Incoming Tesco CEO Philip Clarke Needs to 'Imagine' When it Comes to Fresh & Easy Neighborhood Market USA

Above is Google's 'Google Doodle' of John Lennon, in honor of his 70th birthday, which is tomorrow. You can listen to a 32-second track of John Lennon's song 'Imagine' and watch the morphing 'Doodle' at Google's home page. Click here to listen to the song in its entirety. You can get the song's lyrics here.

The Insider: Heard on the Street

Had he not been shot dead on a brisk December 8, 1980 night by Mark David Chapman outside the Dakota, the Manhattan apartment building in New York City where he and his wife Yoko Ono lived, the musician, singer, songwriter and peace activist John Lennon, one of the United Kingdom's greatest exports, would have been celebrating his 70th birthday tomorrow, Saturday, October 9.

One of Lennon's most moving and popular songs is "Imagine." The song became and remains extremely popular in the United States and throughout the world in large part because in many ways it was a theme song for how John Lennon, a man with plenty of psychological and emotional warts, like the rest of us, lived his life - imagining. In the song he asks us to imagine a different, more peaceful and harmonious world.

Born in a lower-income neighborhood in working class Liverpool, England on October 9, 1940, it was John Lennon's strong imagination - along with plenty of hard work and some good old fashion luck - for a better life that led him to become one of the most talented song writers and musicians of all time, first as one of the four Beatles and later after they split as a successful solo singer/song writer.

Today Google, the Mountain View, California-based company hatched in the minds and founded in 1998 by two Stanford University graduate students, Larry Page and Sergey Brin, and which through hard work and millions of mega-bites of imagination has become an iconic global company in a mere 12 years, is celebrating John Lennon's birthday and his imagination by replacing its famous logo on the Google home page with an artist's sketch (a 'Google Doodle') of the Liverpool-born musician. Clicking on the 'Google Doodle' of Lennon plays the 32-second track.

Ironically, like John Lennon, United Kingdom-based Tesco's current CEO, Terry Leahy, and its incoming CEO (March 2011), current head of European and Asian retail operations and corporate information technology, Philip Clarke, both happen to be born and raised in Liverpool.

Perhaps there's some imagination-inducing chemical in the water in Liverpool?

Tesco CEO Terry Leahy, who chose a very different career path than did fellow Liverpudlian John Lennon, has used his imagination to a considerable degree in developing and implementing a vision for Tesco over the 14 years he's been CEO. (Click here for a quick lesson in Liverpool dialect.)

That imagination included a vision to make Tesco the number one retailer of food and general merchandise in the United Kingdom, which it wasn't when Leahy took over but is today.

Leahy also imagined Tesco as a global retailer, with stores in Eastern Europe, Asia and the United States, which it wasn't when he took over but is today.

Terry Leahy - Sir Terry, as he's often called - was even given that title by the Queen, in part for his retailing imagination.

That brings me to the third son of Liverpool, incoming Tesco CEO Philip Clarke.

I suggest Philip Clarke call on that Liverpudlian imagination when he takes the CEO reins from Leahy in March of next year, when it comes to Tesco's fledgling Fresh & Easy Neighborhood Market fresh food and grocery retailing venture in the United States.

He needs to 'imagine there's no sacred cows' - human, operational or programatic - when it comes to Fresh & Easy.

Clarke should imagine Fresh & Easy is a true California start up business in the best Silicon Valley definition of that term rather than it merely being a colonial grocery retailing outpost that flies under the mighty Tesco flag.

The CEO-to-be needs to imagine on a larger canvass when it comes to Fresh & Easy Neighborhood Market. The United States is a huge country. After all that's one reason (territory) the British fought so hard to keep it. It's geography goes far beyond California, Nevada and Arizona, for example.

Philip Clarke also needs to, in the words of John Lennon: "Imagine all the people." In this case - grocery shoppers. Americans aren't one size fits all. Some like self-service checkout, for example. But most want to be waited on, (or at least be offered the option) by a clerk rather than scan and bag their own grocery purchases, particularly after working an eight hour day. No dice at Fresh & Easy, it's all self-service, although the great store clerks with assist if asked. But about us Americans - we hate to ask.

Most American grocery shoppers also like the choice between a free paper grocery sack or a plastic carrier bag to hold their purchases. But it's free plastic carrier bags only at Fresh & Easy. After all, long gone are the days of Henry Ford, who said prior to the introduction of his first automobile that Americans could have it in any color they wanted - as long as it was black.

We should all be using reusable shopping bags - but it just ain't reality. So, to paraphrase Patrick Henry of, "Give me liberty, or give me death" fame: 'Give me a choice between paper or plastic, or I'll go to Safeway.'

Many U.S. shoppers also like to pay for their groceries with a paper check if they so choose, something that's taboo at Fresh & Easy. And many like to cash their paychecks (or government checks) at the grocery store, then use a healthy chunk of the cash to buy groceries after. Can't do it at Tesco's Fresh & Easy.

Tesco's incoming CEO should travel the U.S. visiting grocery stores, his imagination tuned to high.

For example, a good place to start would be by visiting stores operated by: Wegmans on the east coast; H-E-B in Texas; Fry's in Arizona and the numerous Latino format grocers in the state; Ralphs and Vons and others in Southern California; Whole Foods; Aldi USA; Trader Joe's; Costco; Walmart; Target's P-fresh markets inside its discount stores; Safeway; Raley's; Andronico's and others in Northern California.

