Over the last 2 years what specific activities has Tesco undertaken in response to the recession?
Tesco is a pretty thrifty business anyway because we have very tight margins. So the things we have done are not different, we’ve just stepped them up another notch.  There’s a real recognition that we have to deliver the numbers and we trust that if we deliver our part of the numbers, we will deliver the profit.  

In head office we have 2 things working: we use very tight budgeting and we have very strong organisational design principles.  So we have 6 work levels and we check the spans of control.  I.e. how many people work for the boss and how can we move from 1:5 to 1:6, how many people do we therefore need at different layers of management?  The other thing we look at is simply what can I afford and what I am going to do/not do this year?

That’s what we’ve done in terms of managing cost and the organisation restructure is continuous in terms of looking at how we manage the business.  Big growth initiatives we’ve done in response to recession…discounter lines we did about 15 months ago…price investment…we looked again at our customer segmentation to see whether store ranges and customer profiles are actually matching.

At the same time, however, we continue to create thousands of jobs in the UK in all areas of the business, but most recently we have seen significant growth in Tesco Bank and our customer service operations.

Do you think customer profiles will stay as they are now or do you think they will change again as we move out of recession?
I think what they’ve seen is that some groups haven’t changed very much, so for instance there’s always been a group of customers on tight budgets.  What we are seeing is a group of customers who can cook but haven’t traditionally, they have previously relied on ready meals but now they are buying good quality basics and cooking from scratch.

You would probably expect them to continue to do that once they have learned the skill, wouldn’t you?
I think so, if they enjoy the food.  We’re also seeing a group of young individuals who are starting to be a lot more challenging about food provenance and price.  There are nuances of what we’ve seen before but we recognise that we need to tweak the ranges to match those customers.

It certainly seems to have paid off judging from your recent results.
Yes, we had a very good Christmas.  We pushed Finest over Christmas, targeted at those who might otherwise have gone to M&S to treat themselves.  Also the demise of Woolies was an opportunity – like many other retailers, we looked to fill that gap in the market.

Was that in the entertainment product division?
Yes, and toys and we continue to invest in price. The other thing we’ve done is to go into 2 new big markets.  We’ve bought a business called Homever in Korea which was Carrefour owned.  It was a billion pound investment which is making money for us –a really good investment.  And we bought the bank – our half of the joint venture.  I think there’s a real opportunity for us there if we do the right thing for the customer and create products that are profitable for us and the customer really values.  I think we could create something really different for the customer. It’s really exciting.

So should we expect to see Tesco bank branches around the country?
It’s both online and in the store.  We’ve got six bank branches in the stores.  We’ve had one about 3 years and the rest have come on stream in the last year.  We need to make sure we get it right before we start to roll it out.  So is it in the right place, have we got the right products, have we got the right service levels, people will have to be FSA qualified which is new for us.  What are customers looking for in a branch versus what they want online?  There’s a lot of work to do around that.  The other big expansion for us in the UK is Telecoms.  So, we are really starting to have authority in the Telecoms market.  Getting the iPhone, for example, was a real coup for us.

Tesco do have a reputation for being innovative, at the forefront of new developments.  From an HR perspective, what influence or impact do you have on that?
There’s a huge investment we make in the leadership.  We’ve done a lot of work in the last 2 years in describing what we want from our very senior leaders.  So for these 85 people, the level below the board, we describe them as business builders. We’ve also made the point that a lot of our businesses are the equivalent of a FTSE 250 business –in any other business, they would be the Board.  We spend a lot of time training them to take ownership of their business, understanding what it is that customers want, that they want to make a difference for customers, getting the balance between what’s profitable for us and is it something that customers really want –that’s where I think the difference could be for us in the banking proposition.  Integrity is important.

