Tesco's Steering Wheeloper067

License for IBS Kolkata, Sem IV, Class of 2013.
OPER/067
IBS Center for Management Research
Tescos Steering Wheel A Tool for Strategic Value Creation

and Business Transformation
This case was written by P. Indu, under the direction of Vivek Gupta, IBS Center for Management Research. It was compiled
frompublished sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or
ineffective handling of a management situation.

2008, IBS Center for Management Research. All rights reserved.
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www.icmrindia.org

1

OPER/067
Tescos Steering Wheel A Tool for Strategic
Value Creation and Business Transformation
Throughout all our businesses across the world we measure our performance through the
Steering Wheel, whether we work in distribution, the 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.
1

Tescos Vision and Values.
We manage major change in Tesco through our Steering Wheel measurement system. Our
performance against these measures is included in deciding our payments to management.
2

Terry Leahy, CEO, Tesco Plc., in 2007.
Professor Kaplan was one of the very first people to realize that there is more to running a
business than financial metrics and has been very successful at expanding that idea. The success of
Sir Terry Leahy at Tesco underlines how effective it can be when rooted in clarity of thought.
3

David Pendleton, Chairman, Edgecumbe Group
4
in 2004.
TRANSFORMATION THROUGH INNOVATION
For the financial year ending February 24, 2007, the UK-based retailer Tesco Plc., one of the
largest retailers in the world, reported annual revenues
5
of 46.6 billion
6
, an increase of 10.9%
over that of the financial year 2006. For the financial year 2007, the profit before tax was reported
at 2.65 billion, an increase of 20.3% over that of the previous financial year. Tesco accounted for
1 of every 8 spent by shoppers in Britain and the company held a market share of more than
30% in the UK grocery market (Refer to Exhibit I for top 10 grocery retailers in the world in the
year 2006). Commenting on the companys results, Tescos CEO, Terry Leahy (Leahy) said, The
numbers are solid, the growth is broadly based coming from all four parts of our strategy
7
and
we have delivered tangible benefits for shareholders.
8
(Refer to Table I for key financials of
Tesco).

1
Our Vision and Values, www.tesco-careers.com,
2
Sir Terry Leahy Answered your Questions, www.news.bbc.co.uk, J anuary 19, 2007.
3
Rhys Blakely, Revealed: The Secret of Tescos Success, Times Online, October 18, 2004.
4
Edgecumbe Consulting is a UK-based firm of occupational psychologists and HR specialists with a wide
range of clients in the corporate and public sector.
5
These results were for 52 weeks ended February 24, 2007, in the UK and the Republic of Ireland and the
60-week period till the end of February in the other countries in which Tesco operated.
6
As of August 24, 2007, 1 =US$ 2.003.
7
The four parts of Tescos strategy were Core UK business, international business, UK non-food business,
and retail.
8
Chief Executive Statement, Annual Review and Summary Financial Statements, Tesco, 2007.
Tescos Steering Wheel:

2
Table I
Tesco Key Financials
Particulars 2007
2006
(60 Weeks)
2006
(52 Weeks)
Group Sales (incl. VAT) ( mn) 46,611 43,137 42,016
Group Revenue (excl. VAT) ( mn) 42,641 39,454 38,443
Underlying group profit before tax ( mn) 2,545 2,277 2,248
Group profit before tax ( m) 2,653 2,235 2,206
Underlying diluted EPS 22.36 20.30 20.04
Diluted EPS 23.31 19.92 19.67
Dividend per share 9.64 8.63 -
Source: Tesco Annual Report, 2007.
During the early 1990s, Tescos financial performance had presented a fairly dismal picture. At
that time, revenue growth had slowed down significantly and the companys profit margins were
under pressure. Tesco was facing competition from local players like Sainsburys
9
and Asda
10
as
well as discount retailers from continental Europe, which were making their presence felt in the
UK market. In the mid-1990s, the British economy was hit by recession. Tesco was in deep
trouble. Industry analysts were of the view that Tesco was being squeezed between discounters on
the one side and higher end competitors like Marks & Spencer
11
, on the other. Tesco was unable to
differentiate itself from its competitors and was far from innovative in terms of what it offered to
the customers.
During the early 1990s, under the leadership of then CEO Ian MacLaurin (MacLaurin), Tesco
went in for a major image makeover. It closed down many of its old stores and replaced them with
bright and attractive stores. In 1995, after its acquisition of William Low of Scotland, Tesco
became the leading retailer in the UK. By 1997, its growth was stable; it was just keeping up with
the inflation in the economy.
In 1997, Terry Leahy (Leahy), who was the deputy managing director, took over as CEO. His aim
was to make Tesco a Value Retailer, by creating value for the customers and by earning their
lifetime loyalty
12
. Leahy called this strategy The Tesco Way. The Tesco Way comprised the
Core Purpose, Values, Principles, Goals, and the Balanced Scorecard. On the Balanced Scorecard
approach, which was called the Steering Wheel at Tesco, Leahy commented, This system
literally steers our business and our people.
13

9
Sainsburys was the largest grocery chains in the UK till 1995. However, it had slipped to the third
position by 2004. In 2006-07, Sainsburys recorded revenue of 18518 million and net income of 58
million.
10
Asda is a UK-based chain of supermarkets, offering food, clothing, and other products. In 1999, Asda
became a subsidiary of the US-based Wal-Mart.
11
Marks and Spencer Plc is the largest clothing retailer in the UK in terms of revenues. It is also a multi-
billion pound food retailer. In 1997, it became the first British retailer to make a profit before tax of over
1 billion. M&S operates in 30 countries across the world through more than 760 stores. In 2006, the
company recorded revenues of 7.798 billion and a net income of 0.521 billion.
12
Create value for the customer and earn their lifetime loyalty is the core purpose of Tesco.
13
Your Fast Guide to Tescos Secret Weapon, Leaders in London Conference,
www.ecustomerserviceworld.com, 2004.

