• 08.03.12

Better, Simpler, Cheaper: The Formula That Makes Tesco Great

Sir Terry Leahy was knighted for his agile leadership as CEO of British supermarket giant Tesco. Here are the simple, effective guiding principles he used to propel the company to greatness.

Better, Simpler, Cheaper: The Formula That Makes Tesco Great

A simple aim brings focus to what people do. A simple proposition is easy for people to understand. Simple acts take less time to learn and less time to do and cost less. Simple systems take less time to establish, are easy to change and are actually more satisfying for the people who work with them every day. Simplicity is the knife that cuts through the tangled spaghetti of life’s problems.


Making things simple, however, threatens people. Simplicity forces people to strip out unnecessary processes–which can lead to cutting jobs or, at the very least, having uncomfortable conversations with staff (and especially vested interests) to tell them to change how they work. And simplicity brings in its wake transparency and accountability: chaos and bureaucratic processes create hiding places for inefficiency, idleness, underperformance. Complex process can leave a muddled chain of command: no one is quite sure who is responsible for what.

When trying to achieve something new, or overcome a new challenge, people usually add new processes to their workload, rather than asking ‘What can we stop doing?’ or ‘Can we change the system to achieve a new goal, while keeping the system simple?’ A very simple idea, which can underpin the mission of an entire organisation, becomes confused. Like a Christmas tree, the more baubles and decorations that are hung upon it, the less you can see its original, simple form.

Simplicity in practice

Apply these observations to retailers and you can see why simplicity is so important. 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 different budgets? And then there is the competition. Competitors are going to be after the same customers. They will price goods differently. How do you compete and differentiate yourself from them? And finally there is the need to change–responding 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. We were finding it hard to turn decisions into action as we were running hundreds of projects all at the same time. 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.


The greatest benefits 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’.

Achievable–people said ‘I can do this new process correctly first time’: they had the right skills, and were given all the necessary resources, to do what was required of them. Benefit–the process helped us achieve our aims, or fixed something that was broken. Clear–it was easy to remember and explain to others, and people did not need a manual to understand what was asked of them.

This was also a means to turn simplification into a habit. Once a new simple process has become a habit, people will ask ‘It’s so simple, why did we not think of this ages ago?’ The answer to that conundrum is almost certainly that no one thought to ask the right people the question ‘Can you make this process more simple?’ Many companies employ strategists or blue-sky thinkers to simplify systems. Sitting in their offices, far from the scene of the action, these experts usually have little first-hand experience of a process. It is always far better to ask the people on the front line, who perform tasks each day, how to simplify things. Everyone who works in 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. 

Similarly, sandwiches. 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 one 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 saving: half a million pounds.

Reprinted from the book MANAGEMENT IN TEN WORDS by Terry Leahy. Copyright © 2012 by Terry Leahy. Published by Crown Business, a division of Random House, Inc.

[Image: Flickr user Andrea Joseph]