Introduction
What I need to do?
In this coursework I need to produce a detailedbusiness report on one medium–sized or large business. In investigating achosen Case Study I must comment and analyze each of the following aspects ofthe Business:
Objectives
Organization
Structure
Culture
Communication Channels
Quality Assurance and Control
“Adding Value”
I need to examine how these factors interrelate toaffect the success of the business. Also I need to explain how qualityassurance and control systems help the business to add value to its productsand services.
As example for my investigation I chose Tesco plc.,because Tesco is good example of public limited company and Tesco – is a mostpopular supermarket’s network in UK.
How businesses are classified?
I can classify the business by form, by industrialsector, by ownership, by objective, by size and by location or market.
Forms ofbusinesses.
SOLE TRADER.
Oldest, simplest, most common form of business easyto set up enterprise.
A sole trader exists where a single person owns abusiness. This is very common form of organization. Over recent years, thenumber of sole traders has grown significantly. There are several reasons forthis trend including more opportunities to work for firms on consultancy basisand government support for self-employment. Most sole traders work on their own.
Initial capital – savings or borrowed. Very common inretailing, service trades.
Advantages:
- Easy to set up withlittle capital and few legal formalities
- The owner controls thebusiness — quick decision making
- Personal contact withcustomers
- All profits belong toowner
- Satisfaction,motivation, interest in “Working for yourself”
- Business affairs areprivate – except far tax returns
Disadvantages:
- Unlimited liability forany loss or debts incurred: owner is responsible or liable
- Cannot “Buy in bulk”and enjoy “Economies of scale”
- Expansions limited byavailable capital
- Division of labour isdifficult
- Continuity aproblem…
Good example of sole trader is T. Regan Plant Hire.
PARTNERSHIP
The minimum membership is two partners and the maximumtwenty.
Must be at least one general partner who is fullyliable for all debts and obligations of the practice. “Sleeping partner” – notactive. Partnership exist mainly in the professions – doctors, lawyers,accountants and surveyors frequently run their organization in the form ofpartnership. Partnerships normally operate in local or regional markets, thoughadvanced in information technology are allowing many professions to offer theirservices more widely.
Advantages:
- Easy to set up
- More capital with extrapartners
- Division of labour –specialization
- Responsibility can beshared e.g. long working hours redused
Disadvantages:
- Partners have unlimitedliability
- Disagreement can causeproblems – no sole decision – maker or owner
- Lack of capital maystill hinder expansion
- Profits must be sharedamong all co-owners
- Problem of continuity
Good example of partnership is Rolls-Royce.
COMPANIES
A company is defined as an association of persons thatcontributes money (or equivalent value in goods and assets) to a common stock,employ it in some trade or business, and share the profit or loss arising outof that business. Join stock companies are governed by and registered under theCompanies Act 1985. A company has a separate legal identity form its membersand can sue in its own name. There are two types of company: public companiesand private companies. Both require minimum two shareholders, and there is noupper limit on the number of shareholders. All companies enjoy the benefit oflimited liability. Capital is raised by selling shares.
PRIVATE LIMITED COMPANIES
Shares can be transferred privately. All mustagree.Private limited companies are suitable for small and medium-sizedoperations. This type of business organization is particularly suitable forfamily firms and for small enterprises involving just a handful of people.
Private limited companies find it easier to attractcapital because investors have the benefit of limited liability and this accessto finance makes it simpler for the business to grow.
Advantages:
- Shareholders havelimited liability
- More capital can beraised
- Control of company heldwithin the firm
- Shares are transferable
Disadvantages:
- Profit are shared outamong more people
- Legalprocedures…involve time
- Not allowed to cellshares to the public
- Restricts amount ofcapital raised
- Difficult to find abuyer if shareholder wishes to “leave”
Good example of privet limited company is LittlewoodsLtd.
PUBLIC LIMITED COMPANY
The second type of limited company tends to be largerand is called a public limited company. There are about 1.2 millionregistered limited companies in the UK, but only 1 per cent of them are publiclimited companies. However they contribute with far more to national output andemploy far more people than private limited companies.
Good example of public limited company is Tesco plc.which I going to investigate.
CO-OPERATIVES
Co-operatives are organised on a regional basis. Memberscan purchase shares and each member has one vote at the Annual General Meeting,no matter how many shares are owned. Members elect a board of directors whoappoint managers to run day to day
business. The Co-operative is run in the interests ofits customers and part of any surplus is distributed to members as dividend.Shares are not sold on the stock exchange, which limits the amount of moneythat can be raised.
Good example of co-operative is CRS (Co-operativeRetail Society).
CHARITIES
Charities are organisations with very specialisedaims. They exist to raise money for “good” causes and draw attention to theneeds of disadvantaged groups in society. They also rise awareness and passcomment on issues, such as cold weather payments, which relate to the elderly.
Charities rely on donations for their revenue. Theyalso organise fund raising events such as fetes, jumble sales, sponsoredactivities and ruffles. A number of charities run business ventures. Charitiesare generally run according to business principles. They aim to minimise costs,market themselves and employ staff. Most staff are volunteers, but some of thelarger charities employ professionals. In the larger charities a lot ofadministration is necessary to deal with huge quantities of correspondence andhandle charity funds. Provided charities are registered, they are not requiredto pay tax. In addition, business can offset any charitable donations they makeagainst tax. This helps charities when raising funds.
