Sacrifice profits to help cash-strapped shoppers, says Tesco boss

Philip Clarke’s speech in full

Today, Philip Clarke addressed the IGD Convention 2011 on the theme of ‘Breakthroughs’, describing how “the three t’s – Technology, Team, Talent – drive change.” He said:

“Breakthrough” is a word that most people usually associate with science or medicine. A new cure, a new technology that will transform our lives. Retailing, shopkeepers – what breakthroughs have they ever achieved?

Well just think about that for a moment. Refrigeration, the bar code, the milk carton, the supermarket itself: retailers and suppliers have taken new technology – or developed our own –and transformed not just our industry, but our customers’ lives.

Many of you here today – including the IGD itself – have played a major role in this. And I’d like to think that Tesco has done its bit.

Clubcard, our focus on the customer, new formats, new ranges and services – over the years we too have helped shaped the landscape of retailing by breaking through into what were “no go zones” for supermarkets.  

All these breakthroughs, whether at Tesco or elsewhere, are often sparked by a new piece of technology. But I want to argue today that breakthroughs depend on more than just technology. They rely on two more t’s:  on teams and talent.

These three Ts – Technology, Team, Talent – drive change. Take one away, and you are unlikely to achieve real, lasting breakthroughs. Create new technology, uncork talent, mix in a strong team, and you have a powerful recipe for change.

Tesco’s strategy today: the challenge of new retailing

During my time at Tesco I have seen the full impact that breakthroughs – some our own, others not – have had on our company. Today we are international, multi-format, multi-channel, a retailer of services, not just food or non-food: Tesco has changed dramatically. And that is largely because we have been strong in terms of technology, team and talent.

To reflect just how much Tesco has changed, I announced earlier in the year that we were going to refresh our strategy. The change is not dramatic, not lurching from one plan to another: it is sensible, careful and thought through.

There is, of course, one thing that will never change. Our world will always revolve around the customer – the customer’s wish for value, range, service, quality. These remain fixed points in our world. All of us here today know that we must deliver on these things or our businesses will fail. So Tesco’s core purpose, to create value for customers to earn their lifetime loyalty – that does not change.  

But we need to respond to the challenge of what I call “new retailing” – the new challenges created by globalisation and the digital revolution, twin forces that accelerate change, increase competition and raise still further the importance of brands. We must show that we are on customers’ side, that we are here to make their lives that bit easier, that bit better.

Embracing new technology

This means embracing new technology. Most of our customers now make little distinction between shopping online and shopping in store. The same must apply to a new retailer. Tesco was the first large retailer to enter the world of the internet. That required a monumental effort in terms of creating new processes, sometimes entirely from scratch, to get customers’ orders to their doors on time. We’ve gone one stage further, and begun click and collect services – so people can order online and then pick up in store.

Now we are going one stage further still. Tesco Homeplus in South Korea has created the world’s first virtual store in the Seoul subway to help time-pressed commuters shop on the go using their smartphones. The walls of the subway station in downtown Seoul are covered with virtual displays of over 500 of the most popular products with barcodes, which customers can scan using the Homeplus app on their smartphones and get delivered right to their doorstep. 

Busy commuters can scan their groceries on their way to work in the morning and, as long as their order is placed before 1pm, their shopping will be delivered home that same evening, creating even greater speed and convenience in the whole shopping experience.

That’s the kind of breakthrough that really transforms people’s lives – and quite possibly our industry.  It relies on state of the art technology – and carefully thought through systems, in which every process is thought through, every person knows exactly what he or she is meant to do. Which brings me to the other two Ts – team and talent.

Team and Talent

As a business that employs almost half a million people, obviously team and talent are critical to Tesco.  They’re so important that I have added to our strategy a clear goal: to build our team so that we create more value than any other. As our business continues to grow and diversify, we need more leaders to run the many, substantial business and support functions within the Group. Our leaders not only have an important role today, but also have a responsibility to help build a bigger and better team for the future.

I know what you may be thinking: we are facing one of the toughest trading conditions this country has seen for decades – what relevance has this to the here and now?

The truth is, though, that it is in such turbulent times that your team is tested the most. It’s in a storm, not calm waters, when a crew is really challenged. That’s why our team matters so much today.  Can we change to meet the new conditions? Have we the stomach for the fight in ever tougher markets? Can we continue to innovate, to stay ahead of the pack, helping our customers as they struggle to make ends meet?

The answer is yes. In the last month here at home we have made the biggest change to our pricing and promotions strategy in many years, investing over £500m in reducing more than 3,000 prices, as well as simplifying and deepening our promotional discounts. We’re absolutely committed to doing what we can to help customers by cutting prices on the nation’s shopping list – the things families buy most often and where it will make the most difference.

It has already been a huge team effort – a 14,000 strong Tesco army worked a total of 90,000 hours on the Sunday we launched The Big Price Drop, changing almost 3 million price labels on shelves up and down the country.   It’s a strong team especially when times are tough.

But there is another reason I care so much about building the team and fostering talent – a personal reason.  I owe a lot to Tesco – it’s given me fantastic opportunities in life. My father ran a Tesco store extremely well - but he didn’t have the confidence that training brings to do more than that. I’ve been lucky enough to have that training. In my twenties, working at Tesco, a regional director taught me about process and systems.

Then there was the store manager for whom I worked who taught me about leadership; the new store opening director who taught me about multisite management; John Bird, who ran retail in the UK, who taught me about trading and the importance of cherishing the products we sell.

