01/01/2013

Devising a Simple Strategy for Retail Success

Sir Terry Leahy

Each day our world becomes more complex. We're being bombarded with information and choice while leading busier lives. A typical supermarket in the U.K. today stocks 40,000 products; in the 1950s it was just 2,000.

Individuals want to lead easier, simpler lives as the demands on their time increase. Companies who offer that will succeed–those who don't will fail. Red tape and long-winded decision-making processes cost companies their profit. The imperative is to be able to change, and change fast, to meet new demands, challenges and the impact of new technology. My solution is quite simple: to make things simple.

A simple proposition is easy for people to understand. Simplicity is the knife that cuts through the tangled spaghetti of life's problems.

Simplicity in Practice

Consider how many thousands of products a supermarket sells, and the logistics required to make sure that the store has ketchup, ice cream, razor blades, tomatoes, shampoo–anything and everything you would expect from a store, when you want it. Each one has to be packaged up, delivered, unpacked and put on shelves. Think about the store's customers. Each one is different. No two shopping baskets are full of exactly the same things. How does the store attract different people, with different tastes and budgets? How does the supermarket compete and differentiate itself from competitors? And finally how swiftly can you change in response not just to long-term trends, such as the emergence of social media, but to short-term fashions or the impact of a sudden spell of cold weather?

Soon after I was appointed CEO, I became very aware that Tesco was finding it difficult to grapple with these challenges. Its systems were becoming too complicated. Simple tasks had become cluttered up by new additions and plans. It was clear, therefore, that we needed to do some weeding and pruning, to stop people doing what was unnecessary and bring more focus and simplicity to everything we did.

My wish for a new culture of simplicity was lapped up by the team, partly because the notion runs in Tesco's blood. When Jack Cohen set up his market stall in London's East End, he didn't have the time, resources or space for complicated processes. Being small-scale forced him to focus, to cut out waste and to simplify. We took this to heart, creating a guiding principle to make our processes "Better, Simpler, Cheaper." Every change, every innovation had to pass a test: The change had to make the store better for customers, but, at the same time, cheaper for Tesco and simpler for the staff to operate.

In our drive to "keep shopping simple" for customers, we took out all the frills in the building and in the design and layout of equipment. Within a few years, we had reduced the cost of building a store from 230 British pounds to 150 pounds per square foot and were creating better stores, which customers and staff preferred. Standardized and simplified equipment meant we saved twice; through bulk buying and through a simpler specification. We saved space in stores because, as we simplified our replenishment systems, we had less spare stock.

The ABC Test

The greatest benefits, though, came from simplifying processes for staff. At the back of my mind was a simple test to check whether what we were asking people to do was truly simple. The ABC test (yes, simple to remember) stood for "Simple is Achievable, brings Benefit and is Clear." This was also a means to turn simplification into a habit. Everyone who works at Tesco is now encouraged to suggest ways to make their work easier. If their idea is picked up and implemented, that person is given a Values Award, recognition of the contribution that they have made. This has generated thousands of ideas.

The sandwiches we sold used to have a bar code tucked away on the back of the pack so as not to spoil the design of the label. However, when sandwiches were reduced in price because they were nearing the end of their shelf life, we had to put stickers on the front for the customer and on the back to correct the bar code. This meant that someone had to label both sides and the checkout assistant had to look at both sides. Tesco sells about 1 million sandwiches a day, so the need to examine a pack closely took up a lot of our staff's time–and meant customers waited longer. Someone on the shop floor noticed this and suggested that we put the price and the bar code together on the front of the pack. The savings: half a million pounds.

New technology can, of course, help simplify processes, but only if you are clear about precisely what outcome you want to achieve. In the U.K. between 2008 and 2011, by improving the scanning processes and systems at our checkouts, we saved 18,000 hours per week; by introducing handheld devices and computers on the shop floor to manage stock, we saved 3,500 hours per week; by introducing 'Pay at the Pump' for those purchasing petrol, we saved 2,300 hours per week; and by introducing self-service tills, we saved 21,000 hours per week. Four initiatives; more than 40,000 hours saved (admittedly, though, each one demanded considerable initial investment). These examples are dwarfed, however, by the time we saved by putting products into display trays that can be slotted straight onto shelves: 43,000 hours per week.

All this by taking a step back and making individual processes more simple.

Sir Terry Leahy, who was chief executive officer at U.K-based retail giant Tesco from 1997 to 2011, is the author of "Management in 10 Words"(2012, Crown Business), from which the above excerpt is published with permission. Leahy was knighted in 2002 for his contributions to food retailing and named Business Person of the Year in 2010 by The Sunday Times.