Good example of charity is British Red Cross.
FRANCHISES
A franchise is not a form of business organisation assuch, but a way of managing and growing a business. Franchising covers avariety of arrangements under which the owner of a businnes idea grants otherindividuals or groups to trade using that name or idea. However, it isimportant to realise that a franchise can trade as a sole trader, a partnershipor a private limited company. The legal form of business that is chosen willdepend on the capital needed, the degree of risk, the number of people having astake in the franchise and the personal preferences of the owner. The person ororganisation selling the idea (the franchisor) gains a number of advantagesfrom the process of franchising. The franchisor normally receives a share ofthe profits generated by the franchise. Usually the franchisee benefits bybeing granted rights to an exclusive territory and support from the franchiserin the form of staff training, advertising and promotion.
Franchising is a cheap and quick way to set up yourown business. By the year 2004, it is estimated that 70 per cent of all newretail outlets in the US will be franchises.
Good example of franchise is McDonald’s.
Industrialsectors.
PRIMARY – extractive organisations.
SECONDARY – manufacturing organisations.
TERTIARY – providing-services organisations.
Ownerships.
PUBLIC SECTOR: Civil service, Government departments, Publiccorporations, Local Authorities.
PRIVATE SECTOR: Sole traders, Partnerships, Limited companies,Charities, Co-operatives, Franchises.
Objectives.
- To make a profit
- To “Break – even”
- To provide service
Size.
- Small
- Medium
- Large
Locations
- Local
- Regional
- National
- Multinational
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Tesco plc.
History
Tesco was founded in 1924. Over the last seventy years, as the foodretailing market has changed, the company has grown and developed, respondingto new opportunities and pioneering many innovations. Today it is Britain’sleading food retailer.
The founder of Tesco was Sir Jack Cohen. He used his gratuity from hisArmy service in the First World War to start selling groceries in London’s EastEnd markets in 1919. The brand name of Tesco first appeared on packets of teain the 1920s. The name was based on the initials of T.E. Stockwell, a partnerin the firm of tea suppliers, and the first two letters of Cohen. The firststore to be opened was in 1929 in Burnt Oak, Edgware.
The business prospered and grew in the years between the wars. In 1947Tesco Stores (Holdings) Ltd was floated on the Stock Exchange, with a shareprice of 75p. The price at the beginning of March 1998 was around 515p.
Self-service supermarkets started in the USA in the 1930s during thedepression. They soon realised that by selling a wider variety and largervolume of stock and employing fewer staff they could offer lower prices to thepublic.
Self-service stores came to Britain after the Second World War, andJack Cohen opened the first Tesco self-service store in St Albans in 1948.
In 1956 the first Tesco self-service supermarket was opened in aconverted cinema in Maldon. By the early 1960s, Tesco had become a familiarname. As well as groceries, the stores sold fresh food, clothing and householdgoods. Tesco stores were located in the high streets of many towns. The Tescostore which opened in Leicester in 1961 had 16,500 square feet of selling spaceand went into the Guinness Book of Records as the largest store in Europe.
By buying in bulk and keeping costs down, Tesco should have been ableto sell at very competitive prices to its customers. Until 1964, however,suppliers were, by law, able to insist that retailers charged a set price fortheir products (the system known as Resale Price Maintenance) which meant thatit was difficult to reduce prices. The intention was to protect small shopsagainst the lower prices that big retailers could offer their customers.
Tesco introduced trading stamps so that it could bring lower prices toits customers. Customers collected stamps as they purchased their groceries andother items. When they had collected enough stamps to fill a book, they couldexchange the book for cash or other gifts. Other retailers soon copied Tesco.Sir Jack was one of the leaders in persuading Parliament to abolish ResalePrice Maintenance in 1964. After this, Tesco continued to offer trading stampsuntil 1977.
Apart from opening its own new stores, Tesco bought existing chains ofstores. In 1960 it took over a chain of 212 stores in the north of England andadded another 144 stores in 1964 and 1965. In 1968 the Victor Value chainbecame part of the company.
Tesco introduced the concept of a superstore in 1967 when it opened a90,000 square feet store in Westbury, Wiltshire. The superstore was a newconcept in retailing — a very large unit on the outskirts of a town, designedto provide ease of access to customers coming by car or public transport. Theterm superstore was first actually used when Tesco opened its store in Crawley,West Sussex in 1968.
By 1970, Tesco was a household name. Its reputation had been built onproviding basic groceries at very competitive prices; the slogan ‘Pile it highand sell it cheap’ was the title of Sir Jack Cohen’s autobiography. But aspeople were becoming better off, they were starting to look for more expensiveluxury items as well as everyday household and food products. In the late 1970sthe company decided to broaden its customer base and make its stores moreattractive to a wider range of customers. Many of the older, high street storeswere closed and the company concentrated on developing bigger out-of-townsuperstores. The superstores sold a broader range of goods, and had wideraisles and better lighting. While still offering very competitive prices, theemphasis was now on quality, customer service and a customer-friendlyenvironment. In 1974, the company developed filling stations at its majorsites, selling petrol at very competitive prices. In line with its new image,Tesco finally stopped giving trading stamps in 1977, at the same timeintroducing a price cutting campaign under the banner «Checkout atTesco» which proved to be a major success.
