Delivering Success Tesco Performance

Management Case Study
Delivering Success: How Tesco is Managing,

Measuring and Maximising its Performance

For more information please visit: www.ap-institute.com

2009 Advanced Performance Institute, BWMC Ltd. (All rights reserved) www.ap-institute.com Page 2
Delivering Success: How Tesco is Managing, Measuring and Maximising its Performance API Case Study

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

By
Bernard Marr

Abstract: Tesco is one of the worlds most successful companies. This case study
outlines how this world-leading retailer is managing, measuring and maximising its
performance. It describes the performance framework used to manage the business
globally, outlines how the performance framework is being cascaded and
communicated, and illustrates how Tesco is engaging its employees in performance
management. In addition, it highlights Tescos approach to collecting the right data
and its ability to turn this data into customer and business relevant decisions.

Version: 23 J une 2009

Bernard Marr is the Chief Executive and Director of Research at the Advanced Performance Institute. E-mail:
[email protected]

The Advanced Performance Institute (API) is a world-leading independent research and advisory
organisation specialising in organisational performance. It provides expert knowledge, research, consulting
and training to performance orientated companies, governments and not-for-profit organisations across the
globe. For more reading material or information on how the API might be able to help your organisation please
visit: www.ap-institute.com

How to referencethis case study:
Marr, B. (2009) Delivering Success: How Tesco is Managing, Measuring and Maximising its Performance,
Management Case Study, The Advanced Performance Institute (www.ap-institute.com).


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 Tescos 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 Tescos global success is that it
gives customers what they want. Sir Terry Leahy,
Tescos Chief Executive, puts it in simple terms
when he says Let me tell you a secret, the secret of
successful retailing. Its 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 customers
2

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 treated
3

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
Figure 1: Tescos Corporate Steering Wheel (Source: Tesco 2009)

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 dont 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

Tescos 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.
4

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.
Figure 2: Shopping Lists
(Source: Tesco 2009)

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
Tescos 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 Everyones J ob
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 didnt 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 3: Steering Wheel in Polish
(Source: Tesco 2009)

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
mustnt 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 wrong 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 themin
isolation and out of context. We try to put theminto
context and pay a lot of attention, regular attention,
to the indicators that matter the most to our
business. Tescos 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.
5
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 dont spend a pound or
dollar on a store without talking to our customers
They are the best management consultants.
FromCustomer Data to Insights
An essential component of Tescos performance
data is its customer knowledge. Back in 1994,
Tesco introduced its loyalty programme called
Clubcard. However, while it was introduced as a
Figure 4: Earlier Version Steering Wheel
(Source: Tesco)

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 Tescos 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 didnt
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, Tescos
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 fromthe Clubcard, see the patterns in it and
they could start to help the management of the
Figure 5: Tescos Corporate Steering Wheel Template (Source: Tesco 2009)

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 Tescos 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.
Tescos marketing director Simon Uwins says: As a
company we have moved frombeing intuitive to
being analytical. This is a much more complicated
business than it used to be. We dont 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 themto 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.

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