Invaluable Customer-Centricity Lessons From Tesco

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Tesco: The Darling of Customer Marketing Guru’s Issues Its Fifth Profit Warning

Tesco continues to struggle. According to this piece from the Guardian newspaper, Tesco has issued its fifth profit warning, share price has plunged (down 16%): Tesco is on the floor.  Why does this matter? Why is it worth me writing about.  Let’s go back a little.

In the early 2000s Tesco was much lauded my many: the customer-centricity gurus, the 1:1 marketing gurus, the data mining and predictive analytics players, and customer loyalty program vendors.  Tesco was the exemplar of harnessing customer data through a loyalty programme (Tesco clubcard), using data mining and predictive analytics to generate insights and then doing database driven marketing based on these insights.  In the process Tesco went from being just one player amongst the UK grocery retailers to the the dominant retailer. At one point it looked like there would be no stopping Tesco.

Today Tesco is on the floor.  Why? Because Tesco’s management ended up doing what management teams do: exploiting customers to extract surplus profits for the Tops and Shareholders. I think some wise person said something like “power corrupts: absolute power corrupts absolutely.”

What Can We Learn About The Challenge Of Building A Customer-Centric Organisation?

So what is it that you and I can learn from Tesco if we are grappling with the challenge of shifting a business towards a customer-centric orientation: one not based on using data/insight to exploit customers; one based on using data/insights to generate superior value (product, proposition, customer experience) for the customer?  Here are the paragraphs from this Guardian piece that catch my attention (bolding is my work):

Lewis [CEO], who marks his 100th day in the job on Tuesday, said he was building “a new Tesco” that would eventually reward shareholders. “We need to get back to core principles. We need to improve the service and availability and that is what we are doing.”

Here is what strikes me, how I make sense of this statement based on my prior lived experience:

1. Moving an organisation from a business as usual (product-centred, extractive, short-term focussed) to a customer-centric organisation is akin to building a new organisation;

2. Building a new organisation is not simple, not easy, not quick. It requires the persistent application of substantial energy across a large number of people for a long period of time – years. Only a CEO who has the power and genuinely cares about the wellbeing of the organisation will do what it takes, and keep doing it over the long term of many years.

3. Part of the challenge in building a new organisation is sacrifice. This sacrifice especially involves shareholders. Why? Because usually the shareholders have gotten fat through ‘bad profits’ delivered by their agents (Tops) putting in place strategies-structures-people-practices that collectively take advantage of customers, suppliers, and the employees – extracting surplus rents (to use the term used by economists);

4. Building a customer-centric organisation is matter of getting back to core principles. Notice, it is not discovering some secret recipe nor the latest shiny miracle technology. It is about honouring already discovered, well known, rarely enacted, core principles. How does one honour a principal? By living it – being an exemplar of that principle in action.

What Specific Actions Does It Take To Be A Customer-Centric Retailer?

Let’s continue this conversation by looking at another paragraph that speaks to me. Here it is:

In a bid to improve customer service, the retailer has taken on 6,000 more staff since mid-October, and despatched 6,000 existing head office staff to spend one day a fortnight on the shop floor to get a taste for the sharp end of the grocery business. Lewis has decided not to lay off people after Christmas, a traditionally slack time for retailers, as part of this customer service drive. “Certain activities help you manage profits, but can have a detrimental impact on how you serve customers,” he said. “What we are trying to do is deliver better for customers … I believe that is the foundation from which we can build a new Tesco, which is financially attractive to shareholders.”

Here is how I choose to make sense of this paragraph:

  1. A customer-centric organisation is one which “delivers better for customers”. Delivers what better? Delivers better products. Delivers better service. Delivers better value propositions. I sum this up by saying it delivers a better Customer Experience.
  2. Customer service is a key thread of Customer Experience.  Organisation which seek to show up as customer-centric have to get customer service right. This is especially so for service heavy businesses where the employee to customer encounter is important, even critical.

  3. Getting customer service right means investing in the people who actually are the customer service of the organisation. Please notice the word “are“.  Your front line people are your customer service; they do not merely deliver the customer service that someone else (perhaps in head office) has already produced. This critical aspect of reality is much ignored: your front line people simultaneously invent-create-deliver customer service every time they encounter the customer – they are your customer service!

  4. Investing in people is long term play. Think Warren Buffet: you select the right people and then you hold on to them over and for the long term.  That means not laying people off during traditionally slack periods. Why? Because two way loyalty (sticking by one another) is essential to creating the context for greatness to show up from your people.  When you, the CEO, take the pain for your people you are putting a deposit in the bank account of goodwill. And this allows you to draw on the goodwill of your employees when you need it. Think Market Basket.