3
Within a decade, Tesco had transformed itself from a low cost retailer into one of the most
innovative and successful retailers in the world. According to industry experts, Tescos
implementation of the Steering Wheel was one of the key factors that had led to its success.
Tesco used the Steering Wheel as a management tool to determine the changes it needed to make
to remain responsive to the customers and to the employees. It was used for creating strategic
value and transforming the companys business. The Steering Wheel helped in the corporate
strategy flowing down to the lower levels of management, in executing the strategy to offer more
value to the customers, and in achieving higher operational efficiency. According to Chris Lawyer,
Founder & CEO, OMC Group, It is a story of how an obsessive focus on customer value and on
customer-based change, combined with a relentless emphasis on operational efficiency and
carefully planned expansion, can generate spectacular growth.
14

BACKGROUND NOTE
J ack Cohen (Cohen) founded Tesco in 1919 using his bonus from World War I army service. In
1924, Cohen bought a tea shipment from TE Stockwell. The first three letters of TE Stockwell
and the first two letters of Cohen were used to make up the name TESCO. The first Tesco
store was opened in 1929 in Edgware, North London. Cohen was influenced by the supermarket
culture in America and tried to introduce this concept in the UK. The companys driving force was
the idea: Pile it high and sell it cheap. In 1947, Tesco went public and a year later, Tesco self-
service stores were started. In 1956, the first Tesco self-service supermarket
15
was opened in
Maldon, Essex. The first superstore
16
was opened in 1968 in Crawley, West Sussex.
Cohens strategy of Pile it high, sell it cheap helped Tesco attract a large number of customers,
but there was a flip side to it it also served to brand it as a store for middle class customers and
gave it a low-end image. Tescos image took a further beating when the Imperial Tobacco
Company (Imperial), which had been considering acquiring Tesco, did not go in for the deal as it
felt that the acquisition might damage its (Imperials) image.
By the 1970s, Tesco had acquired several companies like Burnards (1955), Williamsons (1957),
Harrow Stores (1959), John Irwins (1960), Charles Phillips (1964), and Victor Value (1968). However,
it faced a problem in integrating these companies properly with itself and most of the stores that it took
over were not well maintained. Moreover, Tescos stores were small and ill equipped. The company
competed only on price and the goods available at its stores were perceived to be of mediocre quality.
With rising income levels, customers all over Britain were looking not for bargains but for expensive
and luxury merchandise. To meet these changes in customer demand, Tesco closed down some of its
stores to concentrate on larger stores with better facilities. It went in for a revamp of its product
portfolio and started offering a wider range of goods and concentrating on customer service and quality.
Tesco began operating petrol pumps in 1974.
Even though Tesco went up-market, it tried to retain its image as a company offering products at
competitive prices. In 1977, under MacLaurin, the company successfully launched a price
reduction campaign named Checkout at Tesco. This campaign was aimed at countering the threat
from discounters like Kwik Save
17
. This put the company on an expansion path and by the end of

14
Chris Lawyer, Are you a Customer Innovation Pioneer? www.crmtoday.com, November 02, 2004.
15
A supermarket is a store that sells a wide variety of food related products. Most supermarkets also sell a
variety of other household products that are consumed regularly, such as household cleaning products,
medicines, and clothes. Some sell a much wider range of non-food products.
16
A superstore is a superlative name for a large departmental store. Usually associated with large chains, a
superstore sells a wide range of products from toys and electronics to clothing and groceries and even
furniture, sporting goods, and automotive supplies.
17
Kwik Save was a UK-based discount supermarket chain. With the growing competition, it suffered losses
and closed or sold most of its stores and went into administration (a procedure under insolvency laws in
the UK) in J uly 2007.

4
the 1970s, it had emerged as one of the leading companies in the UK. In 1979, Tescos annual
turnover crossed 1 billion.
In 1985, MacLaurin became the CEO of Tesco. MacLaurin realized the need for streamlining
Tescos operations. He closed down most of the smaller stores and opened several large 30,000
square foot stores in the suburbs. Tesco also introduced a centralized distribution system, fresh
foods, and its own label for food products. All these moves proved successful and coincided with
the boom in the economy.
The early 1990s saw several warehouse stores like Costco
18
and assortment stores like Aldi
19

(1990), Lidl
20
(1994), and Netto
21
(1990) entering the retailing sector in the UK. Recession was
creeping in and consumers again began demanding value for money. Price conscious customers
moved to discount retailers while quality conscious customers moved toward Tescos competitors
like Sainsburys and Asda.
Tesco realized it was time to re-examine its strategies. Leahy, then the Marketing Director,
launched a customer understanding program, as a part of which Tesco obtained feedback from
more than 250,000 customers. The feedback made Tesco realize that it was not providing
customers a unique shopping experience all it was doing was trying to copy its rivals. This was
the beginning of Tescos tradition of Listening to Customers, which formed the basis of several
future innovations and products at the company. According to one of the retail analysts, The
consumer was changing. At this point, Tesco was not doing well, and it had gone back to the
drawing board. So it developed its positioning as the peoples champion.
22

Paying heed to customers demands, Tesco introduced the Value Line in 1993. This was a range
of basic products priced low. The Value Line established Tesco as a store that provided good
quality goods at reasonable prices. When customers complained of long waiting times at the
check-out counters, Tesco introduced One in the front
23
scheme, which aimed at minimizing the
waiting time of the people.
In February 1995, Tesco introduced the Clubcard, a card with a magnetic strip. The card was given
to all Tesco customers. For every 1 spent, the cardholders were given 1 point. Every quarter,
Tesco calculated the points accumulated by the customers and mailed them the vouchers. Through
the data captured using the Clubcard, Tesco came to know customers preferences. This data was
taken into account while deciding on the location for new stores, products to promote and stack in
particular stores, etc. Clubcard was one of the first loyalty schemes to be launched in the UK. By
1995, Tesco overtook Sainsburys to become the leading retailer in the UK. According to one of
the senior managers of Tesco, The year 1995 saw the evolution of a customer-focused business.
With quality and prices being much the same across the sector, our people and our service were
seen as the differentiator.
24
(Refer to Table II for market shares of major players in the UK
grocery market between 1990 and 1995).

