity to get on  • An interesting job  • A manager who helps me  • To be treated with respect    Tesco's CEO says that 'Having objectives across  these five perspectives allows Tesco to be balanced  in its approach to performance.' 'Today, the  Steering Wheel creates a shared language, a  shared way of thinking and a common blue print for  action' he continues.  Tesco maintains that "Throughout all our  businesses across the world we measure our  performance through the Steering Wheel, whether  we work in distribution, head office or in stores. This  helps maintain focus and balance in what counts to  run each of our businesses successfully, be it wage  costs or whether customers can get everything they  want."  

 Cascading and Communicating the Strategy 

Because the Steering Wheel captures the key  strategic objectives of the company in one easy to  understand picture, it is a powerful way of  communicating strategy to all staff.

When the Steering Wheel was first introduced the  company conducted a number of 'town hall'  meetings to explain the strategy. The chief  executive insisted on conducting these meetings  himself which were seen as a way to personally  engage staff in the stores. It allowed Sir Terry Leahy  to explain the strategy face-to-face and gave staff  the chance to ask questions in an interactive way.  Tesco also produced little notes called 'shopping  lists' to highlight the key strategic objectives for  each perspective (Figure 2). These were handed  out and printed as posters for the stores. Similar to  real shopping lists, they act as reminders about  what it important.  Today, every store and every company within the  Tesco group has their own Steering Wheel to  manage performance. This puts the people on the  ground in control. The Steering Wheel has been  translated into different languages to ensure it is  used to engage frontline staff in all countries Tesco  is operating in. Figure 3 shows the Polish version of  the Steering Wheel.

Evolving the Performance Framework  

In order to stay relevant any performance  framework needs to evolve with the organisation and reflect the shifting priorities. Tesco has been  able to change its Steering Wheel in line with a shift  in strategic objectives. One of the more recent  major evolutions has been to add the community  perspective to the Steering Wheel. Tesco realised  that issues such as climate change and the impact  its presence has on the local community are  important challenges. As part of its strategy it now  draws up an annual community plan for each area it operates in. Figure 4 illustrates an earlier version of  Tesco's Corporate Steering Wheel without the  community perspective. The new community  perspective has led to initiatives such as reducing  the use of carrier bags by 50 percent, more locally  sourced products and a reduction in the carbon  footprint.  

Making Strategy Everyone's Job  

Sir Terry Leahy not only pushed the implementation  of the performance management framework he also  made another change which many would see as  controversial: He closed the strategy department.  His reason for this was that he didn't want only one  department or one leader who is seen as  responsible for strategy and performance; he  wanted thousands of leaders who live and  understand strategy.  

Engaging People in Performance 

Sir Terry Leahy has no doubt that implementation  matters, not just strategy. He maintains that training  and education is essential to ensure people  understand how they can contribute. To that end  Tesco created a local Steering Wheel template for  stores to engage staff, facilitate a local discussion  and capture local challenges. The template (see Figure 5) asked what is good and not so good for  each of the five perspectives and most importantly how individuals can help to improve it. This simple  template engages people in performance and  makes them think about how they can improve  performance. In addition to capturing the ideas of  front line staff it allows the store manager to write a  message in the bottom field.

Creating a Performance Culture 

Tesco wanted to establish a culture in which  everybody feels responsible for performance. Where staff come up with new ideas and where  they are allowed to challenge and improve  performance.Sir Terry Leahy says that 'people mustn't hold in knowledge and need to share  thoughts and information'; he adds '...we have to take risks to be successful.This means we have  to allow people to be wrong.We are not about box- ticking and being with everyone else'. 

Measuring Performance - The Pragmatic Way  

Tesco has many performance indicators but as Sir  Terry Leahy says "The danger is to look at them in  isolation and out of context. We try to put them into  context and pay a lot of attention, regular attention,  to the indicators that matter the most to our  business". Tesco's philosophy is not to answer  every conceivable question with their performance  data but only those that help to answer the critical  and most important questions.  Tesco always stressed it needed practical insights.  Instead of building the largest data base it could,  pragmatism ruled and the goal was to build the  smallest data storage that would give useful information. When it comes to performance data,  managers talk about professionalism and not perfectionism. A good example is the fact that the  company is happy to look at just a 10% sample of  the data to identify key issues and then investigate it  further using larger data sets for the questions that  actually matter to customers and the business.  Having the right performance data and the ability to  analyse that data are the keys to good management insights and evidence-based decision making.  They help to answer the 'big' questions and put  performance data into context.  

