Sir Terry Leahy's leadership lessons

Sir Terry Leahy was always a man of few words. Particularly when it came to journalists. “I am a private person,” he writes, in his new book, “much to the irritation of the many journalists whose kind offers of a ‘personal interview’ with them to talk about ‘my life’ I have declined.”

Tesco’s legendary ex-CEO has been called many things: shy, cautious, introverted, he can be calmly respectful, almost scholarly, but he can also be blunt, cutting and surprisingly ferocious, offset by a dry, deadpan wit. And, of course, he is visionary, stubborn in his pursuit of “truth”, as brilliant in his strategic thinking as in his execution. But no-one could accuse him of being chatty.

“The best leadership I ever gave was to be in the background, listening, and allowing the customer to be the leader instead,” he writes.

So it’s no surprise Sir Terry’s book - out next Friday - is not in fact an autobiography. It’s a management book, an attempt to distil into “10 Words” the lessons he learned in 32 successful years at Tesco. “I thought that would be more useful,” he says.

“With a memoir, you don’t take as much away. I wanted to write a book with a wide appeal, and to write it in plain, jargon-free English, so that large or small, in the public or private sector, here or in other countries, the lessons are useful and accessible,” he adds.

“Organisations are difficult places to be. Managing your boss, your colleagues. I thought there were some potentially useful lessons about how to navigate through an organisation, how to get a sense of purpose, and how to motivate other people.”

That’s not to say we don’t learn about Sir Terry along the way. In the introduction, “through slightly gritted teeth”, he includes some brief personal details. Most, including his upbringing in a council house in Liverpool, and his early career at The Co-op, are well rehearsed - but not all.

Did we know he liked to play the “class clown” at school? That he wanted to be an architect but didn’t get the grades? That he was rejected as a graduate trainee by the consumer goods giants? That he only secured his first job in the marketing department when the original choice was “immediately given something else to do”?

“Thanks to his brilliance,” he writes, self-deprecatingly, “I found myself being offered the job I’d previously failed to get.”

It’s classic Leahy, and quite deliberate: like the mistakes he admits to making throughout the book, his self-effacing modesty is authentic, but included partly to show that Leahy is human, and to offer hope to others whose academic achievements and stagnating careers might have “made them feel locked out”.

And to the trade itself, as an insight into Sir Terry’s influences, his management style, the techniques he used to deliver results and his recollections on the genesis of some of his numerous achievements - Management in 10 Words is a revelation.

One memorable anecdote concerns Walmart’s acquisition of Asda in 1997. “In the middle of a question-and-answer session in Thailand, my initial reaction, I have to confess, was ‘I must get out of this meeting and back to the UK.’ However, I forced myself to calm down. It proved how important it is to appear calm while you are thinking ‘Oh no, what now?’”

But it’s his interest in military history, and in particular, Field Marshal Viscount Slim’s book, Defeat into Victory, that is perhaps most revealing about Sir Terry Leahy’s Tesco. “I like history,” says Leahy. “It puts today in context.” Leahy’s choice here is important. Commanding the British Fourteenth Army in Burma, “Slim was the least well known of the big World War II generals,” and, modest and unshowy, his “was just an amazing story about what you learn from defeat, and how you turn that around to win.”

The fact Leahy wanted to galvanise Tesco’s giant workforce (“it was kill or be killed”, in the “bullying, all-male Tesco” he joined) into a lean, mean fighting machine operation doesn’t require a leap of faith.

But his interest in Slim’s moral imperative is more counter cultural. “Top of Slim’s list of foundations for morale,” he writes, was “that there must be ‘a great and noble objective that intangible force which will move a whole group of men to give their last ounce to achieve something’. No one had asked the question, ‘What is Tesco for?’ I needed a noble objective, to appeal to the heart, not just the head. And to endure beyond the next battle - or the next set of financial results.”

To Tesco’s numerous critics (farmers, suppliers, rivals, community groups, graffiti artists, etc), the notion that Sir Terry had a moral purpose might come as a surprise. And Leahy is no apologist for capitalism. “Competitors try to put each other out of business. That’s their job.”

But the most important lesson on Leahy’s leadership was that it was not a case of success at any cost. “I wanted to instil in Tesco a clear sense of values,” he writes, “to underpin the business with a renewed sense of purpose and mission to prevent the problems of the early 1990s from happening again.”