18
Costco Wholesale Corporation is the largest membership warehouse club chain in the world, and is
headquartered in Issaquah, Washington, US. As of J uly 2005, Costco operated through 356 locations
across the world.
19
Aldi is an international hard discount supermarket chain based in Germany. It is Germanys first real
discount supermarket. Aldi is known for spartan stores with low prices on a limited range of goods. As of
2005, Aldi was operating in more than 12 countries.
20
Lidl was founded in Germany in the 1930s. It is a European discount supermarket chain of German origin
that operates 5,000 stores. As of 2004, Lidl was the fifth largest supermarket chain in Germany.
21
Netto, meaning net worth, is a chain of discount supermarkets based in Denmark with a presence across
six European countries.
22
Alexandra J ardine, Where can Tesco go from Here? Marketing, J anuary 24, 2002.
23
Under the One in front scheme, Tesco store personnel ensured that if there was more than one person at
any counter, another counter would be opened for the person second in line. This way, no customer
would have to wait at the checkout counters.
24
J ohn Purcell, Nick Kinnie, Sue Hutchinson, Richard Allen, The Multipack Scan, People Management,
May 15, 2003.

5
Table II
UK Grocery Market Share of Major Players
(in %)
1990 1991 1992 1993 1994 1995
Tesco 9.7 9.9 10.1 10.4 11.4 13.4
Sainsburys 11.0 11.3 11.9 12.1 12.3 12.2
Asda 6.8 6.5 6.3 6.5 6.7 7.2
Safeway 7.1 7.2 7.3 7.5 7.6 7.3
Somerfield 5.0 4.7 4.3 4.4 4.4 4.2
Kwik Save 2.7 3.2 3.8 4.1 4.0 4.2
Source: Institute of Grocery and Distribution.
At around the same time, Tesco went through a series of transformation measures which were
aimed at improving its competitive position in the market. It became more customer-focused and
concentrated on differentiating itself from other retailers through the services it provided.
THE TESCO WAY
In 1997, after becoming the CEO, Leahy announced ambitious plans to make Tesco a major player
in the global retailing market. His plans were to be realized by developing the UK business,
delivering value to the customers in the UK by developing non-food business, developing
profitable retail business, and expanding internationally, which was a part of Tescos strategy
(Refer to Exhibit II for more about Tescos strategy).
To implement the companys strategy and bring about business transformation, Tesco came up
with a widely publicized approach known as The Tesco Way (Refer to Table III for details about
the Tesco Way). The Tesco Way was communicated across the organization. Every employee
was made to understand the individual and team performance objectives and the way in which
he/she could contribute to the overall success of the organization.
Tescos Core Purpose communicated its definition of consumer value while the Goals defined
what the company was planning to achieve. The Values proclaimed how Tesco was going to
achieve its targets. The Principles guided the decision-making in the firm. The Tesco Steering
Wheel measured progress against priorities
Table III
The Tesco Way
Over the years, weve developed an approach to doing business and this has become known as
Tesco Way. We have drawn together the five elements of that approach
Core Purpose The reason for all that we do
Goals What we have set out to achieve
Values Theway we want to behave
Principles Better, Simpler, and Cheaper
Steering Wheel Which measures progress against our priorities and provides a visual
reminder of our plans.
Source: www.tesco.com.

6
Tescos Core Purpose aimed at earning the lifetime loyalty of customers by creating value for
them. (Refer Table IV for Tescos Core Purpose). Tescos goals provided a framework and
direction through which Tesco could move ahead (Refer Table V for Tescos Goals).
Table IV
Tescos Core Purpose
To create value for customers to earn their lifetime loyalty.
Our success depends on people. The people who shop with us and the people who work
with us.
If our customers like what we offer, they are more likely to come back and shop with us again.
If the Tesco team find what we do rewarding, they are more likely to go that extra mile to
help our customers
Source: www.tesco.com.
The value was to be created by offering customers what they liked the most and by making them shop
at Tesco repeatedly. Another dimension was that of the employees. Tesco was of the view that if the
employees were happy with the company, they were likely to make the customers happy. This thought
was put into simple words and expressed as Values No one tries harder for the customers and
Treat people as we like to be treated. (Refer to Exhibit III for Tescos Values).
Table V
Tescos Goals
Tesco will be a growth business.
Tesco will become the business people will value more than any other.
Tesco will have the most loyal and committed staff.
Tesco will be a global retailer.
Tesco will be as strong in non-food as in food.
Source: Tescos Brochure.
In order to maintain the loyalty of the customers, Tesco regularly obtained feedback from them on
how to make the shopping experience better for them. Similarly, feedback was obtained from the
staff on employment issues. This led to the Every little helps strategy.
From the feedback received from customers, Tesco understood that they wanted aisles that were
not crowded and that they expected to get all the things they wanted at reasonable prices. The
customers also insisted on faster checkout, where they would not need to queue up, and staff who
were friendly. Tesco called providing the customers with all these conveniences the Every little
helps Shopping trip. Some of the changes brought about by Tesco in order to provide customers
with a better shopping experience included special parking areas for mothers with newborn kids
and packing the customer bags to reduce waiting time in the queue. By constantly trying to
maintain high standards on all these parameters, Tesco wanted to provide the customers with
convenience and make them understand that No one tries harder for customers.
The Every little helps A great place to work strategy was aimed at the employees. From the
staff feedback, Tesco understood that they wanted to be treated with respect, they looked for
superiors who would help them, they wanted an interesting job, and an opportunity to grow. Tesco
was of the view that the staff who found working at Tesco a rich experience helped in maintaining
customer loyalty. Tesco expected its employees to understand their job-related activities, show
care for the customers, and to behave in a friendly manner.

