In his new book, Management in Ten Words, Sir Terry Leahy, who retired from Tesco in March 2011, states that one of his major challenges upon becoming CEO in 1997 was motivating his troops and avoiding the incentive-drain that stems from bureaucracies.
"I'd already seen the dangers for myself," wrote Sir Terry, who first joined Tesco in 1979 at the age of 23 as part of its leadership program, in the book to be released June 19. "People who work in a company wedded to rules and regulations feel trapped."
Upon becoming CEO, management layers were reduced to just six between him and a checkout assistant. Wrote Sir Terry, "This helped us all, from the board downwards, to keep our finger on the pulse — or rather on the shop floor. And the fewer management jobs there were, the less opportunity there was for people to get in each other's way."
Local staffs were empowered to make more personnel and other decisions to create a culture where "employees could take responsibility for their own actions, and dare to try something new — rather than constantly covering their backs."
He adds, "I knew the success of Tesco couldn't just depend on people issuing orders from headquarters."
Although the benefit of decentralized structures "sound obvious," it's more common to see "large, centralized enterprise with numerous layers of management" across industries, he notes.
The first problem with centralized structures is it removes responsibilities and incentives from "those at the bottom of the ladder" who are most likely to deal with customers. Said Sir Terry, "They may be the people who have first-hand experience of a problem and know how to solve it but they don't have the authority to do so."
Centralization then creates situations where the head office takes credit for any successes while laying blame on "those out in the sticks" for any failures.
"Meanwhile, the plush HQ, full of brainy people developing strategy, can quickly become a hornets' nest of cliques and political rivalry," wrote Sir Leahy.
The disconnection between top and bottom then causes corporate to lose focus on consumers.
"Confusion creeps in," writes Sir Leahy. "Jobs are left undone or done late. People start to do someone else's job — or nothing at all. Then the individuals with the strongest personalities begin to impose their will on others, talented people leave and the company enters a vicious circle of decline."
By comparison, he argues that extending greater responsibilities across ranks enables the team to "grow in confidence, self-esteem, courage, determination and commitment. They trust their colleagues more. And some of them eventually become leaders themselves."
- How to make your fortune in 10 easy steps: Don't send emails and trust workers - not bosses. Tips from the man who took Tesco to the top - Daily Mail
- Tesco Terry proves we don't need job quotas - Daily Mail
- How Tesco chief Sir Terry Leahy changed the way Britain shops - Guardian
- Sir Terry Leahy: Management in 10 words - Retail Week