Consequences Of Terry Leahy Resignation On Tesco

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Introduction

In today's increasingly competitive and complex environment, the idea of spotting and preparing the next generation of leadership is consistently referred to by executives and boards as one of the most critical business priorities facing every business. The uncertainties in the marketplace are driving all organizations to manage their succession plans well.

Tesco PLC is not exempted as Terry Leahy has announced his resignation from the company next year, a crucial time for the company- their entry into the US market. His resignation could go a long way to affect morale as the company launches out into the US market.

This report will highlight the successes of Sir Terry Leahy, his management style and the likely consequences his resignation next year might have on Tesco

Summary of Terry Leahy's successes at Tesco

Sir Terry Leahy is a model manager who started at the bottom of the supermarket group and worked his way to the top .His role as a Marketing Director and eventually a CEO contributed immensely in making Tesco not only a market leader but with a share as great as his next two biggest rivals i.e Sainsbury and Asda. He replicated this winning strategy abroad through the opening of Tesco outlets in other parts of Europe such as Hungary and Asia at the same time extending the local range of of Tesco brands from groceries, electrical, furniture etc. He has run the organization with more than 400,000 employees, nearly 5,000 outlets and £63 billion of turnover.

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Below is a table showing some indicators (financial) spanning the period from 1997 to 2010

1997

2010

Group turnover ex VAT

13,887

56,910

UK turnover ex VAT

13,118

38,558

Rest of Europe turnover ex VAT

769

8,704

Group operating profit

774

3,412*

Group capex

758

3,100

UK stores

568

2,482

Stores outside the UK

190

2,329

* Trading profit in 2010

Source: IGD Retail Analysis

Possible consequences of Terry Leahy's resignation on Tesco

Potential Loss of Momentum

The most significant impact of Sir Leahy's resignation as Tesco's CEO will be potential loss of momentum. He became the first CEO to have risen from the bottom to the top, the knowledge he's leaving with is priceless. Tesco is almost on the verge of world dominance and for the man largely responsible for such meteoric rise to leave at such crucial time will impact negatively on the forward march of the organization. The company has reached a critical stage in its push towards becoming the number one retail company in the world by conquering the US market. At a time when Tesco faces its strongest competitor in Wal-Mart on their own turf, the experience of Sir Leahy would have come in handy. After a successfully testing the American market for eventual entry, Tesco needs all the brains and dedication it can muster. Enormous pressure will come to bear on the next CEO to follow in the successful footsteps of his predecessor and conquer new territories. Time is of critical essence if Tesco is remain at the top of UK Retail and among the top in the world. The longer it takes for the new man to state the strategic direction he's taking, the more momentum will be lost since the competition will not be sitting idle. The only way to avert any potential loss of momentum is to follow through the existing strategy to its logical conclusion with modifications along the way. As the saying goes; if it ain't broke, don't fix it. As the world gradually recovers from the global credit crunch with its attendant recession in the major economies, every decision taken now will impact greatly on the future prospects of Tesco. Momentum is good when you have it but, difficult to recover when you lose it. Tesco must be mindful of the fact that they're on course to achieve greatness and therefore stick to what works for them and not change things for the sake of it.

High Degree of Uncertainty

Over the years, Sir Terry Leahy has been known for his work ethics, openness and participatory approach to management where everyone is given the opportunity to share their concerns and contributions towards the growth and sustainability of the organization. He has established good relationship and rapport with all stakeholders across all levels of the business. He listened to the concerns of suppliers and customers alike. As the new CEO comes in, there will be a degree of apprehension as employees, suppliers, customers and other stakeholders will not be sure the management style and relationship building approach that will be practiced by the new man. This will call for proactive and speedy response thus pending issues and concerns which may arise in the interim. If the successor is not known in the industry, the stock market may react negatively due to the fear of the unknown and whether he can replicate and improve upon the success story of Sir Leahy. Since speculation and perception largely influences what happens on the trading floor, the initial statements and plans of action he outlines will go a long way to allay the fears of the stock market and other industry players. Employees and some management members may not be comfortable relating to the CEO as they may not be sure about his temperament and approach to managing people. If he happens to be more task oriented, staff morale will go down. He needs the right balance to maintain both morale and sales results. Above all customer issues should be paramount. Customers used to Sir Leahy's style of interacting with them reciprocated it with high loyalty levels. They will expect similar relationship with new CEO and other management members.

