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The Adam Smith Institute Blog

Terry Leahy's legacy: Why quality management still matters

The Tesco story in recent years has centered around top-class customer service, backed up by strong marketing and ruthlessly efficient logistics.

By Nigel HawkinsGuest blogger / June 10, 2010

Britain's opposition Conservative Party leader David Cameron and his wife Samantha talk to Tesco Chief Executive Terry Leahy at a Tesco supermarket in North Wales on May 2. Leahy recently announced his retirement.

Carl de Souza/Reuters/File

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The Stock Exchange paid its own tribute to Sir Terry Leahy, who has just announced his retirement from Tesco where he has been a lifer.

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Following Tuesday’s surprise announcement, Tesco’s market value fell by over £750 million as investors fretted that the supreme management skills that have driven Tesco to the pinnacle of food retailing in the UK, Eastern Europe and parts of the Far East were being eroded.

Famously, as a teenager, Leahy worked as a shelf-stacker at Tesco. He became Chief Executive in 1997, since when Tesco has continued to prosper: its annual sales top £62 billion.

Currently, it has a near 30% of the UK groceries market; furthermore, it is estimated that one-eighth of all UK retail expenditure finds its way into Tesco’s tills.

Tesco has also performed impressively overseas, where other UK retailers – Marks and Spencer comes to mind - have struggled. In particular, it has built up a strong position both in Eastern Europe and in the Far East.

The Tesco story in recent years has centred around top-class customer service, backed up by strong marketing and ruthlessly efficient logistics.

Given Leahy’s exceptional skills, a top public sector chairmanship role would be an obvious step – Chairman of the NHS Board perhaps?

More generally, Leahy has amply demonstrated the importance of large businesses having quality management. Relatively few people object to high salaries if a business really prospers. However, large pay-offs for failure rightly attract far more opprobrium.

In the public sector, it is harder to measure achievement. Certainly, in the past few years, very large salaries have been paid to some senior people in organisations that are either highly inefficient or require little commercial – as opposed to administrative - ability.

Hopefully, with much tighter public expenditure constraints, such excesses will cease.

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