In one year in the late 1970s, the Tesco market share increased from 7%to 12%, and in 1979 its annual turnover reached £1 billion for the firsttime.
During the 1980s, Tesco continued to build new superstores, opening its100th in 1985. In 1987 it announced a £500 million programme to buildanother 29 stores. By 1991, the popularity of Tesco petrol filling stations atits superstores had made the company Britain’s biggest independent petrolretailer.
In 1985 Tesco introduced its Healthy Eating initiative. Its own brandproducts carried nutritional advice and many were branded with the HealthyEating symbol. The company was the first major retailer to emphasise thenutritional value of its own brands, to customers.
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By 1990, Tesco was a very different company from what it had been 20 yearsbefore. The Tesco superstore offered customers a very wide range of goods, apleasant shopping environment, free car parking and an emphasis on customerservice. Although many financial experts had not believed that the companycould so radically change its image, the new approach saw sales and profitsrise consistently. Existing customers took advantage of greater choice, and newcustomers discovered that Tesco could successfully match the offer of any ofits retail competitors.
In the 1990s, the company built on its success by developing new storeconcepts and new customer-focused initiatives. In 1992, it opened the firstTesco Metro, a city centre store meeting the needs of workers, high streetshoppers and the local community. This was followed by Tesco Express, combininga petrol filling station with a local convenience store to give localcommunities a selected range of products. The company also expanded intoScotland when it acquired a chain of 57 stores from William Low.
Tesco broke new ground in food retailing by introducing, in 1995, thefirst customer loyalty card, which offered benefits to regular shoppers whilsthelping the company discover more about its customers’ needs. Other customerservices followed, including home shopping for those who hadn’t the time tovisit a superstore, Tesco Direct for catalogue shoppers and the Tesco Babyclubfor new parents. Currently, the company is adding financial services to itsprovision for customers.
By 1995, Tesco had become the largest food retailer in the UK.
In the 1990s, Tesco started to expand its operations outside the UK. InEastern Europe, it has met growing consumer aspirations by developing stores inPoland, Hungary, Slovakia and the Czech Republic.
Closer to home, in 1997 Tesco purchased 109 stores in Ireland, whichgave the company a market leadership both north and south of the border.
Tesco Chairmen1947-1998
Sir Jack Cohen 1947-1979
Sir Leslie Porter 1979-1985
Sir Ian MacLaurin (Lord MacLaurin from 1996) 1985-1998
John Gardiner 1997
Chief Executive Terry Leahy 1997
The letters ‘plc’ at the end of its namedistinguishes a public limited company from a private limited company. Most of Britain’s famous businesses such as Marks and Spencer, ICI, BP, and ManchesterUnited are public limited companies. All companies with share prices quoted n theLondon Stock Exchange are public limited companies.
To become a public limited company, abusiness must have an issued share capital of at least £50,000 and the company must have received at least 25 percent of the nominal value of the shares. Public limited companies must also:
· be a company limited by shares
· have a memorandum of association with a separateclause stating that it is a public company
· publish an annual report and balance sheet
· ensure that its shares are freely transferable –they can be bought and sold.
Benefits:
· All members have limited liability.
· The firm continues to trade if one of the ownersdies.
· Huge amount of money can be raised fom the saleof shares to the public.
· Production costs may be lower as firm may gaineconomies of scale.
· Because of their size plcs can often dominatethe market.
· It becomes easier to raise finance as financialinstitutions are more willing to lend to plcs.
Constraints:
· The setting up costs can be very expensive –running into millions of pounds in some cases.
· Since anyone can buy their shares, it ispossible for an outside interest to take control of the company.
· All of the company’s accounts can be inspectedby members of the public. Competitors may be able to use some of thisinformation to their advantage. They have to publish more information thanprivate limited companies.
· Because of their size they are not able to dealwith their customers at a personal level.
· The way they operate is controlled by variousCompany Acts which aim to protect shareholders.
· There may b a divorce of ownership and controlwhich might lead to the interests of the owners being ignored to some extent.
· It is argued that many of these companies areinflexible due to their size. For example they find change difficult to copewith.
Tesco plc. is large, private sectororganisation. As it is providing-service organisation I can classify it astertiary sector organisation. Tesco plc. is a national company, but it isbecoming to multinational. Main objective is to make a profit.
As Tesco is a limited company that meansall owners have limited liability. If a company has debts, the owners can onlylose the money they have invested in the firm.
Main source of finance is selling shares and borrowing fromthe banks. Tesco has a thousands of owners, every man who hasany shares is owner; but these people can’t control the company, so company hasa board of directors and chairman who control the company.
Tesco has a heavy programme of capital expenditure, investing in newstores and upgrading existing ones. In the year ending 28th February 1998,the group capital expenditure was £841 million, compared to £758million in the year ending 28th February 1997. This £841 million wasdivided into £737 million spend in the Great Britain, £63 million inIreland, north and south, and £41 million in Europe. Tesco anticipates that in the1998-9 financial year, capital spending will rise to about £950 million,with most of the extra spending being concentrated in Ireland and CentralEurope.
