Tesco's 'Steering Wheel' - A Tool for Strategic Value Creation and Business Transformation

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Case Details:

Case Code : OPER067
Case Length : 21 Pages
Period : 1990-2007
Organization : Tesco Plc.
Pub Date : 2008
Teaching Note : Available
Countries : UK
Industry : Retail

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Transformation through Innovation Contd...

Commenting on the company's results, Tesco's CEO, Terry Leahy (Leahy) said, "The numbers are solid, the growth is broadly based - coming from all four parts of our strategy⁷ - and we have delivered tangible benefits for shareholders."⁸ (Refer to Table I for key financials of Tesco).

During the early 1990s, Tesco's financial performance had presented a fairly dismal picture. At that time, revenue growth had slowed down significantly and the company's profit margins were under pressure. Tesco was facing competition from local players like Sainsbury's⁹ and Asda¹⁰ as well as discount retailers from continental Europe, which were making their presence felt in the UK market.

In the mid-1990s, the British economy was hit by recession. Tesco was in deep trouble.

Industry analysts were of the view that Tesco was being squeezed between discounters on the one side and higher end competitors like Marks & Spencer¹¹, on the other. Tesco was unable to differentiate itself from its competitors and was far from innovative in terms of what it offered to the customers.

During the early 1990s, under the leadership of then CEO Ian MacLaurin (MacLaurin), Tesco went in for a major image makeover. It closed down many of its old stores and replaced them with bright and attractive stores. In 1995, after its acquisition of William Low of Scotland, Tesco became the leading retailer in the UK...

Excerpts >>

7] The four parts of Tesco's strategy were Core UK business, international business, UK non-food business, and retail.

8] Chief Executive Statement, Annual Review and Summary Financial Statements, Tesco, 2007.

9] Sainsbury's was the largest grocery chains in the UK till 1995. However, it had slipped to the third position by 2004. In 2006-07, Sainsbury's recorded revenue of £ 18518 million and net income of £ 58 million.

10] Asda is a UK-based chain of supermarkets, offering food, clothing, and other products. In 1999, Asda became a subsidiary of the US-based Wal-Mart.

11] Marks and Spencer Plc is the largest clothing retailer in the UK in terms of revenues. It is also a multi-billion pound food retailer. In 1997, it became the first British retailer to make a profit before tax of over £1 billion. M&S operates in 30 countries across the world through more than 760 stores. In 2006, the company recorded revenues of £ 7.798 billion and a net income of £ 0.521 billion.


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