What Clarke will see is that like the American people, who are a mosaic of sized, shapes, ethnic backgrounds and more, its grocery stores are a mosaic of formats - big, small, upscale, discount and various combinations of all of the above. And if his imagination is in high Liverpudlian gear, he might have a revelation. That revelation: One possible key to success for Tesco in the U.S. might be to become a multi-format food and grocery retailer.

Philip Clarke takes over the corner office at Tesco headquarters in Cheshunt, United Kingdom with the retailer's U.S. Fresh & Easy Neighborhood Market venture being nearly three years on; the first stores opened in November 2007.

In my June 12, 2010 column - Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011? - I used a question as its title as a rhetorical device to suggest Clarke would and should "shake things up" at Fresh & Easy. Between then and now Clarke has shaken things up a little bit. As incoming CEO he's already been working closely with CEO Terry Leahy as part of Tesco's extensive succession planning process.

Among the slight "shaking up" Clarke's done over the last couple months has been to ask fellow Tesco board member and Fresh & Easy Neighborhood Market CEO Tim Mason, who in March will get the title of co-CEO (Clarke will run the company though), for a plan going forward for Fresh & Easy.

Based on Tesco's announcement on Tuesday that its closing 13 under-performing Fresh & Easy stores - six each in metro Phoenix, Arizona and metro Las Vegas, Nevada and one in Southern California - that it plans to have 400 Fresh & Easy stores by the end of its 2012/13 fiscal year, and that it also plans to break-even by then, along with comments made by Clarke, it appears Tim Mason has come up with a plan that has satisfied Philip Clarke. [See - October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market.]

Soon-to-be Tesco CEO Philip Clarke said this about the going forward plan for Fresh & Easy on Tuesday: "There's no need to carry out some big strategic review," he said today. "It's clear that continuing, and moving toward profitability, is the right thing."

However, while it is a plan, and with some positive elements, it's an incomplete one, in my analysis and opinion. The work - and imagining - when it comes to Fresh & Easy is far from done. As such, it would be a shame if Philip Clarke doesn't take a cue from fellow Liverpool lad John Lennon and continue to imagine, when it comes to Tesco's American Fresh & Easy venture

[Columnist's Note: John Lennon's song 'Imagine" has a meaning much larger than commerce. It's not my intent in the column to conflate the meaning of his song with commerce in general or Tesco specifically, although John Lennon, who later became a global peace activist, did well commercially and wasn't ashamed of it, nor should he have been. Rather, it's to suggest to one son of Liverpool that he might take a page from the imagination of another son of that city when it comes to his chosen profession. Happy birthday to a global icon, John Lennon]

Related Stories

October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market

October 4, 2010: Tuesday's Tesco Interim Report Offers A Road Map of Sorts For the Future of Fresh & Easy Neighborhood Market

The Insider - September 13, 2010: Reading Philip Clarke's Tea Leaves: Might A Mixed Corporate/Franchise Model Be in Fresh & Easy Neighborhood Market's Future?

The Insider - June 12, 2010: Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011?

June 8, 2010: Tesco CEO Terry Leahy Retiring; Philip Clarke New CEO; Tim Mason Named Deputy CEO But Will Remain Fresh & Easy Neighborhood Market Chief in U.S.

Recent Columns by 'The Insider'

~September 13, 2010: Reading Philip Clarke's Tea Leaves: Might A Mixed Corporate/Franchise Model Be in Fresh & Easy Neighborhood Market's Future?

~September 3, 2010: How the California Grocers Association and its Members Can Snatch Victory From the Jaws of the Defeat of California's Plastic Bag Ban

~August 22, 2010: Challenges & Opportunities: Tesco's Fresh & Easy Neighborhood Market Will Supply its Northern CA Stores From its Riverside County DC in Southern CA

~July 18, 2010: When it Comes to Northern California - its Competitors are Rome Burning and Tesco's Fresh & Easy Neighborhood Market is Nero Playing the Fiddle

~July 13, 2010: A Few Words on The Life and Death of Veteran Southern California Grocer Roger K. Hughes

~June 27, 2010: The Insider: Will Tesco Acquire Supervalu, Inc. and Change its 'Fresh & Easy' Game in America?

~June 12, 2010: Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011?

~May 20, 2010: Welcome to Discountopia USA

~April 29, 2010: Heard on the Street: There's Something About Albertsons ... In Southern California

Analysis & Commentary: Fresh & Easy Neighborhood Market and Tesco's Lowered Expectations

Tesco plc CEO Sir Terry Leahy outside one of the global retailer's United Kingdom stores. Sir Terry -- 'A Pence for your thoughts?'

As we reported and wrote about here on November 12 and again here on November 19, Tesco Fresh & Easy Neighborhood Market USA CEO Tim Mason announced on November 12 that the grocery chain was scaling back its heretofore rapid new store opening program, which has had the retailer opening a new small-format, convenience-oriented Fresh & Easy grocery and fresh foods market about every three days in the Southern California, Metropolitan Las Vegas, Nevada and Metro Phoenix, Arizona market regions since November, 2007.

This retrenchment includes postponing Tesco's entry into Northern California, which the grocer plans to be its fourth and newest market region.

The first stores in Northern California's San Francisco Bay Area and in the Sacramento-Vacaville Metropolitan market region were originally supposed to be open in mid-2008, according to Tesco's first announcement about the new market launch in late 2007. During the first quarter of this year Tesco revised that target, saying the first Northern California Fresh & Easy markets would start opening by the end of 2008, which would be right about now. Then once again earlier this year the grocer revised the target again, saying plans called for the Northern California stores to begin opening in early 2009.

