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Aired June 11, 2012 – 14:00 ET
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Management in Ten Words
FOSTER: Well, he’s turned around Tesco’s, now he’s offering his advice on management. An interview with Sir Terry Leahy for you after the break.
FOSTER: Now, struggling to win back shoppers, like many of its customers, Tesco’s is feeling the pinch and knows too well the meaning of its catch phrase, “every little bit helps.” Here’s why.
The UK’s largest supermarket company has reported crumbling UK sales for a fourth straight quarter. The retailer blames the tough economic client and falling disposable income. The news forced chief executive Philip Clarke to defend his billion-dollar recovery plan, announced after the company’s first profit warning in over 20 years. Tesco shares in London finished their session exactly where they started, at 302 British pence.
Now, former CEO Terry Leahy joined Tesco straight out of university and, 25 years later, turned it into the world’s third-largest retailer. Terry Leahy entered the supermarket chain as a marketing executive in 1979, was appointed to the board in 1992, and was CEO by 1997. He was 40 years old.
When he became chief executive, Tesco was the firm underdog, really. After his stewardship, Tesco built its share of the UK market to 24 percent. By the time he left, at least one in every eight pounds spent with a UK retailer was with Tesco.
Terry Leahy was knighted in 2002 for his services to food retailing. He retired from Tesco early last year. Since then, he’s been putting his wisdom down in a book, “Management in Ten Words.” I asked him earlier which of the ten was the most important.
TERRY LEAHY, FORMER CEO, TESCO: I think truth. It’s very hard for an organization to see itself as others see it, to know what’s going on in the world around it. But if you can really use good data, good insight, and be honest and find out what’s going on, that’s a great starting point for a strategy.
And then the final one is trust, that a leader not only has to gain trust, but they have to trust people in the front line to do their job. And that’s the basis of motivating everybody in an organization. If you feel trusted, your confidence grows, you prepare to take more responsibility.
FOSTER: You almost have to learn from your mistakes, as well, don’t you? Are there mistakes that you thought were particularly valuable lessons to you?
LEAHY: Yes. I’ve always seen success and failure as two sides of the same coin. You can’t be a success without making mistakes. You mustn’t punish mistakes, because people won’t show initiative again.
FOSTER: What was the big one?
LEAHY: Oh, I remember our first advertising campaign when I became marketing director. It was awful.
FOSTER: Plainly awful.
LEAHY: It was pretty bad. We didn’t have a success when we went into Taiwan. We didn’t choose that country correctly. There are lots of mistakes. And that’s the great thing about business. You can make mistakes, but you can still recover to have a success.
FOSTER: You’re heralded as Britain’s most successful businessman because of what you did with Tesco and the scale of the operation. Is there one thing that you always had in your mind, is there a simple message you always woke up thinking about?
LEAHY: I think it was the customer. I grew up as a marketing person and was taught that you always start your business with the customer. You don’t —
FOSTER: What they want.
LEAHY: What they want. You don’t start with what you have, product and services, and try and sell or impose those on the customer. So, I think that was the single message, start your business with the customer and what they want.
And you’ve got to work hard to find out what they want. You need research, Club Card was very important for us because —
FOSTER: Club Card’s your loyalty card that you created.
LEAHY: Yes —
FOSTER: And that’s — you said that that’s actually was partly crucial to Tesco’s success, but in what way?
LEAHY: Because it gave us so much new information that nobody had ever had before about customers, how they shopped, what they bought, what they needed from us.
FOSTER: Was that them talking back to you, then, about what they wanted?
LEAHY: It was, yes. And that insight allowed us to develop information and products and services that were better tailed to customers. And it was really the start anywhere in the world of using data to help develop your relationship with customers. And of course, today with social media and the internet and everything else, it’s so much larger.
FOSTER: In the past, supermarkets would target at a particular type of branding, whereas you broke down the branding, didn’t you, in stores? You had cheap products, if I can call them that, and ten high-end products, as well, on the same part of shelving. Was that something — what was the story behind that?
LEAHY: Well, we always tried to make Tesco classless so that everybody was welcome in the store and everybody, whether you were on income support or a millionaire, could find something in the store for you.
One way we did that was to have different types of own brand, from economy, value ranges right the way through to finest luxury goods. Actually, people of all incomes shop right across the range, though in different quantities. But people always felt there was something for them in Tesco.
FOSTER: But that was a big gamble, wasn’t it? Because people that go in buying your finest products, for example, finest meats, don’t — the assumption would have been that they wouldn’t want to have the cheap products next to it. Even the — the cheaper customers next to them.
LEAHY: It was a gamble, and I remember when we introduced our value range, the economy range, after many years of trying to move upmarket to emulate Marks & Spenser and Sainsbury. Our shareholders were appalled at the idea. But actually, we’d listened to customers, and they needed their money to go further, and it proved to be a big success.
FOSTER: What did you learn about customers, because you had done something new. You’d obviously learned something new about customers.
LEAHY: Well, I think what we learned is that while businesses change relatively slowly, industries change slowly — you think about the supermarket industry, it’s not a massively growing industry. People’s lives change a lot. They change all the time, what they’re interested in, what’s effecting them, what they’re worried about.
And as of that change comes new needs. And if you can get very close to customers, you can be the business that spots that new need and can respond to it.