In its initial form, the “noble objective” he identified was “to create benefit for customers and earn their lifetime loyalty. Nothing about what we sell. No mention of profit. Instead a total focus on customers, and our wish to earn their lifetime loyalty.” In seeking to codify the values further, Leahy entrusted the task to Tesco’s employees. “Values written on high and passed down like tablets of stone would not live on the shop floor. Tesco’s values had to be Tesco’s creation.

Creating the values over the course of that next year - ‘no-one tries harder for customers’ and ‘treat people how we like to be treated’ - was the easy part, Leahy recalls. “The hard part was living them.” Hammering them home “bored me to death, but only by repeating simple things, time and again, do you get the message through: ‘This matters.’”

Leahy acknowledges that a noble cause can also have its flipside. “While there are common values, there are conflicting values, so as leader, you have to navigate.” But values have acted as a moral compass in some of Leahy’s biggest decisions. Most notably, when the defined benefit pension crisis first emerged. The “slow, sure and - to me - tragic demise of the company pension scheme - was a real challenge to Tesco’s values,” he writes.

“Our advisers said we should follow the herd and join the stampede for the exit. The board did not agree,” he writes. “We felt the shift from a defined benefit to a defined contribution scheme grated with our values.”

Though the cost of Tesco’s compromise “ran into hundreds of millions of pounds, it was the right thing to do,” says Leahy.

“Offering a good pension became more of a competitive advantage and confirmed that our values meant something.”

It was upon his appointment as Tesco’s first-ever marketing director, in 1992, that Leahy’s career was to be transformed. But in the “backwater” of the marketing department, his customer insights were not universally welcomed at first. Presenting the results of his first major piece of research, on the problems facing Tesco in the early 1990s recession, “that meeting showed the power of the truth - and the natural authority of the customer. Anyone who argued with the findings was arguing with thousands of customers.”

Customers
In Clubcard, Leahy was to take the ‘wisdom of crowds’ to its logical conclusion. Its genesis is fascinating. After reading that Bury Co-operative - “an organisation of just a few stores” - was working on an electronic loyalty scheme of its own as early as 1990, he was worried that Tesco would lose first mover advantage. Especially when, in early trials, then CEO Ian MacLaurin declared: “I’ve just learnt more about my customers in the last 30 minutes than I have in the last 30 years.”

When Sainsbury’s dismissed it, upon launch, as “electronic greenshield stamps” “we couldn’t believe our luck,” Leahy writes. “This apparent kneejerk response bore all the hallmarks of an ancient regime.

“Not long after its launch, I remember looking at the latest industry figures. That morning, we were 11% ahead. I knew at that moment something had changed in the industry for ever, and my life along with it.”

Clubcard and his use of consumer feedback has continued to serve him well ever since, inspiring innovations from Sunday trading and the extension of opening hours, to its expansion in to convenience, and the development of the world’s first free-from range. Perhaps the most memorable was its influence on the design of stores.

“Our stores were the most expensive in the industry. And much admired and copied. The only problem was we built the stores without asking customers ‘Would you like to shop in this kind of store?’ The answers that came back were a shock. They thought them slightly cold, unwelcoming, a bit industrial, more like warehouses, too dark, cold, confusing.

“None of the changes we put into effect in response was revolutionary,” he adds. “And New Look (as the initiative was called) seems barely worth a footnote in Tesco’s history. Yet changing the layout of the stores to reflect our customers’ wishes, without really knowing it, this one, seemingly small innovation, transformed Tesco from a good retail business to a potentially great marketing company.” Not only did sales go up. The cost of store refurbishments halved. “A saving of more than £1m a store.”

Clubcard even inspired Tesco’s then radical move into banking. Sir Terry had been wondering whether, “as with the marketing of almost every other product, from ketchup to Toyotas, a separation between the origination and development of banking products (the manufacturing) and distribution and customer acquisition, might lead to a better, more efficient business model.

“Within a few months of Clubcard’s launch, our research revealed a startling question customers were asking: ‘Can we not use Clubcard to pay for things at the checkout?’”