Based on information from our sources, it's now doubtful any of Tesco's Fresh & Easy stores will open in Northern California in the first quarter of 2009. Rather, we see the first stores most likely not opening any sooner than the middle of next year.

300 stores by end of 2009: Fact or fallacy

For many months now Fresh & Easy Buzz has been saying Tesco's goal of having 300 Fresh & Easy stores open by the end of 2009, which is the number most of the mainstream press has been reporting over and over since late 2007, was unrealistic for a variety of reasons. Chief among these reasons being the fact, as we've reported, the grocery chain is way behind in building its Northern California distribution center in Stockton, California, along with the simple fact the grocer's rapid new store opening pace isn't sustainable, considering the existing Fresh & Easy stores remain below Tesco's sales targets for this time in the chain's development, along with a few other reasons.

The sustainability issue also is why Fresh & Easy took a three month new store opening pause from early April until July 2 this year. Beginning on July 2, when it opened it Manhattan Beach, California Fresh & Easy market at 1700 Rosecrans, the grocery chain started up its rapid new store opening pace again, opening a new store about every three days or so in its three Western U.S. regional markets.

Instead of towing the 300 stores by the end of 2009 party line, we've suggested having about 175-200 Fresh & Easy stores open by the end of 2009 is a more likely realistic figure.

It appears we're spot on. Tesco Fresh & Easy Neighborhood Market CEO Tim Mason is now using that same number -- about 200 stores open and operating by the end of 2009 -- publicly and to the press. For example, in a brief report on November 12 in the Financial Times, staff writer Elizabeth Rigby writes: 'Mr. Mason now hopes to hit the 200 target by November next year, some 10 months later than planned.' He also used the 200 store estimate in his November 12 interview with The Times (United Kingdom) newspaper.

Additionally, Tesco's Fresh & Easy's Neigborhood Market's corporate spokesperson is now using the about 200 stores open by the end of 2009 figure as well when speaking to the press.

We talked to a source at Tesco's Fresh & Easy Neighborhood Market who told us on the condition we wouldn't mention the source's name that the 200 store number by the end of 2009 isn't even a sure thing. Rather, that the grocery chain could easily fall short of that number. This fits with what the Financial Times' Elizabeth Rigby wrote in her brief report on November 19: 'Mr Mason now hopes to hit the 200 target by November next year, some 10 months later than planned.' Notice the word HOPES in the sentence.

Since Fresh & Easy's original strategy called for the grocer to have 200 stores open by early 2009 (like by the end of February or March of next year), and then open about a hundred more in the remaining 10 months of 2009 to get near that 300 total number of units by the end of next year's original target, having around 100 less stores than projected by the end of next year will have a major impact on Tesco's Fresh & Easy model -- and sales and profit/loss target.

Among the impact includes taking longer to break even financially with Fresh & Easy. The Fresh & Easy Neighborhood Market business plan and related financials is based on having those 300 stores, or close to that number, (and the added volume they would bring) open by the end of 2009. Therefore, with fewer stores open the grocer is going to have to obtain significantly increased sales and substantially improved profit performance out of its existing stores (and the new stores it does open between now and the end of 2009) in order to keep its losses close to plan. Same stores sales and profits must increase in order to minimize losses.

Northern California here we come, later than we started from

In terms of postponing it Northern California market launch, we've identified thus far 46 Fresh & Easy store locations in the region -- 25 in the San Francisco Bay Area and 21 in the Sacramento-Vacaville region. Fresh & Easy has confirmed 37 of these locations -- 18 in the Bay Area and 19 in the Sacramento-Vacaville market region.

Most of these 46 Bay Area locations are vacant, former retail store buildings the grocer is currently or plans on remodeling into Fresh & Easy stores. As a result, the company holds leases on the majority of these locations. Therefore, even though Tesco is postponing opening the stores it still has to pay the monthly rent on those buildings. Commercial landlords seldom give retail tenants a rent vacation because they've changed their plans on when they plan to open their stores.

For example, if Fresh & Easy postpones opening the first stores in Northern California for six months -- from early 2009 -to- mid 2009. The company still has to pay the monthly rent on all those non-open stores. And if the first batch of the stores don't start opening until six months later than originally planned that means the second and third batch of stores won't open until more than six months later than originally planned, which means paying rent on those (second and third phase opening stores) unopened stores for an even longer period of time.

This is going to have an impact on the expense side of Tesco's balance sheet since empty stores don't generate income. In fact it could add hundreds of thousands of dollars in expenses to the company's balance sheet.

It's our analysis actually that it's wise for Fresh & Easy to postpone opening its Northern California stores. But we aren't sure the grocer should even go into Northern California with the current Fresh & Easy format, so that's little comfort overall.

What isn't wise though, and indications that something is wrong, is to keep putting off the dates which the first stores will open.

In his November 12 interview with The Times CEO Tim Mason said the reason for postponing the grocer's Northern California launch is due almost completely to the current financial crisis and recession. However, in the interview he also mentioned essentially being behind in constructing the retailer's Northern California distribution center in Stockton, which is about 35 miles from Sacramento and about 50 miles from San Francisco.

Fresh & Easy Buzz has know since early this year, as have others who follow Fresh & Easy closely such as Piper Jaffray-UK senior research analyst Mike Dennis, who's been writing in his regular notes to Tesco plc investors about the construction delay of the Northern California DC and how in his analysis it would cause Tesco's Fresh & Easy to postpone its entry into Northern California and therefore will result in his view in Tesco's failing to meet its sales and profit targets for Fresh & Easy. Dennis follows Tesco plc closely. He's also been one of the closest observers and analysts of Tesco's Fresh & Easy since it set up shop in Southern California.