Profit is also distributed to shareholdersin the form of dividends.
For example, in 1998 the profits from Tesco after tax were £505million. About50% of the profits were distributed to shareholders as dividends. Subsequentlyapproximately £250 million was retained by the company for investment innew stores and improving their service to customers.
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Objectives of the business.
The objectives of the business can varyenormously A charity’s overriding objective might be to alleviate poverty inthe developing world; on the other hand many companies’ major objective is togenerate the maximum profits possible. An organisation’s mission statementgives an indication of the purpose of the business and dovetails with theobjectives the organisation set itself.
Mission statement.
Many organisations attempt to express thepurpose of their being within a few sentences. The mission statements areintended to provide a sense of common purpose to direct and stimulate theorganisation. This statement represents the vision or mission of theorganisation. Mission statements change over time to reflect the changingcompetitive nature of the markets in which business sell.
Mission statement normally set out toanswer the following questions:What business is the organisation in? Who is to be served? What benefits are to be provided? How are consumers to be satisfied?
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Mission statement Objectives.
Business objectives Business objectives aremedium- to long-term goals or targets that provide a sense of direction to thebusiness. Objectives are normally measurable and have a stated timescale.
Divisional/departmental objectives Company may have a number of objectives. In general,the objectives pursued by a business tend to vary according to its size,ownership and legal structure.
Figure 1.1illustrates the interrelationship between a company’s mission statement and itsobjectives.
Figure 1.1: The hierarchy of objectives
The goalspursued by any business can be separated into primary and secondary objectives.
· Primary objectives arethose that must be achieved if the business is to survive and be successful.These relate to issues such as profit levels and market share.
· Secondary objectivestend to measure the efficiency of the organisation. They may affect the chancesof success, but only in the long term. Examples include administrativeefficiency and labour turnover rates.
Profit maximisation.
Profitmaximisation one of the most important objective for companies which are ownedby shareholders. Profit, at is simplest, refers to the extent to which revenuesexceed costs, so profit maximisation occurs when the difference between salesrevenue and total cost is greatest.
Survival.
Survival is an important objective for manybusinesses. It is particularly important when businesses are vulnerable suchas:
· during their first few years of trading
· during periods of recession or intensecompetition
· at a time of crisis such as a hostile takeover.
Most recently established businesses havesurvival as an objective.
Increasing sales or market share.
Growth increases the scale of a business,resulting in higher levels of output and more sales. Many businesses pursuegrowth strategies because their managers believe that this is essential forsurvival. If a firm grows, it might be able to attract more customers, earnhigher profits and begin to establish itself in the market.
Growth offers:increased returns for the owners of the business higher salaries for employees of the business a wider range of products for the business’s existing and potential customers.
Growth can be important target formanagers. It is increasingly common for managers’ pay packages to be acombination of shares and salary.
Providing social or community service.
A number of organisations provide servicesto the community. These organisations are part of the public sector – they aremanaged, directly or indirectly, on behalf of the government – yet they are aform of business. Their overriding objective is to provide the best positiveservice to the local community.
Charitable and non-profit objectives.
Charities have a high profile in the UK.Charities have a number of clear objectives:to rise the public’s awareness of the cause that thy support. To rise funds to support their projects.
Charities trade with the intention ofearning as much revenue as possible to spend on their particular causes.
Producing high quality products.
Just as many businesses seek to providehigh quality service, a large number of businesses also have the provision of highquality product as an important objective. Acquiring reputation for top qualitycan allow businesses to charge a premium price and to enjoy higher profits.Reputations for supplying quality products are jealously guarded.
Tesco is committed to retaining itsposition as the UK’s largest supermarket retailer. Customer feedback forms,in-store discussion groups and a continuous analysis of sales figures hasenabled Tesco to recognise the importance of the key principles of price,quality and service.
The company owes its success to itsemphasis on meeting changing customer needs through service and innovation,while maintaining its commitment to value and quality.
Underlying its business success is acommitment to upholding certain values and working and working principles andseeking continuous improvement in its ethical performance.
Companies are part of the society in whichthey operate and must take note of the interests and concerns of many differentgroups. For Tesco these includes its customers, its stuff, its shareholders,its suppliers and people in the local communities close to its stores and inthe world beyond. Each group has expectations of the company which Tesco has tomeet and manage if it is to maintain its position as a leading and successfulretailer.
Tesco must serve its customers byproviding the goods they want and the service they expect. By meeting customersneeds better than its competitors, Tesco earns profits and creates value forits shareholders.
Tesco, like other large companies,however, recognises that its wider reputation depends on other things such asits stuff relations, its attitude to the environment, its support to thecommunity, and its relationships with suppliers. Also as a leading foodretailer, the company must ensure that its provides products which are safe toeat or use, as well as giving customers advice on matters such as healthydiets.
