Outlook: Only the paranoid survive as Tesco builds on its success

Tony Ball/BSkyB; High-speed link

What's the secret of Sir Terry Leahy's success at Tesco? "Paranoia", he replies with a smile, which is perhaps odd for a chief executive who has managed to put his company so far ahead of his nearest rivals that unless he does something very seriously wrong indeed, he's never likely to be caught.

Yesterday Tesco crowned that lead with another sensational set of results. Like-for-like sales growth of 6.3 per cent, nearly all of it volume, operating profits up 16.2 per cent, the interim dividend up 10.7 per cent - anyone would think this was a fledgling wonder stock. In fact it's one of Britain's biggest companies. After such a performance, should not Sir Terry allow himself to rest on his laurels, if only for a few moments? Absolutely not, he would say. The moment you do that is the point at which the wheels start to come off.

The City likes to think of Tesco as so secure in its market position that it has become an entirely bomb proof annuity. So it always comes as a surprise to hear Sir Terry, never entirely satisfied with the progress he's achieving, restlessly explaining that size is no guarantee of success in retailing, that there are always pitfalls and banana skins round every unturned corner.

If size were all that mattered there would never have been a Wal-Mart, or even Tesco, both of which came from tiny beginnings. Nor is past success any guarantee of a secure future. When management believes that, it becomes complacent and arrogant. Worse, it will start to believe it knows better than the customer what the market really requires, and like J Sainsbury, eventually it will be caught with its trousers down.

Tesco has managed to drill this fear of the competition, this core belief in the customer always being right, deep down into the company's culture, and in so doing it has become a textbook case of corporate success.

The other main plank of its philosophy is similar to that of Wal-Mart in that the company is a volume led discounter, not a profit margin builder. The operating margin is kept the same at a little under 6 per cent come rain or shine, with any benefit derived from operating efficiency, lower cost of capital or buying power fed directly back to the customer in the form of lower prices. The result is a virtuous circle of growing volumes, greater economies of scale and lower prices.

Of course it is just when commentators like me begin to believe a company can do no wrong that they tend to come a cropper. None the less, there is no sense of that at Tesco, in the same way as perhaps there was in the hey day of both Sainsbury's and Marks & Spencer. Even the overseas expansion programme, the undoing of many an ambitious British retailer, seems faultless in its execution and results. Andy Grove, former chief executive of Intel, the world's biggest micro-chip maker, called his autobiography "Only the Paranoid Survive". Sir Terry seems to have honed his survival skills on the same philosophy.

Tony Ball/BSkyB

So Tony Ball will soon be quitting as chief executive of the satellite broadcaster BSkyB. Now there's a surprise. This column placed Mr Ball firmly in the Sky departure lounge as early as April, not because he's been a failure - to the contrary, he's been an outstanding success - but because he had started to suffer from what the Australians call "tall poppy syndrome", or in English, getting too big for your boots.

The suggestion was much poo-pooed at the time by both rivals and the industry. Rupert Murdoch would never let such a talented executive go, I was told, yet it looks as if I was right. It is impossible to read the nods and winks that have been coming out of Sky this past few days any other way. Technically Mr Ball is renegotiating his contract, which comes to an end in May, but yes, in all probability he will be leaving sooner rather than later, and yes, James Murdoch is his most likely successor.

Both sides deny any rift, as they would, but in the end, in all companies, there can only be one boss and in News Corp, of which BSkyB is an independently quoted part, the boss is Rupert Murdoch. Mr Ball is following the path trodden by virtually all his predecessors at Sky in getting to think he's bigger than the man who created him. Even the anti-business Guardian has begun sycophantishly to celebrate his every move, and in the City he's become known as Golden Balls, broadcasting's most talented executive.

If he could, Mr Ball would declare UDI, but as long as Mr Murdoch remains chairman with a controlling 34 per cent stake, that's not going to happen. No decision of importance is made without Mr Murdoch's say so, and that too must often get up Mr Ball's nose. Another way of looking at the problem is that as long as Mr Murdoch is alive, Mr Ball will always work in his shadow. He's already one of Britain's best paid chief executives, but he would like to get a great deal richer. To achieve that goal, he must do something more entrepreneurial.

I doubt there has been any particular denouement, unless it was the appointment of James Murdoch to the board. But there comes a time with all Mr Murdoch's lieutenants when they start to believe their own publicity. That's the point at which they get chopped down to size.

The succession of James, Rupert's son and still just thirty years of age, will inevitably prove controversial in the City, which hates nepotism in any guise. All pretence at independence will disappear with his appointment, and Sky will become fully the creature of the Murdoch dynasty. Yet despite his tender age, James Murdoch is not altogether a bad appointment. Recent examples of nepotism in publicly quoted companies have not proved as disastrous as feared - most notably Simon Wolfson at Next. Mr Wolfson, part of the Great Universal Stores dynasty, has actually proved himself a rather good chief executive.

Having worked for five years at Star TV in the Far East, two of them as boss, James Murdoch is as well qualified for pay TV as any, and if he's as much a chip off the old block as is said of him, then the City has little to fear. You don't buy into Sky without knowing it's fundamentally a Murdoch satellite, no more no less. That's the main reason Mr Ball is leaving. I'll have to eat my words if it is suddenly announced that Mr Ball has signed a new contract, yet somehow I doubt it.

High-speed link

Much congratulatory backslapping and handshaking at Waterloo yesterday where Tony Blair officially opened the first phase of the high-speed Channel Tunnel Rail Link. The hand-wringing will come later. The first half of the link through rural Kent has been built to time and budget. Yet anyone who believes the final project will come in under its price-tag of £5.2bn by the time the developers have finished the hard bit of tunnelling under London into St Pancras, must also believe the moon is made of blue cheese.

Not that it matters to London & Continental Railways, as this vast white elephant which will knock just 35 minutes off the journey time to Paris, is being underwritten entirely by the Government. Meanwhile, Eurostar, which will use the line, looks as if it will need further top ups from the taxpayer as well. When the CTRL was given the go-head by John Prescott, Eurostar was forecast to be carrying 9 million passengers this year and 12 million by the time the link fully opens, if it does, in 2007. In actual fact, with traffic numbers travelling downwards, not up, it will be lucky to carry 6 million passengers this year.

The shortfall in revenues means that someone else will undoubtedly have to help Eurostar pay its access charges and the sums are not trifling. The last estimate by the National Audit Office put the taxpayer's exposure at anything up to £1bn. For a grand political gesture, which is what the CTRL amounts to, that's a lot to pay. How ironic that just as the Continent gets closer to Britain, the even grander political goal of monetary union slips ever further into the mists.

jeremy.warner@independent.co.uk