Therefore, since Tesco's Fresh & Easy has known since earlier this year it was behind schedule (either on purpose or not) with its Northern California distribution center, why did it wait until November, 2008 to announce it wouldn't be entering Northern California on schedule? Some might say: "It's the economy stupid!" In other words, is the recessionary economy the real reason for postponing the launch, or is it because there's no way the Northern California distribution center is or will be ready anytime soon to service Fresh & Easy stores in Northern California? You be the judge.

However, even if the economy was booming, the retailer couldn't open stores in Northern California without its distribution center being open, which is one of the two reasons CEO TIm mason has given for postponing the launch. Perhaps Fresh & Easy saw the financial meltdown and recession coming in the first quarter of this year -- something the U.S. Treasury Department , Federal Reserve and nearly every independent economist missed -- and decided to delay construction on the Stockton DC just in case?

We don't doubt the financial crisis and recession has something to do with Tesco's plans to postpone its Northern California launch. However, without a distribution center the bad economy is a moot point. Therefore there's more to the decision than just the external factor of the financial crisis and recession, obviously.

Interestingly, the interviewer for The Times didn't ask Tim Mason the simple question: 'Why is it taking so much longer than planned to construct and open the Northern California distribution center in Stockton.' Since Mr. Mason mentioned this himself, that the DC is behin schedule, it certainly would have been a logical follow-up question for the interviewer to ask. Perhaps the interviewer did ask that important journalistic question but either it wasn't answered or if asked and answered the answer didn't appear in the November 12 profile piece in The Times?

Setting the bar too high with PR hype

Having roughly 100 fewer Fresh & Easy stores opened by the end of 2009 -- the 300 store number was used by the company right up until a couple weeks ago after all -- will also have a negative perceptual effect on Tesco's U.S. small-format, convenience-oriented food and grocery retailing venture.

This effect in part is by the global retailer's own creation. Beginning at least two years before it opened its first Fresh & Easy grocery and fresh foods market Tesco started building up the public relations hype in terms of what a major food retailing venture Fresh & Easy Neighborhood Market would be. British and U.S. newspapers ran bold headlines, with the urging of the retailer's PR staff, touting the "British Food Retailing Invasion." Story after story talked about how Tesco planned to open as many as 500 stores in three years. How it would begin in the Western U.S., move to the Midwest, then on to the east coast, concurring America.'

In effect, what Tesco did through its public relations program was to set the bar for Fresh & Easy so high, even if the grocery chain exceeded all expectations in its first year of operations, which it hasn't, doing so still likely would not have been good enough based on all the pre-store opening hype the company generated in the media.

Tesco couldn't control what the mainstream media wrote, and the press loves drama, but the company intentialy created much of this hype and fed it to the press. Much of the mainsteam media loves canned stories after all, especially press releases. Tesco's PR staff did their jobs and gave it to them. It wasn't the Pr folks' fault. Rather it was the fault of the corporate executives who encouraged the hype strategy.

As most entrepreneurs and good politicians know, a company or individual must walk a fine line when playing the expectations game. It's always far easier and much more popular to go beyond expectations than it is to not meet them. Tesco set the expectations so high for Fresh & Easy that it shouldn't be any wonder to the company's executives that their performance to date has been frequently criticized. Creating excessive PR hype can be a double-edged sword. If you live up to the hype you are a hero. If not you are a goat. But nobody else is to blame -- after all it's your hype. Nobody forced the company to create and communicate it.

In Tesco's case it set the bar so high for itself with all of its publicity generation about revolutionizing American food and grocery retailing and building a empire in a scant couple years that now each time it announces a cut-back, major change or postponement, it makes the retailer look like its failing.

Perception can be reality after all. But in Fresh & Easy Neigborhood Market's case the problems go beyond mere perception -- the grocery chain has real merchandising, marketing and operations problems.

Need for major change and new strategy

As we've argued in Fresh & Easy Buzz, it's our analysis these performance problems are based largely on a single faulty premise and strategy, that the retailer has tried to use a British model of food and grocery retailing in the Western United States. That instead of bringing in key executives with extensive experience in the market the retailer has relied almost completely on executives with experience primarily in the United Kingdom. From this faulty strategy a myriad of operational, merchandising and marketing problems have then been created.

Coupled with this change, Fresh & Easy Neighborhood Market then needs to fine tune its value propostion through merchandising. Once achieved it needs to create an integrated strategic merchandising and marketing program designed to coomunicate its value proposition on a consistant and regular basis -- tout if frequnetly and hammer it home.

For example, based on its no frills model and overall low everyday prices, consumers should be flocking to Fresh & Easy stores like they are to discounters like Wal-Mart and Aldi in the current severe economic recession. That isn't happening. Why? It's our analysis the reasons are the two we outlined above -- the faulty use of a British food and grocery retailing model and a failure to properly create and communicate a strong value proposition.

What would Sir Terry do?

Tesco is a great global retailer. But in terms of approaching the Western U.S. market in a smart, regional and local way, the way all successful grocers do, it's failed miserably in that regard. Why this is so, in our analysis, we find very hard to understand.

But two other British retailer's, Sainsbury's and Marks & Spencer, both did essentially the same thing when they entered the U.S. some years ago; both acquiring existing U.S. retailers, operating for some years -- and both failing.

Tesco however still has a strong chance to be a success with Fresh & Easy in the U.S.. But it's our analysis that unless major changes are made, and its use of the British food retailing model is dumped and replaced by an American regional, sub regional and localized strategy, those chances for success are at best slim.

