Tesco’s new battleground

By Ben Thompson

In 2006, a two-minute sketch on a UK comedy show called Time Trumpet featured a spoof of War of the Worlds in which three-legged fighting machines levelled Copenhagen and set up Tesco retail stores on every street corner, having already seized control of the UK market. “For years, Tesco had yearned to create a super-state, the world’s first retail country,” intones the deadpan narrator with tongue planted firmly in his cheek. “Then, at noon on January 31st, 2013, Tesco invaded Denmark with 2000 superstores and 1500 Tesco Expresses.” Surreal it might have been, but the short hit the spot in terms of capturing prevailing consumer sentiment: that the retail giant was hell-bent on nothing less than global domination.

The numbers certainly back up such an impression. The world's third-largest retailer has 4811 stores worldwide and rang up global sales of UK£57 billion in 2009, putting nearly UK£1.1 billion through the tills every week (it takes fellow high-street ubiquity Starbucks 10 weeks to generate the same amount). Pre-tax profits were a massive UK£3.2 billion, meaning that Tesco earned a whopping UK£8.7 million every single day of last year. And in the UK alone the firm employs over a quarter of a million people, making it the country's biggest private sector employer. Make no mistake, Tesco is a giant in every sense of the word.

But Tesco is not just content to dominate the world of retail; it also wants to change it for the better. And while continuing colonisation of new territories is certainly a large part of its strategic focus, the firm's ambitions also stretch to something much bigger: developing a carbon-neutral operation.

"The battle to win customers in the 21st century will increasingly be fought not just on value for money, range and convenience, but on being good neighbours, behaving responsibly and seizing the environmental challenges," said Tesco Chief Executive Sir Terry Leahy in a 2007 speech in which he set out a number of green goals for his company, the most notable of which was a 50 percent reduction in emissions from 2006 levels by 2020. And with the chain already achieving a 13 percent reduction in the two financial years since that initial projection, Tesco has now upped the ante and is committed to becoming a zero-carbon business by 2050.

State-of-the-art technology, energy-saving lighting and a big team of so-called 'Energy Champions' means Tesco is saving thousands of tonnes of CO2 a year. The company has revolutionised the way it designs and builds its stores so that they are as green as possible: combined cooling, heat and power plants are helping stores generate their own electricity, while an advanced metering system helps keep a close eye on how much energy and water is being used. Elsewhere, refrigeration systems are cooled with carbon dioxide, which is thousands of times less damaging to the climate than traditional refrigeration gases, while the new store template has been designed with a more energy-efficient heating, lighting and air-conditioning system at its core. Changes are being made right across the store environment, and extend back through the supply chain, too.

The value of technology

But it is in the firm's approach to its IT architecture that some of the greatest strides are being made. Tesco's technology infrastructure consumes about 75 percent of the company's total energy use - and Mike Yorwerth, Head of Global Technology and Architecture, is the man charged with bringing that figure down. "In 30 or 40 years time, people will need to live on possibly a fifth of the carbon they use today," he explains. "We've got to be leaders in climate change and help drive the move to a low carbon economy. We're reducing our carbon emissions on a like-for-like basis by 50 percent compared to 2006 figures. That means for every single store, we need to reduce the emissions in that location - whether from energy, from lighting, from heating, from refrigeration, or from transportation - by 50 percent. We also said we'd reduce emissions on every case of goods that we ship by 50 percent as well."

It's a big commitment and, as Yorwerth explains, IT has a big role to play in meeting those targets. "If you look at IT as a proportion of the carbon footprint of Tesco as a whole, IT is quite a small proportion," he says. "It's only somewhere in the order of 2-3 percent of the overall carbon footprint. However, it plays a critical role in reducing the carbon footprint of the other 98 percent."

As a result, Yorwerth's team - alongside meeting its own 50 percent reduction targets - is also focused on what it can do to help Tesco reduce its carbon footprint across the organisation as a whole. The opportunities are numerous, as he explains. "Technology can play a role right the way through the supply chain, whether it's providing better forecasting information to suppliers so that they produce less and thus ship less so that we store less, or whether it's in the distribution end of things so that we get better transportation and routing and things like that."

It also plays a crucial role in the store environment, too. Yorwerth says that the biggest energy users in stores are systems such as refrigeration and HVAC. But by looking at those physical assets as IT systems - and by implementing many of the same monitoring and measuring tools usually associated with the management of IT - Yorwerth believes his team is better able to understand where the inefficiencies lie. "We can see where they're working out of tolerance, when they're using more energy than they should be, whether somebody has left the lights on and things like that," he says. "There's lots of work we can do to reduce the carbon footprint of Tesco by using IT."

