Sir Terry Leahy, CEO of British retailer TESCO, remembers only too well how it felt to be failing in the marketplace. “We had lost our sense of direction and we were in danger of losing our identity,” he recalls. “We had forgotten to ask the simple questions and had overlooked the customer, where advice comes for free.”

As the new CEO, Leahy recalls, he and his leadership team needed to redefine purpose, values and strategy. “When we approach a problem, it’s not how can we do this better than the competition, it’s how can we serve our customers better,” he said. “Our core purpose was to create value for our customers and earn their lifetime value. If we treat them well, they’ll keep coming back. From then up until now, we’ve not ceased focusing on the customer and delivering what they want no matter where they live.”

Tesco’s core business focus was, and continues to be:

1) growing the core supermarket business;
2) expanding internationally outside the U.K.;
3) becoming a strong merchandiser;
4) following customers into new markets such as financial products, digital goods, travel, and leisure.

To these four elements Tesco has added a fifth – “to put the community at the heart of what we do”.
The key to the paths into new markets will continue to be listening to the company’s customers and its employees. “We can never know enough about what our customers are thinking,” Leahy explains.

However, he also notes that you can know a great deal about your customers, but without action the knowledge is useless. “There’s only one thing worse than not knowing,” Leahy says. “Knowing and not doing something about it.”

Changing the direction meant intensive analysis and creating a new focus for every level in the company. “Change isn’t easy, especially in a company the size of Tesco over 3,700 stores and around 450,000 employees worldwide, but our test is still to make change routine,” Leahy says.
For change to become routine in the company, Leahy said he needed to trust his team and avoid the most common misstep leaders of companies in decline make: micromanaging. You motivate people by making sure they know their contribution can make the business better. You need to let them know you are alongside them, but in return, you must trust them. Leahy declares, “If I tried to micromanage everything Tesco does, the business would grind to a halt.”

Saying Tesco does not have a “head office” mentality, Leahy explained that the company’s successful return to market dominance has come because stores are managed by local management, not by conforming to a set corporate model. “Each store needs flexibility to change fast. We try to keep the heart of a small business body.”

Tesco’s teams use a relatively simple evaluation tool to examine each business unit. The “steering wheel” as it’s called, contains five equally weighted components: customer, community, operations, people, and finance. “We review these quarterly,” Leahy says, “ensuring everyone in the company knows what we’ve done, what they’ve done and what we are doing next. The system is powerful because everyone can understand it.”

The big story in Tesco’s performance in recent years is the company’s expansion outside the U.K. Profit generated from those operations last year was around $1.3 billion, which is equivalent to more than Tesco’s entire profit in the troubled 1990s. “Our core values and approach are the same in every market,” Leahy reports. “That global purpose has created a diverse range of retail companies because every market is unique, and we need to treat it as such.” Leahy says store operators live in the new markets and evaluate the store’s format based on local needs. “We look at how we might improve them by using the experiences gained elsewhere, but we are careful not to trample on the local diversity.”

While Tesco’s lessons have been learned in the trenches of retail competition, Leahy believes the six rules he leads with are widely applicable:

1. Customers should set the strategy agenda, not the competition.

2. Be simple. “Simple is not easy. A simple focus is easy to understand, provides a clear focus for everyone and costs less.”

3. Implementation matters as much as strategy.

4. Think local. “Travel the world and find each market and their way of doing things.”

5. In times of change, be sure you change yourself. “Don’t stay attached to forecasts and estimates based on last year’s figures. Think about the world as it is, not how you planned it to be.”

6. Trust your people. “Allow them to take risks, innovate and experience. This builds confidence, inspires new thinking and strengthens the whole organization.”