Tesco plc CEO Sir Terry Leahy has been largely silent for most of the year about Fresh & Easy Neighborhood Market USA. That's mainly because he made Fresh & Easy Tim Mason's (the grocery chain's CEO) baby, so to speak.

But we can't help being curious about what Sir Terry thinks about the developments over the last year at Fresh & Easy's corporate headquarters: the fact seven category managers and buyers have left corporate headquarters since February, 2008 (and another four or five left in 2007 before the first store even opened); the sudden departure of co-vice president of operations Brain Pugh and the conditions leading up to that sudden departure; the need for Fresh & Easy to spend a significant chunk of change to create a new interior design package for the Fresh & Easy stores just a few months after the first stores opened, and now the postponement of the Northern California launch; along with a few other things.

Perhaps we will hear from Sir Terry soon?

Fresh & Easy Buzz Strategy Session: Trader Joe's and the Key to Enlightenment?

The Faith-Based Corporation: Organizational Sacralization and Sacrilege
By: Blake Ashforth, Kevin Corley and Spencer Harrison
WP Carey School of Business, Arizona State University USA

Is the importance of spirituality in society withering away? Earlier this year, the Vatican reported that the number of men and women in religious orders fell 10 percent between 2005 and 2006 alone -- a massive decline that mirrors the church's sagging membership across the Western world. Catholic schools are closing, parishes consolidating and Sunday attendance slipping.

But the Vatican is hardly alone.

The American Episcopal Church this year saw membership drop by 4 percent and growth among most Christian churches has not kept pace with overall U.S. population growth, according to several reports.

This is not to say that Americans aren't still seeking spirituality and meaning in their lives.

They're just finding it in new places -- like work.

From Google to Jet Blue and Patagonia to Trader Joe's, companies of all kinds are attempting to craft cultures and identities so idealistic that they could rightly be called "sacred." These companies are espousing these sacred ideals, values, beliefs, goals, behaviors and processes not only to attract and motivate employees and stakeholders but also as means to distinguish themselves from their competition. In fact, some say companies that take the sacred route may be able to offer something nearing spiritual fulfillment to customers and employees.

Recently, three W.P. Carey management researchers -- Professors Blake Ashforth and Kevin Corley and doctoral candidate Spencer Harrison -- set out to investigate what might be behind this trend.

The result of their research is a new paper, Organizational Sacralization and Sacrilege, that helps explain why companies are going sacred, why people seem to be embracing the idea and, maybe most interestingly, what happens when a company that has positioned itself as "sacred" violates the very principles it espouses.

Purpose-driven business

"Organizations are increasingly adopting ideological stances -- mission statements, statements of purpose, credos -- that mimic values that are often considered transcendent, virtuous, even sacred," Harrison says. The result "is a 'graying' of the boundaries between the sacred and the secular, allowing organizations to behave in ways once attributed only to churches and religious orders."

He adds: "Suddenly employees seem like parishioners and managers seem like priests."

It may seem somewhat of a leap that employees would find such deep meaning in their office cubicles. But the researchers insist the trend is a real one. Companies are doing this, they say. And they're doing it because it works.

"Companies are going to sacralize," Harrison says. "It's just a response to competitive dynamics and the need to stay structurally flat and increase nimbleness and innovation. So organizations replace bureaucracy with philosophy, levels of leadership with missions and meaning."

There may be no better example of the corporation as religion than Google -- the company that has famously proclaimed it will "do no evil."

Google's founders always "thought of themselves and Google as unique," the researchers write, and that became all the more clear as the company became widely known in the 1990s. As the
Google empire grew, the company's core beliefs became public, and began turning heads.

Among the company's espoused principles: "Life is beautiful; You can make money without doing evil; Uniting the world one user at a time."

Some might find this corny, but at Google headquarters, these aren't mere slogans. They are belief systems -- credos that helped create the sacred framework on which Google became one of the most respected, admired and even beloved corporations in the world.

Customers love Google -- and according to the W. P. Carey team, employees especially love Google. In the company's mission statement, these people have found purpose.

As they write: "Such proclamations, whether intentionally transcendental or not, began to provide the ideological raw material for individuals to seek transcendent experiences at work -
- to see work as sacred. As more individuals flocked to the company, these raw materials became more central to individuals' expressions of identification with Google and ultimately become institutionalized in religious rhetoric that characterizes the zeal with which people see the company."

Google isn't shy about its sacred ways. The company has hired a "chief Internet evangelist." Staffers only half-jokingly describe their company and its work as a "faith-based initiative."

Unconventional, yes, but all of the evangelizing certainly couldn't be said to be hurting the company's bottom line. Its stock is hovering around $445 and it remains the most dominant name in online search.

Falling from grace

Of course, there is a risk to all of this.

As Google learned when it willingly submitted to the demands of Chinese government censors -- apparently giving in to the wishes of an oppressive regime simply for financial reward -- the backlash against companies which espouse sacred beliefs but then act in a way counter to those beliefs can be enormous.

In some ways, "sacred" firms face a greater risk of losing customers, simply because of the higher standards they've set for themselves. Even if these companies' projects and services are the best around, alienating customers through "evil" action is a real threat.

"Customers won't buy clothes from Patagonia if they are dumping pollutants into a river," Harrison says. "Companies won't do business with Google if Google is using information to do "evil," because the ideological purpose of these companies now outweighs … the pure business or transactional purpose of these companies."

At least one company learned this the hard way.