The Power of Analytics  

The ability to collect and analyse data has  transformed Tesco from a company that thinks it knows what customers want to one that has the  knowledge and insights into what customers prefer  and how these preferences keep shifting over time.  Sir Terry Leahy states "We don't spend a pound or  dollar on a store without talking to our customers -  They are the best management consultants."  

From Customer Data to Insights 

An essential component of Tesco's performance  data is its customer knowledge. Back in 1994,  Tesco introduced its loyalty programme called  Clubcard. However, while it was introduced as a

loyalty scheme, the main premise underpinning the  Clubcard was to gain insights to help Tesco improve  the way it runs its business. Experts agree that  loyalty schemes that are only used to target  customers with discounts and offers are ultimately  self-defeating. However, it was the potential to  generate competitive advantage from the data that  made senior leaders in the company back the idea.  Today, Tesco operates one of the most successful loyalty programmes ever created. With over 14  million users the Clubcard scheme allows Tesco to  collect detailed transaction information on two thirds  of all shopping baskets processed at their tills.  For the scheme to remain useful, it was critical that  Tesco was able to turn its data into customer  knowledge it could act on.  

Mastering the Data through Partnership  

Many of Tesco's competitors abandoned their  loyalty card schemes and argued that analysing all  the data would be madness. When Tesco started  with the clubcard scheme it decided to outsource  the data analysis to Dunnhumby - a company that  specialises in data analysis. Tesco realised it didn't  have the skills to systematically analyse mass data  and therefore left it to Dunnhumby to develop the  strategy for the data analysis. Later on Tesco  decided to buy a 53% stake in this company.  

Developing In-House Analytical Competencies 

With the increasing realisation that analytics are an important driver of success, Tesco realised that it  needed to have in-house competencies to analyse  customer and performance data. It created an internal team that was responsible for analysing  data and extracting insights. Tim Mason, Tesco's  marketing director and chairman of Tesco.com explains: These people are geographers, statisticians who had spent a lot of time applying those skills to understanding how customers would  behave. They could crunch through the stuff that  came from the Clubcard, see the patterns in it and  they could start to help the management of the

business understand what was going on, but also  point towards what should be done about it. They  had to find the data, and present it in a way that  makes the decisions stark, and clear.6  Tesco ensures it maintains the ability to develop  common sense responses. It aims to create  processes which enable relevant insights to be used  to improve the reality for customers.  

Experiments as a Way of Life  

In the same way Tesco is never making any  changes unless talking to its customers, it also ensures it runs experiments to test ideas before  implementing them on a wider scale. The performance data plays a vital role in this process  and has enabled Tesco to take new ideas and  offers to smaller groups of customers while using  the remaining customers as control groups. This  takes a lot of risk out of innovative ideas. In many  ways the performance and customer data has  become a powerful laboratory to test whether new  ideas work or not. Clive Humby, Terry Hunt, and  Tim Phillip recall that Tesco's performance  information, especially its Clubcard data, is not just  about passively observing trends, it is a massive laboratory of customer behaviour:7 "When it was  doing something wrong, it knew about it in days.  When it was doing something right, it could  implement it nationwide in weeks." Tesco's marketing director Simon Uwins says: "As a  company we have moved from being intuitive to  being analytical. This is a much more complicated  business than it used to be. We don't forget our  intuition, but better data lead to better thinking, and  our data give us the confidence to ask the right  questions. You can have all the data you want, but  the key is to use them to ask the right questions."  For example, Tesco is now able to conduct experiments to understand whether new product  lines, innovative offers and price reductions have  the desired effects. Using its customer data allows  Tesco to track the response immediately, which  takes a lot of guess work out of business decisions.  

Conclusion

Tesco has demonstrated that keeping it simple can  be a powerful approach to managing corporate  performance. It has demonstrated three important  aspects:  1. By keeping the performance framework simple  and easy to understand it is able communicate what mattes the most to everyone in the  company.  2. By creating simple tools such as the Local  Steering Wheel Template and the Shopping  Lists it is able to engage people in performance  and delegate responsibility for performance  improvements to front line staff. 3. By not measuring everything it could and instead  focusing only on the data that will provide  relevant insights Tesco is able to deliver  improvements that benefit customers and its  business.

Bernard Marr is a globally regognized big data and analytics expert. He is a best-selling business author, keynote speaker and consultant in strategy, performance management, analytics, KPIs and big data. He helps companies to better manage, measure, report and analyse performance.
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