7
Through Every little helps the way we work, it aimed at achieving operational efficiencies so
as to make Tesco a better place to work in and shop at. This was achieved by a few processes like
delivering consistently every day, trying to get it right the first time, making jobs easy to do,
understanding the importance of the job, and striving to save time and money.
Tescos ultimate aim was to deliver what it had promised to the customers and the staff. This was
done through Tescos principles of Better, Simpler, and Cheaper. Better referred to a better
shopping experience for the consumers due to which they would come back to Tesco. Simpler
was with reference to the staff to help them work efficiently. Loyal customers and efficient
staff meant that operations would get Cheaper for Tesco. Better, Simpler, Cheaper became the
guiding principles for The Tesco Way (Refer to Exhibit IV for more about Tescos Principles).
THE STEERING WHEEL
A part of The Tesco Way was the Steering Wheel, which formed the core of Tescos business
planning. The Steering Wheel was a management tool that directed the focus of business
initiatives on delivering the core purpose of Tesco. It was based on the Balanced Scorecard, a
concept introduced by Dr. Robert S. Kaplan and Dr. David P. Norton in an article published in
Harvard Business Review in 1992. The Balanced Scorecard system aimed to change organizations
from being financially driven to being mission driven. Through four business perspectives
financial performance, internal processes, customer knowledge, and learning and growth, the
Balanced Scorecard converted strategy into an integrated management system. The Balanced
Scorecard advocated that apart from the tangibles like financial position, intangibles like customer
relations and employee morale were also important for the growth of any organization.
Leahy outlined the usefulness of the Steering Wheel for Tesco as follows: If we are to meet our
objectives, the Tesco team needs to work together. Because we need to focus on every aspect of
what Tesco does, we use a management tool we call the Steering Wheel to bring together our
work in all areas and measure our performance. It helps us manage Tesco in a balanced way, by
covering everything we do, and allows us to plan for the future by setting targets for years to come.
The Steering Wheel literally guides us through our daily running of the company, while allowing
us to change to meet customers demands.
25

The Steering Wheel had four quadrants operations, people, customers, and finance. Forming
the focal point of the Steering Wheel were the two values that guided Tesco, No one tries harder
for the customers and Treat people how we like to be treated. The customer quadrant was
guided by the principle of Delivering every little help for the customers, the policy for the people
quadrant was Delivering every little help for our people, the aim of the operations quadrant was
Better, simpler, cheaper how well free up time and resources for customers and people and the
finance quadrant was guided by We will deliver results if the other quadrants meet their targets.
(Refer to Exhibit V for Tesco Steering Wheel in 2004).
The customer quadrant consisted of projects that created value for the customers. The people
quadrant focused on developing the commitment and capability of the employees on the premise
that the employees who were better looked after would be able to serve the customers better. The
focus of the operations quadrant was on making Tesco more cost effective and simpler to manage.
The savings occurring thus was passed on to the customers. The finance quadrant targeted at
maintaining sales, profits, and costs. Tesco was of the view that if the other three quadrants viz.
customers, people, and operations operated smoothly by keeping the focus on the customer, by
being people friendly, and by being efficient in operations the results would be evident in the
finance quadrant.

25
The Steering Wheel, www.tesco.com.

8
Each of these quadrants was divided into different segments. For example, the people quadrant
covered issues like recruitment, development of employees, maintaining high morale,
retention levels, etc, in its segments. Different segments in the operations quadrant dealt with
maintaining stock levels, following the stipulated standards, ensuring the availability of the
products that customers needed, and other parameters that were necessary to achieve
operational efficiencies.
Each of the segments set its own business priorities for the next year. The progress on priorities
was monitored by the Key Performance Indicators (KPI). In this manner, it was possible to set
challenging targets that could be achieved in a systematic way. Tescos values also found their
place in the Steering Wheel through appropriate KPIs. KPIs were used to channel Tescos
resources around the people, customers, operations, and finance and they enabled business to be
constantly monitored. They played a key role in securing the commitment of the staff for the
Steering Wheel. Managers monitored the progress of KPIs by using a traffic light approach with
a green dot indicating a target that had been met and a red dot denoting a problem area. When the
performance vis--vis the KPIs was not on track, corrective action was taken.
Responsibility for delivering on specific KPIs was delegated to the relevant business areas. The
KPIs were measured and quarterly reports were sent to the board for review, so that it was clear
whether the business was on track. The companys summary report was sent to around 2,000
managers and was shared with the staff. At the end of the year, every KPI was reviewed to
determine if the business had met its objectives or not.
The Steering Wheel helped Tesco determine the adjustments that had to be made from time to
time for greater responsiveness to both customers and its own employees. It was linked to the
objectives of all the employees so that each one could work toward achieving the corporate goals,
which were embedded in the wheel. According to one of the Tesco staff, The wheel sets the staff
targets for areas like customer relations, people, operations, and finance etc. It lets everyone know
exactly what were working on.
26