  5. The core challenge of building and then keeping in existence (over the longer term) a customer-centric organisation is this one: “Certain activities help you manage profits, but can have a detrimental impact on how you serve customers”.  It occurs to me that this is THE most critical insight.  There is a broad range of ingrained, celebrated, management practices that deliver the numbers over the short-term whilst at the same time chipping away at the  quality of the Customer Experience.  Over the shorter-term there is no visible impact. Then the hit occurs and when it does it is big. I refer to this as the ‘straw that broke the camel’s back’.

  6. The people who collectively constitute the biggest obstacle to making the shift to a customer-centric organisation and keeping this customer-centric orientation intact (and effective) are the people who work in head office: those who make policies, set targets, dictate management practices…. I am talking about the Tops and Middles: those who work with concepts and not reality.  John Timpson of Timpson recognised this and turned the role of the head office from a dictatorship to a helpline, and in the process reduced the number of people in head office, and moved them to the branches where the real work of interacting with and serving customers occurs.

Final Thoughts: Leadership and Governance

If find it interesting that the management practices that have brought Tesco to its knees ended up being unconcealed when an outsider (no relationship to the Tops running the organisation) took over the role of CEO; and

It is the competitive world in which Tesco competes which has forced Tesco’s leadership to deal with these management practices.  It is only when that which had been hidden (bullying of suppliers by head office folks, bullying of store managers by head office folks, manipulating profits through shady accounting practices) could no longer be hidden that both people and management practices are being addressed.

It occurs to me that Tesco is in crisis as there has been a fundamental breakdown in leadership and governance. The Board of Directors failed to do that with which it is concerned. Ensuring that the right person/s are running the organisation. And overseeing the actions (and management practices) of these people. Interesting then that the Chairman of Tesco has had to walk the plank.

I thank you for listening to my speaking. And I invite you to share your thoughts and experience with me. Looking forward to reading your comments.

7 COMMENTS

  1. Great post! It’s not unusual to see once high-flying retailers lose focus. The challenge, and the opportunity, is in recovering customer-centricity. This is precisely why Tesco execs would be well-advised to cross the pond, and observe what U.S. retailers like Whole Foods Market (CEO John Mackey’s servant, conscious-capitalism leadership: http://customerthink.com/the-power-of-servant-leadership-to-build-and-sustain-stakeholder-value/) and Wegmans (customer-centricity: http://customerthink.com/like-just-about-all-of-their-customers-i-love-wegmans/) are doing. Customer-centricity is core to their strategy. It’s in their DNA. Whole Foods and Wegmans get customer service, innovation, and experience optimization right.

  2. Hello Michael,
    Many thanks for your generosity in saying “Great post!”. Coming from a professional like you, your acknowledgement makes a difference.

    Listening to your speaking I am struck by this thought: only those organisations whose Tops (including the CEO) are customer-centric in their DNA will exhibit customer-centric behaviour.

    If this is the case then any Top looking to be shown the ROI of customer-centric behaviour is outing himself as one who is not customer-centric in his DNA; DNA does not ask about the ROI of the human being.

    Taking this to its logical conclusion, most (if not almost all) organisations do not exhibit a set of behaviour labelled collectively as customer-centric. Therefore, most (if not all) organisations are run by folks (Tops) whose DNA is not customer-centric.

    Hence, all investments in setting up Voice of the Customer listening programmes is wasteful. All investments in customer journey mapping is wasteful. All investment in so called CX technologies is wasteful. More, it is pointless – nothing of any significance will change.

    So we should not be working on educating Tops who are not customer-centric in their DNA. Instead, we should be seeking those people (Tops, Middles) that do have customer-centric DNA and helping them to make improvements – even incremental ones. And waiting for folks who do have customer-centric DNA to take the reigns (CEO positions) in organisational life.

    As for Tesco, it will be interesting to see if the new CEO does have customer-centric DNA. And if so, he will be put together a senior leadership team made of people who also have customer-centric DNA.

    I am open to being surprised; the Berlin Wall fell at the most unexpected moment.

    at your service / with my love
    maz

  3. If senior Tesco executives were directly exposed to the DNA, employee ambassadorship, and operational engineering of retailers like Trader Joe’s, Whole Foods Market, and Wegmans (http://customerthink.com/like-just-about-all-of-their-customers-i-love-wegmans/) , perhaps, by osmosis (and taking good notes), they would see the multiple values of returning to, and staying with, a customer centric enterprise philosophy. Then, initiative teams, including mids and store managers, could be formed to make this happen.

