Tesco’s ‘Steering Wheel’: A tool for strategic Value Creation and Business Transformation

In early 90’s Tesco faced a stiff competition from various other retailers in the industry and thus its revenues showed a downfall. At that point Tesco could not differentiate itself from the other competitors. Later under the leadership of then CEO Ian Mac Laurin it went through an image makeover, and acquired other retailing outlets like William Low; with which it reached just up to the sustenance mark. Later Terry took over as the CEO of the Company and aimed to make the company value driven.

Tesco in early 70’s had acquired a lot of other retailer companies but faced a problem of integrating them, more over Tesco stores were small and ill equipped. The company only focused on price where as the goods available at the stores were perceived to be of mediocre quality, but with rising income customers looked forward to expensive and luxury merchandise.

Answering to this change Tesco closed some of its outlets to concentrate to give stores a better facility. It also started off the revamp of it’s a product portfolio. It launched a price reduction campaigns so as to counter the threat from competitors. Also it centralized its distribution system and its own label for food products.  Tesco developed its own brand labels targeted at different target sector. Tesco value for low income customers, Tesco brand for medium range products and Tesco finest for high end products. It also came up with special ranges like Tesco organics, Tesco whole foods and Tesco kids.

The Tesco Way

“Tesco doesn’t want one leader. We want thousands of leaders who take initiative to execute the strategy.” This is the statement made by Sir Terry Leahy, CEO of Tesco.

Tesco came up with the concept of “The Tesco Way”. They aimed at improving its competitive position in the market by becoming more customer focused and concentrated on differentiating itself from other retailers through the services it provided. Tesco had principles like Better for Customers, Simpler for Staff and Cheaper for Operations. To make this goal a reality, in the early 1990s, Tesco went through a process to clarify its mission, values, and strategy. Tesco communicated its new strategy to its employees via a “steering wheel,” a simple symbol and metaphor for a tool intended to drive performance and help employees navigate into the future. The Tesco’s steering wheel has four 90 degree arcs, representing the four BSC areas of focus: financial, customer, operations, and employee performance. With the ‘community’ arc added recently. Every store gets a monthly steering wheel update, a summary of its metrics within each of the four arcs, so that all employees in Tesco’s multiple regions and formats get feedback on their performance. Tesco supplements its steering wheel report with “shopping lists” that capture key elements of the strategy in simple forms that employees can follow in their everyday activities. The steering wheel has helped the company stay focused on its strategy even as it experienced rapid growth over the past two decades. Balanced scorecard or in Tesco’s case the steering wheel provides the perfect base to the company for designing future strategies. It gives the current data and becomes the ideal predictors which is important for predicting future trends and thus formulate strategies.

It communicates strategy-aligned goals and manages strategic performance. It monitors progress and measures success. The organization’s core purpose – “to create value for our customers and to earn their lifetime loyalty” – has been delivered on a clear and simple strategy of long-term growth. Tesco’s values and priorities (concerning customers, staff, business, and compliance issues) are embedded in the steering wheel through appropriate KPIs. These values pervade operations and are instrumental in securing staff commitment to the steering wheel. It is arguable that by embedding its values in the steering wheel, Tesco transformed its balanced scorecard from a management framework to a cohesive living strategy. The Tesco Steering Wheel evolves from, and is the route to fulfilling, the retailer’s core purpose–to create value for customers to earn their lifetime loyalty–and long-term goals. It organizes and defines the four core elements of Tesco’s business, those that together define the business. If faithfully adhered to, the Tesco thinking goes, these elements will inevitably lead to the realization of the company’s long-term goals and, through them, its core purpose. So it is that in each Tesco store, department and support facility is posted a corporate steering wheel, out of sight of the customers but in plain view of each staffer. Alongside each of the 15 directions and admonitions within the circle is a colored dot–green for acceptable performance, yellow for borderline performance, red for unacceptable performance–which is updated, and can change, weekly. The scorecard is for the store, the job, and the individual. It gives one the ability, simply by looking, to measure the performance of that particular entity-and what aspects of that performance need to be improved.

Some ways of calculating these basic factors are:

Operations

We try to get it right the first time-

  • The difference between Predicted inventory and actual inventory.
  • No excess stocks.

We delivery constantly everyday-

  • Regular deliveries and no miss.
  • The stores receiving adequate and right stock in right condition.

We always save time and money-

  • Reduced wastage
  • No repetition of steps in a process.

People

An interesting job-

  • Retention ( lowering of attrition)
  • Absenteeism
  • Audit and surveys focusing on indirect questions to know the employee’s interest levels. (using a 4 or 6 point scale to avoid average marking).

An opportunity to get on-

  • Training levels achieved by the employees.
  • Percentage of employees trained.
  • No. of employees working loyally for how many years.

Customers

I can get what I want-

  • Regular customer surveys.
  • Complain cells.
  • Surprise checks.

The prices are good-

  • Competitor analysis
  • Customer feedback.

Finance

Maximization of profits

  • Calculating operating profit ratio, return on total assets, net profit ratio and return of capital employed and compare them with last year.

Benefits of the Balanced Scorecard used at Tesco

  • Add to the Balanced Scorecard’s priority areas to reflect your organization’s core aims and values.
  • Converts strategy into an effective governance mechanism.
  • Ensures alignment of all employees to the company’s strategic vision.
  • Provides holistic and balanced view of the health and performance of the organization.
  • Increased transparency and better communication
  • Simplify strategic aims by creating a visual summary and a shopping list of daily strategic to-do’s. Make them applicable to people’s everyday work.
  • Promotion from within — then you have a deep understanding of strategy throughout the organization.
  • Helps keep check on strategic aims against customer needs and preferences.

Challenges:

  • Co ordination across multiple functions.
  • Some indicators are not measurable e.g. innovative quotient of the organization

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