The New York-based airline JetBlue has positioned itself from the start as the airline that actually cares about people. The company espouses a mission of bringing "humanity back to air travel." But to hear passengers tell it, the company did not act very humanely on Feb. 17, 2007. It was a day the company may not live down for years.

On that snowy, icy day, a JetBlue flight headed to Cancun from New York ended up being stranded on the runway for nearly nine hours. Repeated icing kept the plane grounded. At no point were passengers allowed to disembark. Horror stories emerged about the company's treatment of passengers, and the press pounced.

Making matters worse was the fact that several other JetBlue flights had the same problem on the same day. In the firestorm that followed, JetBlue was pilloried. Its stock tumbled. Analysts predicted the controversy would cost the company $30 million. The criticism grew so harsh that CEO David Neeleman eventually took the drastic public relations step of issuing an online apology to his customers and even ran full-page apology ads in several major newspapers.

In them, he begged for forgiveness: "Words cannot express how truly sorry we are for the anxiety, frustration and inconvenience that we caused. This is especially saddening because JetBlue was founded on the promise of bringing humanity back to air travel. We know we failed to deliver on this promise last week."

The company later created its own Passenger Bill of Rights and recommitted itself, internally, to its original "sacred" purpose.

But the PR damage was done -- and it was especially harmful, according to the researchers, because of the fact that JetBlue had so boldly positioned "above" other airlines in the first place.
As they write: "[Scandals such as the Jet Blue case] appear to incite a higher level of shock and moral outrage because … they contravene core ideals that have been rendered sacred by the organization. In rendering certain ideals sacred, the organization attracts strong supporters; supporters, however, that can turn on the organization with equal vehemence if those ideals are seen to have been violated."

JetBlue certainly suffered for violating its ideals, but at least it survived. The same could not be said for the late accounting firm Andersen. Once one of the pillars of the American accounting industry, Andersen had the misfortune of having among its clients probably the famously crooked company in American history: Enron.

And though it has since been revealed that much of the fraudulent financial maneuvering in that scandal was attributable to Enron executives, Andersen was not blameless. The company aided and abetted Enron's scam and was found guilty of obstruction of justice. Shortly thereafter, it ceased to exist.

The reason, Harrison says, is simple: The company acted in a way completely antithetical to what it claimed to be.

"One of the examples that was really striking for us was what happened to Arthur Andersen following the Enron scandal," Harrison says. "You can see how Andersen, by shredding documents, violated an inviolate principle. … Looking through the lens of "sacrilege," it becomes a case of ruining the fundamental purpose for existence. If accountants can't be trusted then why use them? It's equivalent to a hospital systematically breaking the Hippocratic Oath."

So yes, the researchers say, the danger is real. Sacralization brings inherent risk. It invites public relations nightmares when those sacred ideals are violated.

But that doesn't mean companies should avoid sacralization, Harrison says. Rather, it means simply that those who choose to pursue the righteous path must do so with great caution. They must, he says, practice what they preach.

"The difficulty for managers (and for anyone in a sacralized environment) is to realize the potential fragility of what pulls people together," Harrison says. "An ideal like Google's 'do no evil' provides a powerful rallying cry, until it is broken."

Bottom Line:

Companies of all kinds are increasingly adopting mission statements, statements of purpose, credos and belief systems that mimic, in some ways, organized religion.

This "sacralization" can provide a competitive edge for companies that employ it correctly, galvanizing staffers around the idea that their work is for a greater good. Google, especially, has successfully built a "sacred" culture -- and employees have bought into it.

With sacralization, however, comes risk. Companies that espouse sacred ideals and then violate them face harsher criticism than other companies.

For instance, JetBlue, which has long positioned itself as the airline that cares for its passengers, was pilloried for stranding some of its customers on a New York runway for nine hours.

[Copyright the Arizona Board of Regents at the W. P. Carey School, Arizona State University and the Wharton School of the University of Pennsylvania, Privacy Policy. Knowledge@W.P. Carey.]

Guest Contributor: Tesco's Approach to Strategy Communication. By: Robert S. Kaplan

The Tesco steering wheel, a tool the company uses to drive performance, communicate and help employees drive into the future.

From the Fresh & Easy Buzz Editor's Desk: Robert S. Kaplan, the Baker Foundation professor of business at Harvard Business School and chairman of the Palladium Group consulting firm, is, along with David P. Norton (his partner and the founder of the Palladium Group), the creator and intellectual force behind the Balanced Scorecard, which is a strategic methodology and organizational and operational structure used by corporations throughout the world.

Kaplan and Norton has authored five books together, along with numerous articles, on the Balanced Scorecard. Their latest book about the Balanced Scorecard method is titled: The Execution Premium: Linking Strategy to Operations for Competitive Advantage. You can read a detailed biography of Robert S. Kaplan here.

Kaplan and Norton recently completed the 2008 version of their firm's annual European Balanced Scorecard Summit in London The awalys well attended conference is a much sought after ticket by corporate strategists, chief executives and others.

Tesco PLC, which owns and operates Fresh & Easy Neighborhood Market USA, was represented at the 2008 European Balanced Scorecard summit by its CEO, Sir Terry Leahy. Mr. Leahy made a presentation at the summit. Robert S. Kaplan writes about the Tesco CEO's presentation in the September 2, 2008 issue of the Harvard Business Review.

Mr. Kaplan's piece about what Tesco CEO Leahy discussed at the recently-ended summit provides interesting insight into Tesco PLC's current organizational, operational and communications structure.