Tesco’s main business objectives:
· to provide customers with outstanding, naturallydelivered, personal service
· to earn the respect of its stuff for the valuesand appreciate their contribution
· to understand customers better than anyone
· to be competitive even on the basics
· give customers a broad range of strong relevantpromotions in all departments of the store
· give customers what they want under one roof
· provide an environment that is easy and pleasantto shop in
· upgrade existing stores to the standards that isexpected from Tesco
· to recognise Tesco has brilliant people, usethis strength to make customers’ shopping enjoyable in a way no competitor can
· use intelligence, scale and technology todeliver unbeatable value to customers in everything Tesco does
· to maximise profits to provide high returns forshareholders
· to increase sales or market share as much aspossible
· advertising should appeal to all customers in arelevant
Tesco’s main mission statements:To be world’s best and largest supermarket retailer. Completely increase value for customers, and to earn their time loyalty.
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How Tesco is going to achieve these objectives?
WhatTesco expects from its staff in order to achieve this?
Tesco staff:Are all retailers, working as a one team. Trust and respect each other. Respect all customers, the community, suppliers and the competition. Strive for personal excellence in everything they do, leaving no stone unturned in order to get it right. Are encouraged to take risks, give support and do not blame others. Are rewarded for creating value for customers. Are talked and listened to: and their knowledge is shared, so that it can be used. Have fun, celebrate success and learn from failure.
Whatis the comment Tesco has to its customers?
Tesco customers want the best possiblevalue for their money. Tesco is determined to offer its customers qualityproducts, good service, attractive stores and low prices.
To meet this aims, Tesco:works closely with suppliers to ensure products are of the highest quality and are delivered to stores in the best possible condition. makes sure that its staff are committed to giving the best possible quality of service. aims to create in its stores an environment which makes shopping easy, interesting and comfortable.
For example, in 1993 Tesco introduced Valuelines, which offer exceptional value for money, followed by New Deal Pricing onleading commodities and brands in 1994. In 1996, Tesco introduced UnbeatableValue with the pledge that nobody would sell the equivalent product for lessprice. E3
Organisational functions.
All organisations require resources to carry out theirfunctions. One way of judging the success of a business is to compare theresources it uses with the value of the product that results. For example if itis a small business running by it’s owner, for example small shop, so it doesn’tneed any workers, large piece of land and big capital, owner can work alone.But if it is a very large business like car manufacturing so it requires a lotof workers, very large piece of land and big capital.
Theresources of the business.
One way of consideringthe resources used by a business is to classify them into the factors ofproduction. The main capital of production are capital, labour and land.
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Business
Activity />/>CAPITALrefersto any manufactured product used by the business to make other products. This categorytherefore includes all machinery, vehicles and office equipment used inbusinesses. It also includes the company’s buildings.
- />/>LABOUR is the human resources used by business organisationsduring production.
- />LAND – site on which the business is located and naturalresources it might use.
- />ENTERPRISE – owners and shareholders.
Functional areas.
All businessescombine factors of production as an essential part of their productionactivities. To combine these factors, to engage in production and to achievetheir objectives organisations undertake a number of functions. The majorbusiness functions include:
· finance
· production
· human resources
· administration
· research anddevelopment
Businessrequirements for functional areas depends on its size, for example smallbusiness might merge many of these functions within their administrationdepartment, with responsibility in the hand of one or two people. As a businessgrows the number of people required to carry out these functions increases.
Thefinancial function.
Advises managers and budget holders Extensive use of IT
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Provides information to external bodies
Produces standards
/>/>/> cost data
Customers Auditors InlandRevenue and
(pricelist) (accounts) Custom & Excise
(information relating
totax liability)
Figure 1.3: The financial function
A separatedepartment normally carries out the finance function of the business. Thefinance department carries out a number of key activities:
· records all financialdata
· chases up slow payers
· collects payments fromcustomers
· provides information toexternal bodies
· analyses costs
· advises board ofdirectors
· monitors and analysesfinancial data
· advices managers andbudget holders
Productionfunction.
Productioncovers all the activities that must be undertaken to make the firm’s products,from the receipt, of raw materials through to the output of the final product.The production function concentrates primarily upon planning and controllingthe various stages of production so that the most efficient use is made ofbusiness resources.
Productionmanager responsible for:
· maintaining supplies ofcomponents and raw materials to ensure continuous production
· ensuring that theprecise requirements of customers are met
· monitoring quality toinsure that finished products meet the quality standards expected by customers
· using resources –people, machinery and production space – as efficiently as possible to make thebusiness competitive in the markets in which it trades.
One of the mostimportant issues in production is quality. Modern businesses compete just asstrongly on the quality of their goods and services as they do on price.
For example itis vital for a washing machine manufacturer to produce a high-quality product.If the machine is not reliable or does not have a wide range of functions,customers are more likely to purchase a competitor’s product.
Finance department Figure 1.4: The linksbetween the production function and other departments
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The human resource function.
Personnelmanagement considers thetasks involved in managing people – recruitment, selection and so forth – asseparate elements. It does not take into account how these elements can combineto achieve organisational objectives.
The personnelmanagement approach makes decisions relating to recruitment, training and paysystems independently, without considering the impact the individual decisionshave on each other aspects of management and the achievement of corporateobjectives.
Humanresources management (HRM) elevatesthe effective use of a business’s labour force to an issue to be considered bysenior managers as an essential element of the organisation’s strategy. Thisapproach has raised the profile (and salaries) of those employed in humanresource management. The human resources function engages in a number ofactivities to ensure employees are utilised affectively. These activities arecarried out with the aim of contributing to the achievement of the business’sobjectives.