The Steering Wheel was used to communicate strategy across all levels, to align goals, and also
to manage the overall company performance. At the highest level was the Corporate Steering
Wheel. Each function too had its own Steering Wheel, with specific deliverables. All the stores
in the UK had individual Steering Wheels since late 1997, with specific deliverables, ranging
from strategy to day-to-day work. With the Steering Wheels in place, the business strategy
percolated down to every unit.
Tesco had a five-year rolling plan that focused on delivering the groups strategy. This plan
formed the base for framing the objectives of each business unit, their support functions, and for
structuring individual objectives. Every year, these plans were combined with detailed budgets and
with the Tesco Steering Wheel. In Tesco, operations were monitored on a daily and weekly basis
and the financial performance was monitored on a weekly and monthly basis. The Steering
Wheel was reviewed on a quarterly basis.
STEERING TESCO AHEAD
Tescos version of the Balanced Scorecard was simple to understand and permeated down to the
store assistants. The Steering Wheel was prominently displayed in all the stores, corporate office,
and all the departments. Along each segment of the quadrant on the Steering Wheel a dot in
green, amber, or red was displayed. A green dot indicated acceptable levels of performance, an
amber dot signified performance that was just on the borderline, and a red dot meant a
performance level that was low and unacceptable. By looking at the Steering Wheel, all the
employees were able to immediately see how their stores/department was performing at any given
point of time and the areas in which they were lagging behind the set targets.

26
www.checkout.ie, October 2001.

9
At the organizational level, the Steering Wheel specified the objectives of the company. The
senior management of the company received bonuses according to the achievement on the
Corporate Steering Wheel and their remuneration also depended on these achievements. The
Steering Wheel was linked to the individual objectives of every person, thus forming a link
between the overall corporate strategy and the day-to-day work.
Every department in the company had its own Steering Wheel with targets, which reflected the
companys overall strategy. For example, the KPI for the Human Resources department in the year
2003-04 was to retain loyal and experienced staff in the business and achieve a loyalty level of
80% for staff who have been with Tesco for more than 1 year. This task was given a green dot as
the retention level achieved at the end of the year was at 82%. In employee training, the KPI was
95% of the retail staff to be trained to bronze level
27
. The target was achieved as 96% of the staff
was trained.
The Steering Wheel at the Tesco stores was displayed away from the customers but at a
prominent location accessible to the staff. The Steering Wheel at the stores was linked to the
individual objectives of the store employees. The store managers were given feedback on the
Clubcard data in order to bring in improvements in the stores and change the Wheel accordingly.
The store managers played a key role in ensuring that the staff understood how their individual
performance was linked to the Steering Wheel. All stores conducted a meeting every week called
the Steering Wheel meeting, which reviewed the store performance.
The Steering Wheel was used to measure the operating efficiency, customer service, satisfaction
of the employees, and financial parameters of the Tesco stores. Operational efficiency was
monitored by wastage, optimum stock levels, availability of the products, maintaining the
specified standards, etc. The customer parameter was measured through the feedback received
from the customers, new customers, customers visiting the store repeatedly, availability of the
products to the customers etc. Employee satisfaction was reviewed through the morale of the staff,
training, and absenteeism among the employees. The financial position of the store was assessed
through the sales recorded at the store, direct expenses vis--vis sales, contribution of the stores,
employment costs, etc.
On a store Steering Wheel, several green dots with a few amber dots and one or two red dots
meant that the store was performing well on most of the parameters. If a red dot was posted against
I dont queue it meant that the store was not functioning efficiently in the checkout process and it
required to address this issue by opening new checkout counters and recruiting new staff to man
the counters. Some of the store managers said that the Steering Wheel had helped them
communicate better with their staff. A glance at the Steering Wheel, could tell them the
performance levels, and it alerted them to any problem (Refer to Exhibit VI for the Steering Wheel
in one of the Tesco stores).
Lapses in any of the segments mentioned in different quadrants would lead to a red dot being
placed against that particular segment. That indicated an emergency and employees from different
functions in the store immediately held a meeting to decide on the corrective action. They chose a
person who could be given the responsibility to carry out the task effectively. The task was
constantly monitored and the store manager had to ensure that it achieved an amber or green dot
within the time decided on. Another dot a blue one was also occasionally used. It meant that
the store was doing exceedingly well in the specified segment. The traffic light system thus helped
the staff to understand the performance of their store.

27
Tesco provided different types of training to its employees. Bronze, one type of training, referred to basic
and specific training, including health and safety, hygiene, and skills required to function in a particular
department. Silver training involved training on product knowledge and stock processes, and gold
training aimed at helping employees gain expertise in their chosen field.

10
The Steering Wheel was used as a tool to motivate the employees and help them prioritize their
tasks. Every individual was responsible for achieving the set targets, and just a glance at the
Steering Wheel showed the employees the areas they had to concentrate on the ones across
which amber or red dots were placed. All the staff was well aware of the contribution they had to
make to achieve the set target and this acted as a motivator. The salary and bonus of the employees
were also linked to the level of achievement on the Steering Wheel.
THE WAY FORWARD
In April 2005, Innovaro
28
voted Tesco among the top 20 innovative companies in the world. Tesco
scored high points in criteria like role of innovation in driving corporate growth, number of
product launches and their success. Other parameters that were considered included revenue
growth, profit growth, market capitalization, brand value, and peer review. According to Tim
J ones, Principal, Innovaro, The clever thing about Tesco is the way it innovates, putting the
consumer first and then creating partnerships to deliver what the consumer needs.
29

