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(originally published by Booz & Company)


More Than Words

George S. Yip, co-author of Strategic Transformation: Changing While Winning, introduces an excerpt from Management in 10 Words: Practical Advice from the Man Who Created One of the World’s Largest Retailers, by Terry Leahy, that explores the anchoring effect of business values.

Until recently, Tesco was one of only four large U.K. companies that had delivered superior financial performance for more than 20 years. Remarkably, the company achieved this feat while steadily transforming itself from a discount operation into the world’s third-largest retailer.

In his new book, Sir Terry Leahy, who served as Tesco’s chief executive during the majority of this successful period, pegs a significant portion of the credit for the firm’s accomplishment to its corporate values. Leahy instigated the effort to codify Tesco’s values when he took over as CEO in 1997.

Companies often pay lip service to their culture, but as the following excerpt demonstrates, Tesco’s leaders fully embraced their culture. Faced with an increasingly untenable defined-benefit pension plan, Tesco did not simply retreat to a less expensive defined-contribution approach. Instead, the company’s leaders opened a realistic dialogue with employees and enlisted their assistance in funding the growing costs. Tesco stuck to its values, and today its retirees enjoy a pension that is two and a half times larger than that of a retiree with a defined-contribution plan.

George S. Yip


An excerpt from Chapter 4 of Management in 10 Words: Practical Advice from the Man Who Created One of the World’s Largest Retailers


For a value to mean anything to the business, it must be the first benchmark against which any big decision is judged, and must guide the business itself. Only if a team sees that the management practises what it preaches will they listen and change their behaviour. This is far easier said than done, especially when you are making a major decision on something of real significance in which there are competing, legitimate commercial concerns, some of which conflict with the values. Like politicians, managers have good intentions but tend to lose sight of them when financial and other pressures come into play—one reason being that there are many well-developed financial measures to help one make long-term decisions but few of these are based on cultural values. That is a pity, because financial judgements made in a wider context, and based on clear values, generally lead to a better material outcome in the long term.

All this became apparent to me during the slow, sure and—to me—tragic demise of the company pension scheme. Pensions: the very word can provoke a yawn and a gentle lowering of the eyelids. To anyone under the age of 35, retirement still seems a lifetime away, and therefore pensions are a subject for another day (or decade). For anyone approaching retirement, their pension—and the subject more generally—understandably sits centre stage. Yet to everyone, whether they have just started work or are nearing their retirement party, how their employer helps them prepare for old age says a lot about that employer. Just as you can judge a society’s values by how it treats its old people, you can judge a company’s values by how it helps people for life after retirement.

Given that Tesco aspired to ‘treat people how we like to be treated,’ our pension scheme had to meet our employees’ expectations of what fair ‘treatment’ would be. By 2000 our scheme—like so many others—faced a serious problem. Set up in the 1970s, it was a defined benefit final salary scheme: pensioners would receive in pension a percentage of their salary at the time of retirement from Tesco. As with many British companies, booming investment returns and relatively low employee contributions made the scheme not just a good benefit, but an ideal way for our employees to save. They contributed, Tesco chipped in and the company managed the fund. Such schemes became the norm—the baseline expectation of what ‘Treat people how we like to be treated’ probably meant to our employees.

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The Reviewer

  1. George S. Yip is a management professor and codirector of the Centre on China Innovation at the China Europe International Business School in Shanghai. His books include Strategic Transformation: Changing While Winning (with Manuel Hensmans and Gerry Johnson, Palgrave Macmillan, 2013) and Managing Global Customers: An Integrated Approach (with Audrey J.M. Bink, Oxford University Press, 2007).

This Book

  1. Management in 10 Words: Practical Advice from the Man Who Created One of the World’s Largest Retailers (Crown Business, 2012), by Terry Leahy
  2. Terry Leahy was the CEO of Tesco PLC for 14 years, during which sales and profits quadrupled. He was knighted in 2002 for his services to food retailing and named the Sunday Times Business Person of the Year in 2010. Since stepping down as CEO of Tesco in February 2011, he has served as a senior advisor to Clayton, Dubilier & Rice, a private equity firm, and chairman of B&M Stores, a discount retailer.
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