When lecturing on the importance of the Board in determining the success of companies, the main company that I’d call upon to illustrate ‘how best to do it’ was Tesco. For years companies have been eager to hear about how Sir Terry Leahy, Tesco’s former CEO, used a balance scorecard to assess the healthiness of the business and how this scorecard was cascaded through the company via a mechanism called “strategy deployment”. This meant that key metrics flowed from the very top ‘Board’ level of the company, to the geographic region (e.g. UK, USA and South Korea), to the type of business (Tesco Express, Tesco Mobile etc.) to the individual store and individual distribution centre to the employee – aligning the company’s direction of travel – making sure that that direction was up. For 14 years, under Leahy’s leadership, this system was highly successful to the point where in the UK, £1 in every £7 was Tesco’s.
You would have to have been hiding in a bush for the last 12 months to not realize that these glory days have dramatically come to an end. Most mornings, as I eat my cereal, there’s another breakfast news story of doom about a Tesco scandal or the rise of Aldi and Lidl. That’s not to say that the company doesn’t still generate massive profits, but rather these profits have greatly diminished and worse, the general disdain for the company, it’s practices and ethics, seems to be at an all time low. I often quickly change the channel, embarrassed to think of all of the times that I’ve publically heralded them as a company to emulate!
I reassure myself by revisiting the fact that their growth and success for those 14 years was almost unparalleled, those lectures I gave were valid and useful, that there’s an element of British keenness to knock down the uber successful and then try to muse on ‘what went wrong’ to incorporate in future public appearances.
For a long time, the Tesco Board’s priority was growth achieved by securing LIFETIME customer loyalty – they sought to achieve this by, rightly, focusing on customer satisfaction but also diversifying into every aspect of our lives – ‘hooking us in’. Perhaps however they became too complacent and too greedy – focusing on achieving the desires of the customers that they already knew. They did not consider to enough extent, how a customer’s buying habits and desires might change. How they might not like Tesco being involved in every aspect of their lives! Focusing too much on their own success and not looking over their shoulder at the emergence of competitors with new business models is very dangerous. Of course, such is the peril of becoming a monolithic sensation … you become too slow, too unresponsive, too introverted and blind to lighter, more innovative newbies.
When I think about how I will teach future lectures about the importance of the Board, I will continue to use Tesco as a case study. I’ll talk about the power of persuasive leadership (things did seem to change dramatically when Leahy stepped down) and the importance of clear, concise, customer focused strategy that is cascaded through the company. I’ll also be very clear on the importance of flexibility – to keep looking around at your competitors and stretching your imagination for new ideas. I’ll also talk about the importance of business ethics and how in the 21st Century, customers are increasingly keen to spend their money at companies they respect and trust.