In 2005, researchers from the Advanced Institute of Management Research (AIMR), UK,
researching on successful strategic transformers, conducted a study on over 200 companies. They
came up with a list of nine companies that had achieved transformational change while
maintaining a consistent financial performance. Tesco was among the top companies that achieved
transformational change. The other companies that featured on the list included Cadbury
Schweppes, Smith & Nephew, and Whitbread. The case of Tesco was of special interest as it
continued to innovate though it was among the leading players in the retail business. Tescos
innovation helped it to maintain its lead and grow further. According to Prof George Yip of
London Business School who was one of the two professors to lead the study, Tesco, for
example, has shown itself to be a better performer and to be better able to transform itself. Tesco is
a company that has learnt to value dissent and mobility in its strategic activities. As a result, it has
been willing to challenge the prevailing wisdom of the senior team and change things.
30

According to industry experts, Tescos success in recent years could be attributed to its increased
focus on the customers and employees. According to Clare Chapman, Group Personnel Director,
Tesco, When I joined in the 1990s, Tesco tended still to be operationally and finance driven. Now
it has been transformed into a customer-driven business. The people plan is as serious and
heavyweight as the customer, finance, or operational plans.
31
Analysts were of the view that the
Steering Wheel had helped Tesco in steering ahead of the competition and growing in the highly
competitive UK market (Refer to Table VI for market shares of major grocery retailers in the UK).
Table VI
Market Shares Data of Grocery Retailers in the UK
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Tesco 22.9 23.4 24.2 22.8 25.5 26.4 27.6 29.7 31.0 31.3
Asda 14.1 14.8 16.2 12.4 15.8 16.1 16.6 16.5 16.4 16.7
Sainsburys 19.8 19.1 18.6 15.8 17.4 16.6 15.5 18.9 16.0 16.3
Morrison &
Safeway
10.2 10 10.1 9.3 16.1 14.8 14.1 12.0 11.3 11.1
Source: TNS World Panel and other sources.

28
Innovaro is one of the leading consultancy firms in Europe.
29
Tesco is the Tops, Soap, Perfumery and Cosmetics, April 2005.
30
Key Symon, Why Disagreement is Key to Successfully Reinventing a Top, Sunday Herald,
October 23, 2005.
31
Supermarket Sweep: Tesco, Personnel Today, August 09, 2005.

11
In May 2006, Tesco added another dimension to the Steering Wheel by introducing
Community driver in its Steering Wheel. Earlier, corporate social responsibility (CSR)
initiatives were being reported in the operations quadrant, under The way we operate is
responsible and safe segment. By adding Community to the Steering Wheel, Tesco
demonstrated its responsibility toward the communities in which it operated and also its
commitment to sustainability. The community quadrant had two segments Be a good neighbor
and Be environmentally responsible. Analysts were of the view that making community an
important part of the Steering Wheel meant that the community initiatives and plans would be
given as much importance as strategy, marketing, etc. and would have direct involvement from the
employees. According to Leahy, We have made our plan for Tesco in the Community a new part
of our Steering Wheel. It means that the performance of everyone at Tesco will be measured on it
far more clearly than ever before.
32
(Refer to Exhibit VII for the new Steering Wheel introduced
in the year 2006).
Through the first segment Be a good neighbor, Tesco aimed at contributing to the local
communities in which the company operated. Some of the KPIs in this segment were: providing
jobs to the local people, stocking locally produced products, encouraging small suppliers,
promoting healthy eating habits by putting nutritional labels on all Tesco products, and supporting
local causes. The second segment focused on being an environmentally responsible company. The
KPIs included reducing the use of carrier bags, adding more recycling facilities, and saving
energy.
Though Tesco was successful in implementing the Steering Wheel and reaped significant
benefits from it, the same could not be said of several companies which used the approach.
According to a study, around 70% of the companies which had implemented the Balanced
Scorecard were not happy with how it had been implemented in their organization. According to
Egremont, a consulting company that helped Tesco develop its version of the Balanced Scorecard,
In summary, if we could use one word to describe why Tesco is using Scorecard to drive serious
results improvement while other companies are writing it off as a failure, the word would be belief.
Tesco has hardwired the scorecard into the heart of its business because it believes that it motivates
and focuses its teams on their clear strategic goals.
33

32
Tesco in the Community Sir Terry Leahy Speech to the Work Foundation, www.tescocorporate.com,
October 05, 2006.
33
Driving Performance with Balanced Scorecard, M&C Report, J une 2005.

12
Exhibit I
Top Ten Grocery Retailers (2006)
Rank Company
Country of
Origin
Retail Sales
(In US $
Million)
Global
Market
Share
1 Wal-Mart USA 376,430 6.3 %
2 Carrefour France 122,214 2.0 %
3 Metro Germany 87,360 1.5 %
4 Tesco UK 86,827 1.5 %
5 Seven & I J apan 79,101 1.3 %
6 Ahold Netherlands 77,546 1.3 %
7 Kroger USA 66,549 1.1 %
8 Sears USA 64,833 1.1 %
9 Costco USA 64,737 1.1 %
10 Target USA 62,584 1.0 %
Source: www.planetretail.net.