The first step, he says, was to recognise that IT can both have both a negative and a positive impact on the carbon footprint of the business. "We set up a programme to focus on both of these things together," he explains. "It's not just about reducing the energy use of IT." The second element was to run the programme as a six sigma project. "The biggest part of that is understanding - and being able to measure - what our carbon footprint is," says Yorwerth. "You need to define the problem, define the scope, measure where the baseline is, and analyse where you can make changes. The really crucial thing for IT is to put some controls in to make sure you understand where you're going, and as things change, how you are going to do things differently in the future. We've put carbon controls in place so that we can make sure that as projects come in we can measure their potential carbon impact. We look from a design, an architectural and an infrastructure point-of-view at how we can minimise the carbon footprint of a particular project or programme, and then we measure it once it's gone in and set a carbon budget for the year for the department based on those measurements."

Of course, as IT increasingly takes responsibility for managing and reducing the carbon footprint of the entire organisation, there is a danger that its own carbon emissions will rise as a result; after all, the more systems and functions that fall under the IT umbrella, the greater the potential for a rise in IT's energy use. Yorwerth concedes it's an area of concern, but believes he has the processes in place to counter any such issues. "We're working with people like Intel, HP, Microsoft, Cisco and other big providers around where they're going in terms of technology and how they can help reduce our carbon footprint," he says. "We're also looking at where we will be using more technology in the future. It's a careful balancing act, and we know we've got to ensure we put those controls in place to make sure we make the right decision every time."

Building a green culture

Building sustainable relationships with suppliers, partners and other organisations in the value chain is a key element of greening the enterprise, and choosing the right technology partners is no exception. Tesco provides clear guidance to its corporate purchasing teams around procuring products and how to engage with suppliers regarding their commitment to sustainability, and has worked extensively with analyst firm Gartner to look at how green various organizations are. "I think it's important for us that we look to build lasting relationships with our suppliers," says Yorwerth. "We typically focus on around 10 key suppliers within the group, and will give each other a lot of attention, a lot of focus and a lot of support to help us drive benefits for both organisations."

He explains that there are three essential qualities Tesco looks for in every supplier: service (providing great products that work); delivery (doing what you say you will do on-time and to budget); and innovation. "Continual innovation is really critical to us at Tesco. As we continue to grow, we need to constantly be able to innovate and have processes in place to do that. Increasingly, we also look for a focus on retail. We work with a number of key suppliers who've got a real focus on the retail industry and can help us in improving business processes, with our customer interactions and things like that."

One such example is at the checkout area. "If I look at the carbon footprint for IT, a big proportion of it is checkout," he says. "So we work with two organisations on checkouts, Wincor Nixdorf and NCR, and we align very closely with them on how we can reduce the carbon footprint through the devices themselves (i.e. the hardware) and the software too. We've got a significant investment programme at the moment around replacing our till estate in order to move to a lower energy use infrastructure. We also work with an organisation called Retalix that provides the software that sits on top of the checkouts; it's all about providing control."

Such visibility into processes, systems and workflows is essential when you run an organisation with over 472,000 staff members - as is getting employee buy-in for any large-scale corporate initiatives. Indeed, its huge workforce is integral to the success of Tesco's sustainability drive, according to Yorwerth, who is adamant that the greening process has played a big role in bringing disparate parts of the enterprise together. "It's a great cross-functional leveller because you've got to look at how to optimise across the supply chain rather than at just one bit of it," he says, before adding that because the idea of going green is such an emotive subject, it gets people more emotionally engaged. "You start to build relationships across the business rather than just within a function. Everything we do from here on in is part of the greening of Tesco. Within many stores we've created the role of community champions, people who are focused on the local community and carbon footprint reduction. They're the people who say, "Do you really need that light on? Can you switch that off? What about this? What about that?" We try and engage everyone right from the grassroots level.

"We're really good at getting simple messages out to staff and getting them engaged," he continues, citing the company's Steering Wheel management tool as a good example. Divided into four quadrants - customer, operations, people and finance - the Steering Wheel provides a set of key performance indicators, based on demanding but achievable targets, against which each store is measured. "It provides a very clear picture of what our targets are and how well we're doing, so on a weekly and a monthly basis staff in every store will see whether we're meeting our energy targets or our carbon footprint targets within their store and within the company as a whole."

Every little helps

What is needed is a change in mindset - getting people to see the inherent value in what you are doing. And for Yorwerth, that starts in the IT department. "In most organisations, the IT group has no real understanding of its energy use; if you start by talking about how to bring that down, the first thing that people get their heads around is that there's a cost benefit to this," he says. He believes the challenge is then to change the conversation from one focusing on kilowatt hours and energy to one that talks about carbon, because "it becomes much more emotive" and gets people engaged in the bigger picture.

"It's more about attitude and approach," he says. "At the end of the day it's all about efficiency. The way we have run IT in the past has been terribly inefficient. It's well known that server utilisation in the days before virtualisation was of the order of 2-5 percent. A server that was 10 percent utilised was probably quite busy, but even that's incredibly wasteful." And while big ticket technology advances such as virtualisation and energy management solutions are critical to reducing such inefficiencies, just as important is to start making changes where people are able to quickly see the value.