  4. Hello Michael,

    Here is find myself in disagreement with you. What you suggest (continuing with customer-centric DNA model) is akin to if we expose brown eyed folk to blue eyed folk then the brown eyes will become blue.

    Ok, that may be extreme. Let’s make is less extreme, lets allow for free will to enter the game. Now it occurs to me that you are suggesting something like lets take some christians to visit some hindus and given the right contact/exposure the christians will become hindus in their practices. Not likely.

    Or let’s take Adam Grant’s model of givers and takers. Are you seriously suggesting that if you put takers into contact with givers then takers will become givers? More likely that the takers will see the givers as naive (at best) and patsies (at worst).

    Take me for example, I really do believe that eating less and not eating meat is great for health. And it does keep me lean. I have been doing this for the entire duration of my marriage. My wife has not given up eating meat. I do my best not to put weight on in the first place. My wife prefers to eat what she wishes and then diet when needed.

    So, we will have to disagree here. One listens only to that which one has a listening for. And one’s listening is not easily changed – it usually requires a big breakdown in one’s existing way of being in the world.

    All the best
    maz

  5. Agree with Maz on this. People rarely change who they are. Very rarely I’ve seen a company go through a transformation without changing CEOs. Tony Hsieh is the only I can think of — in the early days of Zappos and before that, he was not the “wow through service” champion that he’s known for today.

    But this is exceedingly rare. By the time someone becomes a CEO of big company, their philosophy of work and life is pretty well baked. So if a major change is needed, a new CEO with right “DNA” must be hired.

    In the case of Tesco, I don’t see much in the bio (http://en.wikipedia.org/wiki/Dave_Lewis_%28Tesco%29) of new CEO Dave Lewis that he is a customer-centric leader. Rather, he appears to be a “product guy” who spent 27 years at Unilever.

    On a positive note, he is investing in additional staff and products that customers want. His No. 2 priority is “Investment in service” according to this article.
    >>
    Tesco has hired 6,000 staff since October 23, which Lewis said has added “around two to three million more hours into stores”.

    Alongside this, Lewis’s Feet to Floor initiative has also seen 6,000 head office staff spending a day every two weeks in-store, which Lewis said “is having an impact on morale and engagement”.

    He said the investments in service along with availability and price (see below) are having an impact and he is “quietly optimistic” about what they are doing.
    >>

    So time will tell how this plays out. Will he keep investing if his board and/or shareholders pressure to cut costs? Here’s a quote from the Wikipedia entry:
    >>
    When working at Unilever, he was nicknamed “Drastic Dave” which was a reflection of his management actions which included shortening the number of products produced by the company from 1600 to 400 and for cutting jobs which led to a massive decrease of 40% in company expenditure for the year 2007.
    >>

  6. A couple of years ago, I profiled the customer-centric enterprise DNA transformation, and examples of impressive results, achieved by Baptist Health Care in Pensacola, FL, in what is a highly competitive health care services market: (http://customerthink.com/a_customer_centric_war_for_talent_battle_victory_in_healthcare/). For additional info on how Baptist has been able to attain this level of performance, there is an entire book devoted to it: http://www.amazon.com/Baptist-Health-Care-Journey-Excellence/dp/0471708909

    Having been a consultant to Baptist Health Care, I was actively exposed to their culture, and was also aware that one of the tools they’d used in making this significant change was benchmarking excellent-performing companies, both inside and outside of their industry. Benchmarking has both positive and negative ramifications; but, as one element of a broader performance enhancement initiative, it can have value for Tesco.

    To be clear, I’m not advocating that Tesco only observe what Whole Foods and Wegmans are doing and somehow, magically, a transformative return to customer-centric excellence would begin to take place. What I’m suggesting is that, if Tesco truly desires to be world-class again, benchmarking, as an imput, would enable Lewis’ initiative leaders, whether from HRD, Operations, and/or Marketing, to obtain insights and identify techniques which would help make the company’s investment in added store staff, and how they provide service to customers, more effective. And, if such iniitiatives haven’t yet been shaped, the content drawn from benchmarking would assist in their planning. It would also influence more mundane factors, such as store product and inventory management, as well as methods used for promotion and communication..

  7. Great post …my thoughts resonate your views.
    I am of the opinion that Customer centricity follows the management principle of top down approach. The thought on how one can serve their customer better bring value to the customer response , innovate new and uniqueness in terms of service delivery . The employee can think in this angle only when it is inculcated across the organization and is part of DNA .

    Tesco retail giant needs to look at customer centricity model where all employee across functions work with same vision of Customer value and avoid mundane factors influence .

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