Workforce plansets out likely future needs for labour and how these needs might be met.Achieving the workforce plan involves the human resource function in a numberof day-to-day activities.
· recruiting employees –both internally and externally
· training new andexisting employees
· paying salaries
· dealing withdisciplinary matters and grievances
· overseeing industrialrelations, by seeking to avoid disputes and maintain harmonious relations andconstant production
· developing andmonitoring an employee appraisal system designed to assess performance, settargets for achievement and identify any training needs
Figure 1.5: Developing a human resourcesplan
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Themarketing function.
The marketingdepartment carries out a wide range of functions on behalf of the business.Essentially marketing is communications. The marketing department communicateswith a number of groups inside and outside the business as it carries out itstasks.
Marketingactivities:
· keeping customerssatisfied
· discovering the needsof customers and advising the production function accordingly
· carrying theresponsibility for ensuring the effective distribution of products towholesalers and retailers
· liasing with marketingagencies to provide the necessary expertise (small firms)
· if the firm is anexport, the marketing department may have contact with government agencies.
Marketingprovides the organisation with information about its customers and its markets.Effective marketing can offer businesses a number of benefits:
· early warning ofchanges in consumer tastes and fashions through regular market research
· knowledge aboutcompetitors and information regarding competitors’ product
· the means to presentthe company in a positive light through public relations activities
· allowing the firm toimprove the quality of its products by coordinating and analysing customercomplaints
· providing a catalystfor growth by forging relationships with distributors, retailers and customersin new markets
· supplying consumerswith the products they want and giving high levels of customer satisfaction,which might permit a business to charge higher prices thereby increasing itsprofitability.
Theadministration function.
The scope of theadministration department varies enormously between organisations. In a smallbusiness the administration function might incorporate a number of thefunctions like finance, personnel and marketing. However, larger organisationsare more likely to operate a specialist administration department.
A typicaladministration department has a number of functions:
· Administrationdepartment carries out organisation’s IT system.
· Clerical and supportservice. Information processing, data processing, filing and reception servicescan be provided to all areas of the organisation.
· Security andmaintenance. These services are essential to the smooth running of the businessand to the effective operation of other business functions such as productionin particular.
· In some businesses, theadministration function takes responsibility for important public relationsactivities such as customer services.
Theresearch and development function.
The nature ofresearch and development (R&D) varies enormously between businesses.Traditionally, the term research and development is taken to refer toscientific research undertaken by firms producing manufactured goods, hightechnology products or pharmaceuticals. However, R&D is equally importantto firms providing services.
By investigatingin research and development a business seeks to maintain competitivenessagainst its rivals. Competitiveness measures a business’s performance incomparison with rival firms in the same market. A highly competitive firm hassome advantage over other businesses. This competitive edge can take a numberof forms:
· lower prices
· more advanced andsophisticated products
· a better image withconsumers
· a good reputation foradvise and after-sales service
· reliability in terms ofoperation and delivery dates
Types ofresearch:
· basic research
· applied research
· development
The primefunction of R&D is to develop new products that can give the firm acompetitive edge in the market. This necessary involves the R&D departmentin close liaison with staff in market research, design and production.
Function 1.6: The nature of business activity/> /> /> /> /> /> /> /> /> /> /> /> /> /> /> /> />
Functional areas of Tesco plc.
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The diagram above shows the key functionalareas or departments of Tesco, as one of the leading retailers in the U.K. Itis currently the leading supermarket chain in Britain, with a higher marketshare than its leading rivals, Asda-Wallmart, Sainsbury’s and Safeway.
I have explained earlier the key functionalareas of a typical business and Tesco, as the diagram shows, displays this typeof structure. For example, the Company Secretary, Rowley Ager is responsiblefor Pensions, the Company Secretariat (the administrative staff), the Treasury,Taxation, Site Facilities, Transport and all aspects of Consumer Law.
The Finance Department, directed byAndrew Higginson, is responsible for all aspects of finance and audit, and alsofor European affairs. These functions are shown in Figure 1.3 in myintroductory section. I have no detailed information on Finance within Tescoother than financial data available from the Company Accounts and from theTesco and Bized websites……… and these are more relevant to a detailed financestudy of Tesco as a company, a topic to be studied in a later Unit.
The Marketing Department, directed by TimMason, is responsible for all aspects of marketing, Customer Service,Advertising, Market Research, Clubcard, Estates and Metros. Since the early1990s Tesco marketing strategy has been to become the best in terms of price,quality and service. Objectives are set, and ways found of meeting them, in allaspects of company’s operation.
The Retail Department, directed by MichaelWemms, is responsible for all retail operations and express stores.
Tesco first ventured into foreign marketswhen it acquired stores in Irish Republic in 1978, but these were sold in 1986.The 1990s produced a much better climate for European expansion. Now Tescooperates 80 stores in Central Europe, and 16 stores in two Far East countriestrading both under the Tesco and subsidiary fascias. The 13 Tesco stores in theCzech Republic and Slovakia, 29 stores including 5 supermarkets in Hungary, 31stores in Poland. Also Tesco plan to open 12 hypermarkets in Thailand and inSouth Korea over the next three years.