Living the Tesco values is also important.  These are: no-one tries harder for customers and treat people as you would wish to be treated.  No-one tries harder for customers, means that we have a culture that’s very change hungry because it feels like you have to do the next thing.  We’re much better about change and new than we are at consolidating and reviewing which is why the appetite for building great international businesses comes through very strongly because it’s a very entrepreneurial culture.  The most respected leaders are the ones who have made big risky decisions on behalf of the business.  Calculated risks.  If you see it not working you have to go back and fix it – it’s not good enough to say it didn’t work.  Our whole job is about developing the right leaders and providing talent.  We have a very strong culture about developing internal talent and if it’s not there you have to go and get it. 

So that’s a very integral part of how you deliver the business
Yes, it’s all based on the steering wheel.  Every store manager, every person here in head office will have objectives linked to the steering wheel.  There are 5 segments – we added community to the original 4 [people, process, customer and finance] and the people targets in stores are around the number of trainees coming through the business – if they are not coming through that is as serious as not delivering the shrink targets - , absence, number of store manager vacancies, morale – a mix of quantitative and qualitative measures.  I think if we go back to your original question of what we have done in response to the recession, it is about just stepping everything up a notch to manage through the recession

Let’s just move away from your role and go back to the organisation.  Can you tell me on a scale of 1-10, how efficient and responsive would you consider Tesco to be? (10 is extremely)
We are a very efficient and responsive business.  There’s a meeting every Wednesday which looks both back and forwards and every quarter we look at the steering wheel as a whole to see where we are.  I gave us an 8

What is stopping you from being more efficient and/or more responsive?
We work in our functional silos rather than really cross functionally and we work in country rather than looking for best practise across the world.  I think we need to become much more comfortable with matrix management.  Tesco is at its best with somebody in charge, with very clear accountabilities running this huge machine but when it becomes a bit blurred and you have to work collaboratively or internationally with different time zones, language or culture then we need to improve that.

That’s interesting.  What about business units – are they run as very separate entities?
They tend to run according to the main board areas.  Philip Clarke runs Europe and International and he brings the CEOs together regularly to learn and share so there is a mechanism to do that.  The US is a different business but would learn from the UK.  It tends to be that there is sharing amongst UK and Ireland and in Europe and in Asia and in the States but there isn’t a mechanism for bringing all of that great richness together…The CEOs absolutely have to deliver their own business – that’s part of the business builder ethos – but there is a point where we could share knowledge better. 

Do you think Tesco feels any different now to how it felt pre-recession?
I think we have more resilient people at more junior levels and that does feel different and will serve the business well as they start to come through.  I think it has felt tough – Tesco is quite an intense business – takes itself quite seriously - it has felt tougher this year to get through and deliver – though the determination has never wavered.

What has been your biggest contribution in the last couple of years?
The leadership development – resilience and helping the business to manage their budgets and doing it in a way that was thoughtful about people.  We’ve continued all our people development activities, our options programmes to bring people through the work levels.  We’ve continued to deliver talent, regardless of the recession.  We’ve actually recruited more graduates and spent more on leadership development this year so we have helped to create the feeling that this is a growth business and there is a role for me.  We recognise the market is easing a bit and we need to hold on to our talent.

I want to start the next section by asking you how important thinking about the future is to you?
It’s very important. My job is about supplying talent for the future of the business.

And when I say future what time horizon does that mean to you?
I’m looking 5-10 years out.  In my mind, my job is to deliver sufficient directors to run the business in the future.  There are 480 in Tesco and that number grows by about 5% each year.  We’re in 14 countries, we typically go into a new business or country every 18 months so have I got enough talent to staff the Boards, and that creates its own domino effect, and then there’s the organic growth of existing businesses so I have I got enough directors to fill the business?  So the future directors in 10-15 years time are our current work levels 2 and 3 so who are they and let’s spot them now and start developing them now

And would you say that view of the future, the importance of looking 5-10 years out, is one that is shared by your fellow directors?
Yes because most of them are working in growth areas.  International businesses are growing exponentionally and with services for instance, we‘re not looking at next year.  We’re looking at we want a billion pound business in 5 years so how do I set it up now to achieve that growth?  I would have said all of the directors think like that.  There is no option – the business grows so fast.