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Sir Leahy was seen as the captain of a successful team who played an immense role in the achievement of the team. He has become synonymous with achieving and even exceeding targets over the years which has earned him numerous awards from fellow industry players and outside the industry. As the captain exits the team, competitors will begin to re-strategize to identify potential weaknesses and mount an attack of their own (www.managementtoday.com). On the home turf of UK, their main competitors (Sainsbury and Wal-Mart as Asda) will have extra motivation to mount frontal attacks with the hope that there are lack of continuity and a period of uncertainty. Other players like the resurgent Safeway and other retail outlets in both the food and non-food category will be more confident of taking on Tesco. Management must as a matter of urgency deal with any perceived weakness arising from the exit of Sir Leahy. They must be as a matter of necessity, continue with policies and plans started by the out gone CEO which have not run their course but are achieving results before new measures are implemented. There should be no perceived vacuum for competitors to exploit through pouching of skilled and experienced staff and causing customers to switch. To avoid this, the new CEO should take decisive actions promptly to be seen to be in charge. As the various economies across the globe begin to come out of recession, most multinational and global companies are re-strategizing to induce growth in their operations. The timing of Sir Leahy's resignation unfortunately coincides with the renewed efforts of competitors to stake a claim for the available market share. The above discussed consequences which may arise as a result of Sir Leahy's resignation can be migrated through the identification of key stakeholders and the motivation of same. This will be discussed further. Motivation can be defined as "an internal state . . . giving rise to a desire or pressure to act" (Westwood, 1992, p. 288)

Key Stakeholder

Motivational Tool

Employees- It is the collective effort of all staff that leads to the successful implementation of any strategy leading to sales growth and subsequent market dominance.

Motivators as described by Frederick Herzberg (Harvard Business Review, September-October 1987) are factors that should be present if employees are to operate at their maximum capacity.Examples which have introduced and should continue are;

Management by walking about. Much debate on human resource management (and its variations) has centred on the role of a specialist leadership function in business organisations adopting innovatory, high trust work relations. Accounts of successful "leaders, heroes and chief executive officers" are readily available (Pettigrew and Whipp, 1991, p. 139), almost all of which claim to resolve the tensions inherent in the employment relationship by substituting high trust work

relations for asymmetric relations of power, domination and coercion.

Senior managers should continue to make frequent visits to the shop floor and interact with junior staff. Greater efforts should be made to listen more to understand their concerns. (www.managementtoday.com)

Opportunity for advancement. Less bureaucracy and a clear path to advancement where junior staff know what they need to do and the training programs available to them to gain promotion. As many as 10,000 employees are given the opportunity to be trained and promoted within a year. (www.managementtoday.com)

Incentive schemes. The fact that staff become shareholders through the Save As You Earn scheme is highly motivating. This had created over 100,000 employees being shareholders and gives them the feel good factor of working for a company you're a part owner. (www.managementtoday.com)

Fairness to all. Every employee should know the laid down rules and be assured of fairness should they fall short of the rules. All staff should be treated equally at all times regardless of their background in line with the company's vision and policy of non-discrimination.

Customers - Profit making businesses exist to serve customers profitably. Tesco could not have come this far without its loyal customer base across the globe. The Tesco brand can now be seen even in countries where they have no outlets as travelers use their products. In this era of intense competition where customers are spoilt for choice, the importance of customer retention and loyalty cannot be over-emphasized. Tesco must therefore do all it can to retain majority of existing customers as they look to expand into new territories in order to remain ahead of the competition.

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Sir Leahy initiated programs to enable him understand the needs of their customers. This led to the survey of 250,000 customers across the UK. (www.managementtoday.com). The results led to a differentiated approach to retailing as against their major competitor, Sainsbury. The following measures were taken based on the outcome of the survey which should be continued and if possible improved upon.

One stop shop. In order to provide convenience to customers, Tesco moved away from just being a grocery shop to stocking all types of goods from electrical to financial. This provides a different shopping experience to customers as the family can go spend time together to the benefit of all family members.