The Human Resources Department within Tescois responsible for many thousands of employees across the whole spectrum of theorganisation.Tesco employs 154,000 people in the UK and 27,000 inIreland and Europe. It does not appear on theorganisation chart, which I obtained from Tesco, because this function issomewhat complex and shared between the main headquarters at Cheshunt.Hertfordshire, and the many stores operated by Tesco around the country. For example,there are two Tesco superstores in Leicester, at Hamilton and Beaumont Leys,both of which have a Human Resources officer in charge of personneladministration.
The Commercial Department, directed by JohnGildersleeve, responsible for all commercial operations and technical services.
The Distribution Department, directed byPhilip Clarke, responsible for Supply Chain and all distribution operations.Distribution Director responsible for products delivery, logistics andtransport.Its purpose is to ensure that Tesco stores have the rightproducts delivered against agreed delivery schedules and in good condition,enabling the stores to provide a consistently high level of customer service.Tesco products are sent tostores from distribution centres around the country. Tesco runs 13 centres anda further six centres are run for Tesco by contractors. A typical centre covers300,000 square feet and handles some 50 million units a year. The centres workaround the clock, seven days a week, providing 2,500 deliveries daily,amounting to 19 million cases per week. Tesco employs 6,800 people indistribution (excluding the staff at the contractor-run centres), and has about1,000 tractor units and 2,000 trailers in its national vehicle fleet.
The Operations department, directed byDavid Potts, responsible for operations of Tesco stores in Northen Ireland& the Republic of Ireland. In May 1997, Tesco completed an agreement withAssociated British Foods to purchase all their supermarkets in the north andsouth of Ireland. The purchase price was £641 million, giving Tesco afurther 110 food stores and a leading position as a food retailer on both sidesof the Irish border.
I have considered each of the majorfunctions of Tesco separately. However, it is the effective interaction ofbusiness functions that is essential to the success of an organisation inattaining its objectives.
As an example, Tesco has recentlyintroduced a customer-oriented website on the Internet. Company has developedwithin this service facility a direct order system via E-mail – called“Tesco Direct”. Customers can order their produce/product for home delivery.
There are now many thousands of suchdeliveries but these all depend upon the successful interaction of the majorbusiness functions outlined earlier.
In other word, —
· Marketing — responding to the initial enquiry,receiving and processing an order, distributing the product to customer.
· Administration – adding the customers details tothe IT system, passing on details to other departments within the business.
· Finance – investigating the financial status ofthe customer, offering credit terms if appropriate, invoicing for payment.
· Distribution – receiving details of order andmeeting the customer’s demands, liasing with marketing over delivery dates,rescheduling other production as required.
· Human resources – at a store or warehouse level– ensuring sufficient employees are available to meet the delivery requirementsof the order, arranging overtime payments if necessary.
Hence these functions help meet theobjectives successfully. All Tesco’s organisation structure works as links of achain, if one link falls down, all the organisation will experience difficulty.For example, most important department of Tesco, I consider, is Distributiondepartment. If this department fails, products will not be delivered to thestore, so customers will go to another store. Tesco’s success is built on thegood work of each department.
E4
Organisational structure
In many small firms, the owner may have avery hands-on approach and may be responsible for getting customers, hiring anyextra labour and acquiring other inputs and taking all financial decisions. Asorganisations grow, however, their structure takes on a greater significanceand those at the top have to pay more attention to its formal structure andpresentation. The various business functions will show an increasing degree ofspecialisation as an organisation expands and people will be employed to manageand take decisions in specialist areas.
In general, an organisational structuresets out:
· Major roles and job titles, showing who is incontrol of the business as a whole and who manages its major business functionswithin departments.
· The level of seniority of people holdingdifferent positions and their respective positions in the organisation’soverall hierarchy.
· The working relationships between individuals,identifying relationships in terms of superiors and their subordinates andindicating who has authority to take certain kinds of decisions and who areresponsible for carrying out the work arising from those decisions.
· The extent to which decision making isconcentrated in the hands of people at or near the top of the organisation orhanded down to those at lower levels of management.
· The broad channels through which information iscommunicated throughout the organisation, indicating the route by whichinstructions flow down the hierarchy and how information flows back up thehierarchy.Organisational charts
Organisational charts are representationsof the job titles and the formal patterns of authority and responsibility in anorganisation.
Business may produce organisational chartsfor several reasons. First, it is important that a company reviews itsorganisational structure on a regular basis to take account of any changes inthe business environment. A formal organisational chart helps the company toidentify where changes need to be made and to decide the relationship betweenany new sections or departments and the rest of the organisation. Business alsoproduce organisational charts because they allow a company to review itsstructure and to identify areas where cost saving changes and improvements canbe made. Organisational charts are useful when changes take place in thecompany. It can be updated to take account of any informal developments in itsstructure that have been good for the company. A revised organisational chartis particularly useful for informing people about the new structure of thecompany after mergers or take-overs.
The organisational chart can also be usedduring an induction period to give new employees a useful overview of thecompany and their own position within the structure in terms of their authorityand the managers to whom they are responsible. Although an organisational charthas several uses, it should not be taken as giving an exact description of howthe organisation actually operates. It does not give the exact nature of jobresponsibilities or indicate what levels of cooperation may be necessarybetween departments./> /> /> /> /> /> /> /> />
Function1.7: Line authority in a production department.