Do you have any plans to implement any major changes to Tesco based on a future view of the world?
What we have done with Institute of the Future, which is a forecasting agency working in the States, is a 10 year forecast which they did 2-3 years ago and we have updated it this year.  They have looked at what are the changes in society and what are the implications for Tesco – they pick out areas we might want to talk about.  It creates conversations – it’s a forecast not a prediction.  We invited all the work level 5s, the 85 Directors, and we got them to talk about the map and what it meant for their area and they then talked to their teams and out of that came ideas about what we might want to do with products, how we interact with our customers and our staff.  The Institute of the Future say that the seeds of what will happen in the next 10 years are here now but you just don’t see them clearly. It’s helped us to anticipate what might be coming, so the reactions are not so knee-jerk.  

I have some cards I would like you to sort in order of where you see the greatest challenge for Tesco in the next 5 years.  (The cards are entitled People, Process, Strategy, Structure, Measures)
Because we are going global, Strategy has to be the number one, and on the back of that, actually how do we get common processes and policies so we share our knowledge around the world and grow quickly so I say Process as number two.  It’s not about Lean, it’s about knowledge sharing and local problem solving.  My third one is People – it’s about growing capability.  Then Structure – what are the jobs that we want people to do, have we got the right jobs in the right places, and as we develop the operating model have we got the right structures that deliver the processes?  It is also about off-shoring to our Tesco arm in Bangalore.  The final thing is Measures – the Balanced Scorecard we’ve had around for 10 years now.  It’s becoming more and more refined.  Every business has got one.  Philip Clark, for example, every quarter will go round every country and review the Steering Wheel, spending a morning reviewing them and we then lock that into our reward system, basing year-end bonuses on that.

Do you see in any of them a challenge for HR?
I think this local problem solving & knowledge capture is a challenge for HR.  Our job is to develop the leaders to see the business as global and share their knowledge.  Tesco has done it by having great people – previously if we had a problem we’d put someone on a plane to sort it out.  We can’t do that now. How do you network people, have that nervous system that other great global companies have?  You have to start with the senior leaders.  It’s a huge challenge for us to engage people to work what’s local and what’s global, what’s the Tesco way.  We want local talent…we want teams in the local country to look at their senior leaders and say, “I can do that”.  60% of our Directors are local which is a great message to our local employees – we want more of them and we need to bring them through the business faster

We’re almost done now – Is there a question you would like to pose to a fellow HRD and who would it be to?
I ask fellow HR Directors how have they made their business global and the second question is how do you develop your leaders?  I have been to companies I admire, so I have been to Proctor and Gamble, Nestle, Unilever, GE and I looked at FMCG because I saw them as truly global businesses and I found out how they spotted talent, developed their leaders and created a culture of agility.  I learned a lot and learned that we are more advanced than I thought we were.  I found that people are incredibly generous to share knowledge and incredibly welcoming and open about what’s working and not working in their businesses.  I have also been in touch with Metro and Walmart so even with our competitors it’s been a very amicable exchange of ideas. 

If you could be granted 1 wish to improve the way work gets done in your organisation, what would it be?
It’s about working in more of a matrix, more cross functionally – then we would accelerate talent development

What has been the most influential business book you have read and why?
I really enjoyed ‘The Leadership Pipeline – how to build the leadership-powered company by Ram Charan, Stephen Drotter and James Noel’– what stages do you go through and what to let go to move on.  A lot of our leadership philosophy is based on this.  I read the Harvard Business Journal too.

Are you reading a novel and at the moment and would you recommend it?
I’m a great crime reader – real escapism.  My favourite is probably Ian Rankin for that gritty Northern realism and Reginald Hill because he’s just great fun and the Yorkshire setting appeals to me – I’m from Yorkshire.

If you found this interesting and would like to explore some of the topics discussed in greater depth, you may find these articles useful: Balanced Scorecard, Lean: Don't Settle for a Dyson.