The danger of running before you’ve learned to walk
Tesco is the United Kingdom’s most dominant retailer. For a couple of decades now, the supermarket chain has been all-powerful, accounting for one in eight pounds that Britons spend in shops and commanding 30% market share, in addition to being the nation’s largest private employer. And Tesco is not merely a grocer these days; it is also a bank, a telecoms company and a legal-services firm – and it even has its own container port.
But now the famous name faces some difficulty.
Some years back, buoyed by its home success, the retailer embarked on an ambitious growth plan. It made forays into Europe, the Far East and America, in an attempt to maintain its impressive revenue and profit growth trajectory.
The expansion has not gone well. Last month, Tesco announced unimpressive results, declaring a first profit decline for decades. Its shares have fallen by more than a fifth in recent months.
What happened? Tesco bosses acknowledge they took their eye off the ball at home. Its UK stores began looking shabby and tired; it lacked friendly and attentive staff. The basics of selling, in other words, were forgotten.
Tesco has now announced a return to basics in the UK: it is putting in £1 billion in getting its “heart and soul back.” This means recruiting 20,000 more staff to deploy in front of customers, and refitting more than 400 stores. Critically, it is also slowing down the pace of its expansion. Having taken corrective action, I don’t doubt Tesco will find its way again.
There are two powerful lesson for organizations of all shapes and sizes here. One, don’t even dream of expanding rapidly until you have got the basics right – when you have strong relationships with your existing customers, and you have a robust and predictable business model. Second, don’t ever expand at the expense of your current customers, by diverting resources and management attention away from them.
Too many businesses fall into the premature expansion trap, and too many should know better. If you get into untimely expansions, you are inevitably going to end up with abandoned plans and burnt fingers – and you may even damage the core of the business that you had in the first place.
So in this part of the world, have we learnt this lesson? The evidence is not good.
When I look around, I see a power company trumpeting plans for increasing the number of connections, when it is patently unable to provide reliable, consistent, affordable power to its existing customers. I see airlines announcing new routes every few months, when they struggle to make existing flights arrive and take off on time and deliver consistent passenger service.
I see banks expanding at breakneck pace, when their customers have a litany of complaints about queues and efficiency. I see ISPs hell-bent on expanding their customer base every which way, when they are yet to give their current clients anything like consistent bandwidth.
I see highways being built for a populace that has not been taught how to drive. I see a government touting fancy new cities around Nairobi, when the existing capital is being throttled by corruption, disorder, impunity and mismanagement. And I see a grand vision for 2030 when we are unable to take care of 2012.
Everywhere I look, I see dreams for the future rather than action for the present; I see the seduction of easy growth at the expense of doing better with what we have; I see flights of fancy displacing hard reality; I see the glitter of tomorrow’s hypotheses blinding executives to the facts of today.
It is good to dream, and grow we must. But growth is stronger and more sustainable when you have mastered the basics and built a robust core. Those who run before they can walk are usually found lying in a ditch.