That insight showed “the great thing about customers. They were untroubled by, and probably unaware of, the enormous consequences and vast logistical difficulties contained in that simple statement, which effectively meant they wanted Tesco to be a bank.” And when analysts and media commentators criticised Tesco’s move, “what they didn’t know was that this idea had not been dreamt up by us, but by our customers.”

Of course, there’s only so much research can tell you. And the creation of Tesco.com - again developed while Leahy was still marketing director, is an example of how “looking up and looking out” (see box) has also been important.

Attending a futorology exhibition with Tim Mason, one of the displays showed a mother shopping for her groceries from a computer in the kitchen. It was greeted by howls of derision by other retailers. Leahy admits he was “probably laughing himself”. But as he walked out, he and Mason turned to one another in unison and said: ‘Even so, it would be good if you could do it - customers would love it.’

Within a year, Tesco.com was established. Today it has sales of £2bn. “We had no special insight or any particular technological skills we simply had a different mentality. Tesco existed to make lives easier for customers.”

The plan does not have to be perfect
So how does one tame such an enormous idea? As one of Britain’s most innovative and entrepreneurial business leaders, Leahy surprisingly admits to being “by nature cautious”. And he quotes Warren Buffett. “Start out with failure, and then engineer its removal.”

But he offers some wise words on planning. “I learnt the hard way that the plan does not have to be absolutely perfect in all details. If you aim for perfection at the start, your ambitions may never see the light of day. You have to accept that there will be some trial and error,” he writes. In the case of Tesco.com, “we decided we needed to get going quickly and should start in a modest way, which did not even need the board’s approval.”

And if a project is unravelling, Leahy also stresses the importance of “knowing when to draw a halt - whatever the apparent consequences of delay - to understand properly what the underlying issues are and what fundamental change is needed to provide a lasting solution.”

You’ve also got to be positive, he adds. “I begin the discussion by getting all the people that know about the topic round the table. And you’ve got to encourage people to speak their minds, which doesn’t always happen. But it’s got to be constructive.

“And finally, you must never bet the company. But you can take much more risk and fail an awful lot and still be successful,” he adds.

Sometimes luck plays a part in ventures, of course. In 1990, a new range of ‘lean, green, clean’ products proved ahead of its time while the launch of Fresh & Easy, in 2007, “couldn’t have been worse”.

Leahy had initially chosen smaller emerging markets such as Korea, Poland and Hungary for overseas expansion. But when the board approved Tesco’s audacious move to the US, “no-one saw what was coming, and with sub-prime housing at the epicentre of the crash.”

Leahy offers, in his book, a passionate defence of Fresh & Easy - even though, since the book was finished, new CEO Philip Clarke has pushed back the date for break-even, while halting its expansion until the model is proven.

Would he be sad if Clarke decides to close it down? “You invest a lot of emotional capital, but when you leave you leave,” he says.

So what’s in store now? While, in the book, he’s not afraid to criticise government departments, from the NHS to the Department of Education, he has no pretensions to enter public life, or to run another company.

“I was very fortunate to find I could do one thing well. I’m good at business, and at creating business, and so, where I am at the moment, investing in entrepreneurial businesses, it’s actually what Britain needs.”

And what of Tesco now? I can’t leave without asking him what he thinks about its much publicised problems. Almost five years into the longest ever recession with rivals more competitive and less complacent with Fresh & Easy still losing money, and the exit from Japan with the consumer more powerful than ever, is the task his successor faces harder?

“Time will tell. There are more challenges but also more opportunities. When I was appointed, we didn’t have online, the international businesses, hypermarkets, non-food, the bank.

“Walmart had just entered the market, people said the internet signalled the end of retailing, the Competition Commission had just begun its first enquiry. Every period has its challenges. What matters is how you deal with them.”

And he offers some supporting words to Clarke.

“All businesses go in cycles, when you’re on form and not on form. You’ve always got to pay attention to these things. What’s really good is that Phil has come in, after a long recession, and said ‘How can I invest to improve the customer experience?’

“Tesco hasn’t a god-given right always to perform better than the competition but I don’t think you should view a relatively short trading issue as [meaning there’s something] fundamentally wrong.

“Tesco is a huge, successful organisation. Sales are growing, profits are up, we made £1bn outside the UK. Clearly, every business is challenged by almost five years of recession. But the business is fantastically strong.”