Tesco's 'Steering Wheel' Strategy

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Case Details:

Case Code : BSTR187
Case Length : 21 Pages
Period : 1995-2005
Organization : Tesco
Pub Date : 2005
Teaching Note :Not Available
Countries : UK
Themes: Growth Strategy | Balanced Scorecard
Industry : Retail

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"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."¹

- David Pendleton, Chairman, Edgecumbe Group² in 2004.

Introduction

On April 13, 2005, the UK-based Tesco Plc., a leading retailer in the UK, announced its annual financial results for the fiscal 2004-05. For the fiscal ending February 2005, Tesco reported sales of £33.97 billion and profits of £2 billion. It was the first time that a retailing company in the UK had achieved profits of £2 billion. For the fiscal 2003-04, Tesco had recorded revenues of £30.81 billion and profits of £1.6 billion, a year-over-year growth of 20.5% in profits.

A decade ago, Tesco's financial position presented a completely different picture. During the 1990s, revenue growth had slowed down and the company's profit margins were under pressure. Tesco had image of being a lower end alternative to Sainsbury's and could not compete with it. The company's stores sold cheap products of very poor quality. In the mid 1990s, the British economy was hit by recession, and Tesco was in deep trouble. In contrast, Sainsbury's announced record earnings and Marks & Spencer was labeled the most admired retailer in the UK. According to industry analysts, Tesco was squeezed between discounters like Asda on one side and higher end competitors like Marks & Spencer on the other

During the early 1990s, Tesco went in for a major change in its approach and started competing with Asda on price. At the same time, it went in for a major image overhaul to establish its individual identity. Tesco 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.

After a phase of recovery in mid-1990s, Tesco embarked on a 'growth' journey. By 1997, Tesco's growth was stable, but still, it was just keeping up with the inflation rate in the economy. In 1997, Terry Leahy (Leahy) took over as CEO of Tesco. He aimed to make Tesco a 'Value Retailer.' Leahy called the strategy he wanted to adopt 'The Tesco Way.' The Tesco Way comprised of Core Purpose, Values, Principles, Goals and the Balanced Scorecard. Regarding the balanced scorecard approach, which was named the 'Steering Wheel' at Tesco, Leahy commented, "This system (Balanced Scorecard) literally steers our business and our people."³

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1] Blakely, Rhys, "Revealed: The Secret of Tesco's Success," Times Online, October 18, 2004.

2] 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.

3] "Your Fast Guide to Tesco's Secret Weapon," Leaders in London Conference, www.ecustomerserviceworld.com, 2004.