13
Exhibit II
Tescos Strategy
Core UK
The core UK business was an important part of Tescos business. Tesco planned to achieve
growth in this business by opening new stores, extending the existing ones, and introducing
multi-format stores. It constantly brought in several new lines to provide the customers with a
wider choice. Tesco developed its own brand labels, targeted at different consumers. Tesco
Value was for low income consumers, Tesco Brand for medium range products, and Tesco
Finest for high end products. For consumers who had special requirements, Tesco came up with
Tesco Standard, Tesco Healthy Living, Tesco Organics, Tesco Whole foods, etc. For the kids
Tesco had Tesco Kids.
In the UK, Tesco operated through five different store formats.
Tesco Store Formats
Store Type
Size
(in Sq. ft)
Number
of Stores
Description
Express Upto 3,000 735 Convenience store selling 7,000 lines including
fresh produce, alcohol, and baked foods
Metro 7,000 15,000 162 Small sized supermarkets that also sell ready
meals and sandwiches
Superstore 20-000 50,000 433 Supermarket selling both food and non-food
Items
Extra >60,000 147 Sell both food and non-food items like
homeware, electronics, clothing, furniture, etc.
Home Plus 35,000-60,000 7 New format, with emphasis on non-food items
As of 2007, the UK accounted for 80% of the groups sales and profits. Tesco employed over
260,000 people in its 1,800 stores all across the UK and was the largest employer in the UK.
International
Tescos international forays began in the early 1990s and its international strategy was based on
six elements.
Be Flexible: Each market is different from the other and needs a different approach.
Act Local: Local staff is required to deliver tailor-made solutions to customers, to understand
local regulations, and the local culture.
Focus: Maintain a focus on a few countries as becoming a leading player will need a long-
term effort.
Multi Formats: A single format is not sufficient to cater to the needs of any market.
Different formats ranging from convenience to hypermarkets are essential.
Develop Capability: Develop the required skills and capability through people, processes,
and systems.
Build Brands: By building brands, it is possible to build lasting relationships with customers.
Contd

14
Contd
As of 2007, in Europe, Tesco operated in the Czech Republic, Hungary, Poland, the Republic of
Ireland, Slovakia, and Turkey. The European operations accounted for a turnover of 5.1 billion
and a profit of 263 million. In Asia, Tesco had a presence in China, J apan, Malaysia, South
Korea, and Thailand. The turnover from the Asian operations was at 4.4 billion and profit at
229 million in 2006.
Non-food
Tescos non-food strategy aimed at building a strong presence in the non-food range as it had in
food. Tescos non-food range included home entertainment, electricals, clothing, furnishings,
stationery, pharmaceutical products, seasonal goods, health and beauty products, and DVDs.
Tesco sold its non-food range through Extra and Homeplus stores. It sold non-food products in
the value and finest ranges, and also had some products under its own brand. These included
microwaves, garden furniture, toys, games, gardening tools, and other accessories. Tesco had 6
distribution centers dedicated exclusively to distributing non-food items.
Retail Services
Retail services offered by Tesco included Tesco Personal Finance (TPF), Tesco.com, and Tesco
Telecom. TPF was incorporated in 1997 through a joint venture with the Royal Bank of
Scotland. As of 2007, TPF offered more than 22 products and services which included loans,
credit cards, mortgages, savings, and foreign currency. The insurance services provided by TPF
were car insurance and breakdown cover, home insurance, life insurance, pet insurance, and
travel insurance.
Tesco started its e-commerce division known as Tesco.com in 1999. Tesco.com delivered goods
to places which were far away from Tesco stores. This helped it to attract several customers
away from its competitors. Tesco.com went on to become the largest Internet grocery business
in the world and Tesco added non-food lines and digital download services. Tesco.com also
operated in the Republic of Ireland and South Korea.
Tesco Telecom was another division of Tesco. Tesco Mobile was launched in 2003 in
association with O2. Tesco also offered home phone services, Internet access, Internet phone,
and other services.
Adapted from www.tescocorporate.com.

15
Exhibit III
Tescos Values
1. No one tries harder for Customers
Understand customers better than anyone.
Be energetic, be innovative and be first for customers.
Use out strengths to deliver unbeatable value to our customers.
Look after our people so they can look after our customers.
2. Treat people the way we like to be treated
All retailers, there is one team The Tesco team.
Trust and respect each other.
Strive to do our very best.
Give support to each other and praise more than criticize.
Ask more than tell and share knowledge so that it can be used.
Enjoy work, celebrate success and learn from experience.
Source: www.mbaworld.com.

16
Exhibit IV
Tescos Principles
BETTER for CUSTOMERS
SIMPLER for STAFF
CHEAPER for TESCO
BETTER
Successful businesses grow by retaining their existing customers while attracting new ones
creating lifetime loyalty is part of Tescos core purpose. This was based on the Loyalty Effect
explained by Reichheld. According to this there are six approaches to loyalty based
management.
Grow the business by attracting and retaining customers.
Improve productivity by recruiting the right people, developing them, ensuring loyalty and
managing their careers.
Create intellectual capital by attracting and retaining the right people.
Measure value by tracking the behavior of customers, employees and investors and
measuring their impact.
Maximize shareholder value by attracting and retaining the right investors.
Build strategic advantage by designing business systems on the principles of value, loyalty
and partnership between customers, staff and shareholders.
SIMPLER
This was based on De Bonos Simplicity, which says that as the world becomes increasingly
more complex, so simplicity becomes a key value. Since the pace of change is not going to stop,
we have to make a conscious effort to make things Simpler. Making things simple is itself
complex, and requires creativity and real effort. It can be achieved by knowing where to pay
attention and what to ignore. A SIMPLE approach can increase productivity through
Reducing stress and anxiety.
Enabling us to work faster.
Increasing safety.
Reducing errors.
Different jobs being simpler to do.
Identifying simpler approaches is challenging as it requires exploration and lateral thinking. At
Tesco, we always look for improvements which are Simpler for staff. Its an art.
CHEAPER
Cheaper based on Lean Thinking advocated by J ones & Womack. Lean Thinking is a way of
working which increases value through the elimination of waste. It has guided Tescos supply
chain thinking. Womack and J ones define waste as:
Errors
Overproduction
Waiting for people, equipment or materials
Contd

17
Contd
Unnecessary transport of goods
Excess stock
Poor process design
Dissatisfied customers
Approach to reduce waste
Specifying value by defining the value a customer places on any good or service.
Lining up all the value creating activities or a product along a value stream which reduces the
wastes as mentioned
Making value flow smoothly through the pull off the consumer in pursuit of perfection.
Source: Tescos Brochure.