"Such schemes may not have a significant impact on the carbon bottom line, but they have emblematic value," he explains, citing a rollout he implemented that involved removing individual printers and replacing them with one centralised machine. "When there was a number of printers per department, you'd print a document off, forget about it, then print a duplicate by mistake. But by removing that ease-of-use, people think more about what they are printing." Now staff members are required to swipe their badge at the printer itself, and only at that point will the document print off. "It's a very quick and simple change that enables people to understand what we're doing here. And we've actually significantly reduced our energy use as a result."

Such an approach is equally important when it comes to engaging customers in the value of going green. "I think it's incredibly important to show the customer that we're being more carbon-efficient, because it shows that we're taking a lead," says Yorwerth. "And if customers feel comfortable with it - if they feel it's important - then they are more likely to make an effort themselves. Going green is not something odd and it's not something different; it's something we'll all be faced with in the future. So the importance of things like solar panels and wind turbines in our stores as part of a carbon reduction programme is really important to us." Tesco recently opened a zero carbon store in Cambridge, and while it doesn't look radically different to the company's regular stores, Yorwerth maintains that it does have some subtle differences. "It has much more natural light, and uses more natural building products like wood, and there's wind turbines, solar panelling and things like that to help reduce the carbon footprint. It might be subtle, but it's very clear to the customer that we're making a statement with it, and that's important."

For Yorwerth, it's all about making sustainable choices easier for the customer - reflecting the Tesco motto of 'Every Little Helps'. "It's about providing customers with simple information," he says. "For instance, we've carbon footprinted a few hundred of our products so you can look on the back of a carton of orange juice, say, and see what its carbon footprint is to help you decide whether you can make those trade offs. We have a website on a greener living. And we've got a significant range of products centred around helping our customers save energy. It's about encouraging our customers that it's okay to be green and providing the information to do that. It's about democratizing it as well, making being green affordable for everybody."

And if customers and staff are as enthused as Yorwerth clearly is about the sustainability journey Tesco is currently embarked upon, expect to see plenty more green initiatives coming soon to a high street near you. "It's a bit like a rollercoaster sometimes; it's got its ups and downs, but it's great fun," he laughs. "There's never a dull day. We're continually raising the bar in terms of performance, in terms of what we expect from ourselves and what we expect from our people. We don't stand still." It's an attitude Tesco's founding father, Jack Cohen - whose legendary catchphrase was "You Can't Do Business Sitting On Your Arse" - would no doubt have approved of. And at a company famous for setting - and achieving - ambitious growth targets, it would be fool who bets against Tesco setting the green agenda for the retail industry for many years to come.

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LEADING CHANGE

IT departments often struggle to take the lead on significant cultural change programmes. Yorwerth's advice? Use technology as a foundation, not an end-state. "Make sure that you are credible as a technologist, both within the organisation and outside the organisation, but be able to translate that into non-technology speak for everybody," he says. "IT leaders IT need to be great translators, people who can interpret difficult technical problems into simple language for the business and vice-versa. The other crucial thing for leaders in IT is to learn about the business they're in. Although technology is a great leveller, actually what stands people apart is an understanding of the industry they're in. So I've got 20 years in IT, but I've also got 20 years in retail, and I never underestimate the importance of the customer, the importance of information and the importance of making sure we know how we're doing throughout the day and throughout the year."

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TESCO: FAST FACTS

Staff worldwide 472,000

Staff in the UK 287,669

Stores worldwide 4811

Total stores in the UK 2482     

Number of markets 14

Which markets China, Czech Republic, Hungary, India, Japan, Malaysia, Poland, Republic of Ireland, Slovakia, South Korea, Thailand, Turkey, UK, USA

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GREEN GROCER

It's made from timber, uses sun-pipe lighting and collects rainwater to flush the toilets and run the car wash. And Tesco's revolutionary eco store located in Ramsey, Cambridgeshire - opened in February - could provide the blueprint for the sustainable store of the future.

As the firm's first zero-carbon store, it generates its own renewable energy on-site using renewable fuel, producing more than it needs and selling the excess back to the grid. The store also incorporates a number of environmentally friendly design features and technologies, including:

• Sustainably sourced timber frame
• Roof lights and sun pipes that allow natural daylight into the sales floor and staff areas
• Energy-efficient heating and air conditioning systems
• Rainwater collection to flush the toilets and run the carwash
• Combined heat and power (CHP) plant to generate electricity using renewable fuel
• No harmful refrigerants in the refrigerators, heating, ventilation and air conditioning systems
• The first LED-lit car park in the UK
• Solar-powered streetlights
• Energy-efficient equipment, such as low-energy bakery ovens

The company has pledged that for each new store it builds, it will include as many of the environmental features from Ramsey store as possible, within the limitations of the location. Tesco's aim is that by 2020, the average carbon footprint of its new stores will be 50 percent smaller than in 2006.