Reproduced below is the article:

Tesco's Approach to Strategy Communication
by Robert S. Kaplan
September 2, 2008

I recently returned from London where we held our 2008 annual European Balanced Scorecard Summit. Each of our summits features the induction of companies into the Balanced Scorecard Hall of Fame. We had several firsts at the London conference as we inducted the first two companies from Russia, the first Irish company, the first Middle East company, and the first enterprise from France, its Ministry of Defense.We also noticed a distinct increase in delegates coming from companies in emerging markets, such as Tanzania, Namibia, Cyprus, Iran, Saudi Arabia, and Egypt. It's clear these countries are diversifying beyond their traditional simple manufacturing and agricultural companies into higher-value industries. As these companies march northward on the value chain, their need for more sophisticated management techniques will only increase.

In addition to the induction ceremony, we heard from leaders of world class companies, including Infosys, Old Mutual, BP, Nippon Boehringer, Solvay Pharmaceuticals, and HSBC--all presenting on how they approach strategy and execution, specifically using our Balanced Scorecard (BSC) method.

Sir Terry Leahy, CEO of Tesco, gave one of my--and the audience's-- favorite sessions. He described the challenges of delivering a distinctive and consistent buying experience to consumers in every store when you have more than 400,000 employees in multiple countries. It's a classic concern: How can you keep local store managers and employees engaged in satisfying consumers in their shopping experiences? Extended out a little: How can you keep distributed frontline employees--regardless of industry--engaged with and acting on the company's central strategy?

Leahy explained his approach: "Tesco doesn't want one leader. We want thousands of leaders who take initiative to execute the strategy."

To make this goal a reality, in the early 1990s, Tesco went through a process to clarify its mission, values, and strategy. Based on our first Harvard Business Review BSC article, Tesco communicated its new strategy to its employees via a "steering wheel," a simple symbol and metaphor for a tool intended to drive performance and help employees navigate into the future.

The Tesco steering wheel has four 90 degree arcs, representing the four BSC areas of focus: financial, customer, operations, and employee performance. Every store gets a monthly steering wheel update, a summary of its metrics within each of the four arcs, so that all employees in Tesco's multiple regions and formats get feedback on their performance. Tesco supplements its steering wheel report with "shopping lists" that capture key elements of the strategy in simple forms that employees can follow in their everyday activities. The steering wheel has helped the company stay focused on its strategy even as it experienced rapid growth over the past two decades.

Recently, Tesco added a fifth dimension, community, to the steering wheel report to encourage employees to be excellent citizens in the communities where they work and live. While praising the simplicity of the steering wheel display and its power to communicate to employees, Sir Terry emphasized that it is not easy, requiring extensive consumer research, data collection, and analytics to make sure that the objectives and metrics remain relevant as consumer preferences evolve and competition heats up. But in part because the steering wheel ensures all employees are aware of and can act on the strategy, Tesco has become an engine of social mobility, allowing employees from whatever background or education to advance in the company. Last year, Tesco filled 3,500 management positions, 27 directors, 200 store managers, and 8,000 department heads by promoting from within the organization.

Resources:

>You can learn more about the Balanced Scorecard and how it links strategy, operations and communications here.

>Bruce Tempkin, who writes a blog called Customer Experience Matters, read Mr. Kaplan's Sptember 2, 2008 Harvard Business Review (HBR) piece about Tesco CEO Terry Leahy's presentation at the European Balanced Scorecard Summit. Mr. Tempkin has a September 11 post discussing it in his blog. We suggest reading it. It's a short post. Click here to read it.

>For more on the Balanced Scorecard click here.

Thinking Out Loud: We Reply to A Reader's Request About Retail Strategy; Tesco's Fresh & Easy and Wal-Mart's Marketside

We received a note via email earlier today from a regular reader who's an executive in the food and grocery industry. The reader has been following our coverage of Wal-Mart's new small-format Marketside store development, including the comparisons and contrasts we've made between the two global retailers' (number one, Wal-Mart, and number three, Tesco) small-format food and grocery retailing concepts, Tesco's Fresh & Easy Neighborhood Market and the yet but soon to open (in the Phoenix, Arizona Metropolitan region) Wal-Mart Marketplace stores.

In the note, among other comments and questions, the Fresh & Easy Buzz reader and industry executive asked us to write about a strategy we would use were we running Wal-Mart's Marketside division, with a focus on keeping Tesco's Fresh & Easy from being successful in Southern California, the Las Vegas, Nevada Metropolitan region, and the Phoenix Metro region in Arizona, where its stores (currently 78) are located.

We accepted the challenge.

Here is one strategy we would potentially use, keeping in mind our focus if we were running Marketside for Wal-Mart would not be one primarily focused on attempting to prevent Tesco's Fresh & Easy from succeeding, although defense has its place as part of a comprehensive success strategy.

The strategy: Background

Tesco's Fresh & Easy Neighborhood Market is conducting a strategy based on rapidly opening stores for three main reasons:

1. It's strategy with Fresh & Easy is based on having a critical mass of stores open close to each other (about 1.5 -to- 2 miles) in its selected market regions. This is based on the Fresh & Easy stores being "neighborhood" markets, along with making it cost effective to advertise, as well as using the stores themselves as the most important marketing medium of all. The medium (store) is the message. Its what we call the Tesco Fresh & Easy "critical mass" strategy.

2. Fresh & Easy is currently a single banner and format strategy for Tesco. Therefore it needs numerous stores as rapidly as possible to build critical mass and sales.

3. Tesco's low frills store design (low overhead), everyday low price strategy with Fresh & Easy requires sales volume. One has to have lots of stores as fast as possible to have a chance of achieving this sales volume (plus high volume for the low margins during the start up years) in order to feed what Tesco has created in terms of its model and infrastructure.