18
Exhibit V
Tesco Steering Wheel (2004)

Source: Tesco Plc.

19
Exhibit VI
Tesco Steering Wheel in a Store

Adapted from www.egremontgroup.com.


20
Exhibit VII
Tesco New Steering Wheel (2006)

Source: www.tescocorporate.com.


21
Suggested Readings and References:
1. Andrew Foster, Greg Partson, J ohn Smith, Making a Difference, Public Services
Productivity Panel.
2. Hamish Pringle, William Gordon, Brand Manners (Abridged extract).
3. Motivation and Performance at Tesco, Public services Productivity Panel.
4. Richard Hall, The Balanced Scorecard Perspectives, www. sixsigmatutorial.com.
5. Robert S. Kaplan, David P. Norton, The Balanced Scorecard Measures that Drive
Performance, Harvard Business Review, J anuary February, 1992.
6. Robert S. Kaplan, David P. Norton, Using the Balanced Scorecard as a Strategic
Management System, Harvard Business Review, J anuary / February 1996.
7. Robert S. Kaplan, David P. Norton, Having Trouble with your Strategy? The Map it,
Harvard Business Review, September October 2000.
8. Alexandra J ardine, Where Can Tesco Go from Here? Marketing, J anuary 24, 2002.
9. J ohn Purcell, Nick Kinnie, Sue Hutchinson, Richard Allen, The Multipack Sacn, People
Management, May 15, 2003.
10. Mulcahy, Gary, Low Pay for Young People Tesco Boss Gets 3.2 million, Socialist
Voice, J une 2003.
11. Tomlinson, Richard, The Tesco Touch, Fortune (Europe), February 9, 2004.
12. Mazur, Laura, No Business Can Afford to Ignore Value Message, Marketing (UK),
February 12, 2004.
13. From Crisis to Success the Tesco Story, www.class.city.ac.uk, March 19 2004.
14. Coriolis Research Ltd., Tesco: A Case study in Supermarket Excellence, J uly 2004.
15. How Tesco Stole M&Ss Clothes, www.telegraph.co.uk, September 2004.
16. Blakely, Rhys, Revealed: The Secret of Tescos Success, Times Online, October 18, 2004.
17. Wheatcroft, Patience, Exploring the Possibilities for UK plc, www.timesonline.co.uk,
October 19, 2004.
18. Tesco Chief on Hunt for Thousands of Leaders, Personnel Today, October 26, 2004.
19. Tesco, A Corporate Profile, Corporate Watch UK, October 2004.
20. Chris Lawyer, Are You a Customer Innovation Pioneer? www.crmtoday.com,
November 02, 2004.
21. Not Everyone Buys Tescos Strategy, www.businessweek.com, December 6, 2004.
22. Eyrieh, Nick, Every Little Helps, www.euroffice.co.uk, J anuary 06, 2005.
23. Lend an Ear to Your Customers, www.telegraph.co.uk/money, February 03, 2005.
24. Clark, Rhodri, Bonus Delights Tesco Staff, www.icwales.com, February 22, 2005.
25. Phelps, J ohn, Tescos Virtuous Circle Widens as Non-food Sales Jump, Sunday Herald
Online, April 10, 2005.
26. Growing Pains, Economist, April 16, 2005.
27. Coupe, Kevin, Playing in the Big Leagues, Chain store age, May 2005.

22
28. Cohn Laura, Hands-on Retailer, Business Week, May 30, 2005.
29. Murby, Liz Making your Balanced scorecard work harder, www.cimaglobal.com, June 2005.
30. Tesco Must Learn to Cope with Continued Success, Finance Week, September 28, 2005.
31. Personnel Touch Keeps Tesco on the Top, Personnel Today, October 04, 2005.
32. Key Symon, Why Disagreement is Key to Successfully Reinventing a Top, Sunday
Herald, October 23, 2005.
33. The Balanced Scorecard, Stakeholder, November 2005.
34. Steve Macaulay, Sarah Cook, Hilary Coldicott, Stand and Deliver Golden Rules to Ensure
Consistent Customer Service, Strategy & Leadership, November / December 2005.
35. The Tesco Kid Prepares to take on the World, The Sunday Times, March 12, 2006.
36. Tesco in the Community Sir Terry Leahy Speech to the Work Foundation,
www.tescocorporate.com, October 05, 2006.
37. The Balanced Scorecard, Financial Management, November 2006.
38. Sir Terry Leahy Answered your Questions, news.bbc.co.uk, J anuary 19, 2007.
39. Tesco Set to Unveil 2 billion Profit, news.bbc.co.uk, April 15, 2007.
40. Elliot Zwiebach, Tesco Offers Segmented Retail Model for the Future, Supermarket
News, May 07, 2007.
41. Tim Phillips, Tesco Knows Loyalty like no Other, Retailing Today, J une 18, 2007.
42. Annual Reports, Tesco.
43. Tesco Corporate Responsibility Review.
44. TN Sofres Superpanel.
45. www.tesco.com.
46. www.hoovers.com.
47. www.balancedscorecard.org.
48. www.egremontgroup.com.

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Tescos Steering Wheel A Tool for Strategic Value Creation

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