And in my thirties I learnt about buying, marketing and strategy from some of the finest retailers in the world. Indeed - my personal breakthrough point was when I was the sausage buyer. That’s why these two t’s – team and talent –matter so much to me. And why the object I have brought today is the forerunner to Tesco’s Finest range - a pack of Tesco Traditional sausage, circa 1991.

Let’s start with the basics. A strong team needs a clear purpose – a purpose that endures, that appeals to the head, not just the heart. If the purpose of a company is just to make something, that won’t endure: that thing will probably soon become old and then redundant – consigning the company to history. A company needs to explain how it will help people over time. As I said earlier, our core purpose, written in 1997, remains untouched.

Alongside that sits clear values. Values guide a business - and everyone in it. How they behave, how they respond to change, how they talk to each other and their customers. They need to test one, to give you something to aspire to – as well as being simple to understand. Our values are “no one tries harder for customers” and “treat people how we like to be treated”.

And the third bedrock of a strong team is a clear strategy, so clear and simple that everyone knows precisely why they are getting up and going to work each day, so they know what is a priority, and so they understand what success is.

These three bricks – purpose, values and strategy – are the foundations of a team. They answer the questions “why are we here?” “how are we meant to behave?” and “what is success?” But that is just the start.

Each person needs to know how they fit in to company – and, crucially, what is expected of them. They need to own a task – that means being given responsibility for a task, and be made accountable for its delivery. Ownership focuses minds – and gives people a sense of pride and respect.

You need to communicate that role in simple ways. Many of you here will know the Tesco Steering Wheel, which sets out responsibilities for the entire business, each store, each team. It helps us drive change, and ensure that the whole business is moving together.

But you cannot simply send out missives from head office. Which brings me to communication: a head office culture, one where people are given orders from anonymous managers on high – this kills strong teams. You need to be out there, on the shop floor, talking to the teams, explaining what’s happening, and their role.

That attitude reflects something else that Tesco has long held dear: we want our teams to take risks. By trying nothing new you stay as you are. You must innovate. Yes, that means making mistakes – but you learn from your mistakes. So initiative, risk taking, decentralisation, giving each person the encouragement and freedom to innovate and suggest new ideas – these are critical.

New steps we’re taking to foster talent

These basic principles have guided our approach to building strong teams for over a decade. Our new focus on our team, now part of our strategy, will turbo charge our efforts, and help us embrace new technology.

Recognising the simple, obvious fact that we are a people business – run by people, for people – I want everyone to shoulder a responsibility for fostering talent. That means we need to adopt three additional basic principles to team and talent.

First, an end to thinking in silos, to saying that “recruitment, training –that’s not my job”. Talent spotting, performance reviews, career discussions: these will become critical tasks for the entire Tesco team.

Second, if we are to retain talent, we need to reward talent. For Tesco that means competitive pay at all levels, an opportunity to share in our profits through shares in success, and bonuses linked to performance for all senior managers. More importantly, our people are rewarded through opportunity – at any one time 7,000 members of our UK team are on development programmes specifically designed to help them gain the experience and skills they need to move on to the next Tesco challenge. Little wonder that 80% of our management roles are filled internally.

Third, related to that, we want to nurture our talent so that everyone feels that their best days are yet to come. This is a goal shared by the entire Tesco team, including our partners at USDAW, the trade union with whom we have an industry leading relationship. Nurturing talent means career plans, so everyone knows where they are going, and the type of jobs they need to do to gain the experience and skills to get there. And it means succession plans for jobs: we always have 2 successors identified against our top 500 jobs.  

And we’re investing in training. Here in the UK there’s a training scheme for every major career stage at Tesco, from core skills training to Apprenticeships and Retail Degrees, which is another of the reasons why around 80% of our management roles are filled by existing team members. This year we’ll also have a record 420 graduates starting our UK graduate programmes. Overseas we’re recruiting around 600 graduate trainees and in Asia, we’ve invested £30m in our newly opened training academy in South Korea where 24,000 people will be trained every year.

Why this matters

Why does this matter so?

We’re now a global business, and we need a world class team if we are to win and to compete. We don’t simply need to attract talent, we need to motivate and retain it. That’s why I spend so much time – I reckon about three quarters of my time – talking to the team, hearing about what they are finding on the shop floor, helping them improve their performance.

Some of you may think “surely this is not a priority now?” Well, let me stress what I said earlier: when tough times hit, it is even more important to be motivating your team, building that team, helping it overcome the hurdles they face. Some of those challenges are practical – others relate to morale: both are important.

And, finally, I care about building our team because of what I said earlier: my own background. Tesco gave me a chance to get up and get on in life. It’s given that chance to many hundreds, if not thousands of people. It is proof that supermarkets are not just an example of business breakthroughs – but social breakthroughs. For our company – like others here today – is an engine of social mobility, helping people realise their ambitions and dreams. And that’s perhaps the best breakthrough anyone can ask for.

Conclusion

So, to conclude where I began, breakthroughs rely on teams, talent and technology. Embrace the technology, build the team, foster talent. Obviously get the processes, the IT, the systems right. But never forget the basics that govern people: a clear purpose, a set of values, a well understood strategy. Never stop talking to people, make them own their responsibilities, and encourage them to take risks. And then make it everyone’s responsibility to nurture talent, to train and to reward teams – so that they always are looking up and moving forwards.

That’s how we have delivered breakthroughs at Tesco –and how I plan to continue to do so in the future.

Thank you for listening.