Clubcard loyalty scheme. Reward scheme for customers based on the frequency of purchase. Points accumulated can be used to purchase items.

Metro shops. The opening of smaller, higher street shops within various communities meets customers demand for proximity and accessibility. This enables Tesco to be closer to their customers and compete with Corner shops ,

Management should carry out regular surveys to be aware of the changing needs of their customers in order to meet their needs.

Farmers - Food section of Tesco's business brings in the most revenue. Farmers therefore form an integral part of the success or otherwise of the company. Maintaining mutually beneficial relationship with them will insure the survival of Tesco.

Motivating farmers can be done in various ways;

Giving them guaranteed prices for their produce to encourage them to produce to their capacity.

Tesco should not use its size and financial backing to bully them into accepting lower prices for their produce. The company should always pay fair prices in order not to impoverish the farmers.

General public - Outlets are located in vicinities where not all residence may be customers. Tesco should be mindful of this fact and treat the rest of the community as if they were direct customers.

Effective social responsibility program will enhance the corporate image of the company within the areas of operation and beyond. The company should make conscious efforts to support good courses to do with climate change and fair trade.

Government - Through regulation and other measures, state agencies operate to promote fair competition and ensure companies meet their financial and other obligations to the state.

Taxation is the main revenue generation tool for the state. It is incumbent upon Tesco to meet their obligations timely and accurately.

Fair competition. It is in the interest of the general public that the state prevents any company becoming a monopoly. Tesco should have this in mind in their expansion plans not to be seen as preventing competition which will damage their corporate image.

Consumer associations - Since they influence the purchasing behavior of consumers, their opinions cannot be ignored by any business which wants to grow and survive the competition.

Some of the issues such agencies are mostly concerned about are;

Fair pricing. The main concern is that, suppliers get fair price for their produce and consumers pay fair price for what they buy.

Proper labeling. The right information should always be provided for consumers to make up their minds from the position of having all the needed information.

Using the recent economic credit crunch and its attendant recession as bases for comparison, the management style of Sir Terry Leahy could be said to be more appropriate to get companies out of crisis than the more authoritarian approach in a company like British Airways. The listening and participatory approach breeds confidence and a sense of shared responsibility when economic conditions take a turn for the worst. When the need for cost cutting measures arise, employees look up to management who sympathizes with them and are prepared to also sacrifice in order for all to gain in future when there Is an upturn in economic fortunes. Schemes such as the Save As You Earn are more appropriate since the employees are more willing to go along corporate strategies aimed at recovery. This is because; they see their future linked with the success or otherwise of the company. Monetary inducement which can be a short term motivator, may not work under difficult economic conditions because; targets may be seen not to be achievable as general patronage drops during economic recession. If the targets are not achievable, employees lose the incentive to work harder. Companies may attempt cost cutting measures and for that reason, monetary rewards may difficult to fulfill on the part of the company. It may not be fair to compare the performance of British Airways to that of Tesco during economic crisis as one is in retail and the other in airline. But, the comparison can still be made since they all compete for the limited financial resource of consumers. It may appear easier to give up travelling than buying groceries, but within the same context, one can choose between buying from a much cheaper retailer than Tesco. The fact that Tesco can even do better than outlets with smaller overhead cost and who can sell goods cheaper, demonstrates the managerial acumen that Sir Leahy is made off. If British Airways had practiced such open door policy that to some extent Virgin Atlantic practices, it could have gone a long way to avert the industrial actions employees waged against management even in a time of crisis when they're expected to be supportive. The reason some businesses do well in a time of global economic crisis while others do not, can be attributed to the relationship that had existed when things were much rosy. When management see junior staff as partners for development and for that matter gives them their due, they will reciprocate the gesture when things take a bad turn. The financial performance of Tesco during the difficult periods of the past three years is testament to the proactive way Sir Leahy managed the business and the confidence he imbibed in the employees. It shows that unpredictable future occurrences cannot be stopped but its impact can be mitigated.

Conclusion

From the above discussion it can be concluded that Sir Terry Leahy's resignation can have negative consequences on Tesco but if this is otherwise managed well by Tesco, the company can still survive the exit of Sir Terry Leahy's resignation. The key mantra here is continuity and open mindedness on the part of the new CEO.