One result however of Tesco's rapid store opening program, 78 stores in a mere 10 months so far, is that in our analysis many of the store locations are poor ones. These include numerous Fresh & Easy stores that are in former Albertsons, Ralphs supermarket and Rite Aid drug store buildings that those respective retailers vacated for various reasons, among those reasons being store sales underperformance at the locations.

It's possible Tesco can succeed in many of those stores where the others didn't because of Fresh & Easy's small-format and operating model. However, its also likely down the road a bit Tesco will evaluate many of those "shotgun opened" locations for underperformance.

This is where our strategy comes in, following our readers request and guideline.

The strategy

Using its own scan-based and proprietary data, along with other available outside data and market intelligence that's available for the Southern California, Metro Las Vegas and Phoenix Metropolitan region markets, we might develop a very well detailed matrix mapping the estimated sales of each Fresh & Easy store by location in each region.

Once completed, this would be our blueprint for where we locate Marketside stores. Using the old rule that 80% of sales come from 20% of the locations (its a bit too high but is illustrative which is why its been in use for so long), we might then strategically place the Marketside stores, which are a bit larger than the Fresh & Easy Markets (10,000 -to- 13,000 for Fresh & Easy, 15,000 -to- 20,000 for Marketside), in such a way so that one Marketside store could potentially do as much in weekly sales (remember they are about 5,000 -to- 6,000 square feet bigger in size) as two or three Fresh & Easy stores (remember Tesco's strategy is to locate the stores 1.5 -to- 2 miles away from each other).

Using this strategy, 50 Marketside stores strategically placed/located against existing Fresh & Easy stores (which is an advantage Wal-Mart has since 78 Fresh & Easy's already exist) could potentially equal the sales of 100 -to- 150 Fresh & Easy Neighborhood Market grocery stores using our theory, if such a strategy worked.

The strategic placement in this way of the Marketside stores also would if successful render numerous Fresh & Easy stores (remember the critical mass strategy of locating the markets 1.5 -to- 2 miles from each other) to be sales underperformers because of the placement/locational effect of the Marketside stores. If one Marketside store could equal the sales of three Fresh & Easy stores in an area, something would have to give, such as eventually closing at least one of the three Fresh & Easy stores since it would be impossible for all three to survive under the strategic theory.

Additionally, keep in mind we are just running Marketside, and not all of Wal-Mart, only per our readers request and guidlines. Having all of Wal-Mart in our strategic sphere of influence would broaden our strategical arsenal dramatically.

In the real world, Wal-Mart, Inc. has its combination grocery and general merchandise Supercenters, its Sams' Club warehouse stores, which sell a full complement of basic groceries and fresh foods, and its 45,000 square foot Neighborhood Market supermarkets to use along with Marketside in a strategic methodology like we describe above. It's all about sales, not the size, format, store banner or number of stores you have.

For example, place a Supercenter four miles from four Fresh & Easy stores. Put a Sam's Club store in the same general area. Locate a 45,000 square foot Wal-Mart Neighborhood Market say just 1 -to- 1.5 miles from two of those three Fresh & Easy stores. Then put a Marketside unit about 1 mile away.

Because the four Wal-Mart formats are different enough, and in the case of the Supercenter and Sam's Club also have extensive general merchandise offerings, it isn't likely the various Wal-Mart formats would cannibalize each other. But they could have negative effects on sales at the four Fresh & Easy stores. Or two out of the four, which achieves the strategic objective of the plan. [By the way, this is the multi-format food and grocery retailing strategy we believe Wal-Mart plans to plug Marketside into.]

We have no inside knowledge that Wal-Mart is following such a strategic plan vis-a-vis Tesco's Fresh & Easy. What we do know, and have reported on, is that Wal-Mart's first four Marketside stores, which open in just a few weeks, will be located in four cities in the Phoenix, Arizona Metro area: Gilbert, Chandler, Mesa and Tempe.

What we do know is the Wal-Mart Marketside stores are within 1 -to- t2 miles from existing Tesco Fresh & Easy grocery markets in each of the four cities. In addition, Wal-Mart has Supercenters, Sam's Club stores and Neighborhood Market supermarkets in and around these four cities. They are strategically located vis-a-vis both the Marketside stores and the Fresh & Easy stores. Additionally, Arizona happens to be one of Wal-Mart's top three new store growth markets in the U.S. for its Supercenters, Sam's Club stores and Neigborhood Market supermarkets.

Further, as we've previously reported, Wal-Mart plans to open a Marketside store in San Diego, California (it is rather close to a Fresh & Easy store in the city) and a store in nearby Oceanside, which also is fairly close to a Fresh & Easy market.

And, as we've also reported, Wal-Mart is very carefully and selectively searching for Marketside store locations in other parts of the Phoenix Metropolitan region, in Nevada, and in Southern and Northern California. We say selectively searching because Wal-Mart does not plan to open Marketside stores at even a rate one-half that in which Tesco is opening Fresh & Easy stores in its first year.

So, based on what we've reported, as you can see, Wal-Mart looks like it may be planning a strategy similar to the one we merely cooked up to accept our loyal reader's challenge, along with hopefully providing some strategic thinking in the minds of our readers as a whole.

As we said at the start of this piece, the strategy is more of a conceptual or academic one designed to offer an idea for our reader and to our readership using the question as the premise of the strategy. However, like so often is the case, it's interesting to watch how observable facts can often seem to look very much like conceptual strategies, at least in part.