Chain of command — is the line of command flowing down from the top to the bottom ofan organisation. It passes down the management hierarchy, from director andsenior management levels to those in middle and junior management positions andeventually to employees in supervisory jobs who, for example may have authorityover assembly line workers or staff providing services to the organisation’scustomers. Organisations with a long chain of command — with a hierarchy madeup of many levels of management — are said to have tall organisationalstructures.
Span of control — refers to the number of subordinates a manager is responsible forand has authority over. Organisations with a long chain of command will tend tohave narrow spans of control. Organisations with a short chain of command tendto have wider spans of control. This produces a flat organisational structurebecause it has a hierarchy with fewer levels of management.
Flat organisational structures: are generally desirable, there is a limit to the number ofsubordinates who can be placed under one superior. Even very experiencedmanagers who have the qualities and personalities that promote loyalty and hardwork can only be responsible for so many employees.
Tall organisational structure: some organisations have many levels andgrades of staff with a tree-like management structure and strong patterns ofvertical communication. This means that there are many different grades ofstaff between people lower down the organisation and the person at the top.Tall organisations suffer from problems with bureaucracy, as information needsto be directed through the correct channels before appropriate action is taken.
The main features of such a structure areas follows:
· At each level there are several staffresponsible to a person at the next level up. The process is repeated until thetop of the organisation is reached.
· In a limited company the person at the top isthe Managing Director who is ultimately responsible for the whole organisation.
· As the levels within the organisation areascended, the number of people at each level decreases and this gives theorganisation a pyramidal structure.
In an organisation with flat structurethere are fewer levels or grades of staff and much more emphasison communication across the organisation. This is more likely to be thestructure of a small business where everyone knows each other and workstogether more as a team.
In some situations, however, a relatively widespan of control may be acceptable if:
· The potential disadvantages of a wide span areoutweighed by the costs of employing the extra managers needed to producenarrower spans of control.
· Junior employees are engaged mainly in routinework and as a result the manager is required to make relatively few decisions.
· Managers are willing to reduce the pressure ontheir own time by delegating more decision making and they can identify staffwho are likely to respond well to the extra responsibility.
· An effective range of financial and non-financialmotivational factors produces a committed group of people who need very littlesupervision.
· The group within the span are highly skilled ortalented and are given a great deal of scope to be creative and imaginative intheir work.
Line structure
In a line structure, a company is usuallyorganised into functional departments, each headed by a senior manager, belowwhom there is a chain of command. This indicates that there is a line of authorityand responsibility as one goes down the structure.
Each person in the line has authority overthose below, while being responsible for making sure that the work handed downto them from their immediate manager is completed. This applies even if thesubordinate does not personally undertake the actual work.
Advantages:
· It is hierarchical structure which is simple tounderstand — staff know precisely where they are in the structure, who canallocate work to them and to whom they are responsible.
· Managers have a clear understanding of the rolesof people when allocating work and spend less time monitoring work becausesubordinates are not distracted or confused by instructions from other sources.
· A well-established line authority makes itpossible for work to be delegated further down the line — this can be valuablewhen superior is seeking to widen the experience subordinates and develop theirmanagement or supervisory skills.
Disadvantages:
· It can involve a very long chain of command — instructions may take a considerable time to filter from the top and impact onproduction, which can be an important drawback if the organisation operates ina rapidly changing market.
· The flow of information back up a long chain tomanagement may be a lengthy process, causing a considerable delay beforeproblems are identified and tackled.
· Individuals might only respond to requests fromthe superior, creating inflexibility in the organisation which may be totallyunnecessary if co-operation with other managers does not effect workingrelations with their superior.Line and staff structure
A line and staff structure combines both aline authority and what is known as staff authority. The term staff authorityrefers to those staff, usually at a relatively senior level, whose are of workoften involves dealing with different departments. Someone with the relevantstaff authority can provide services and advises to those in the line ofauthority of other departments. Managers with staff authority do not have thepower to control or give instructions, but rather the authority to deal withdifferent departments and to offer advice or support services in relation toproblems or exploiting new opportunities. However, since those with staffauthority are appointed because of their expertise, experience and goodpersonal skills, their advice, though not binding, is likely to be verypersuasive.
Advantages:
· Staff authority enables the expertise andexperience of specialists to be utilised more fully across the organisation.
· By having access to all areas of the company,managers with staff authority, communications between departments are atdirector level, and so any inter-departmental communication has to pass up thechain of command in one department to director level and then down the otherbefore it reaches the appropriate level.
· Staff authority prevents individual departmentsfrom being too inward looking — departments remain aware of theirinterdependence and their role in seeking to achieve the organisation’sobjectives.
Disadvantages:
There is a risk that staff authority maydiminish the authority of individuals in the line management, particularly ifthose with staff functions acquire informal power and authority.Matrixstructure
In a matrix structure, a senior manager headsa division or team of specialists drawn from different departments. Thesespecialists are also located in departments where they are part of a lineauthority; they are therefore subject to two sources of authority.
In a matrix structure the simple chain ofcommand found in a line structure is replaced by a very large number ofreporting relationships as individuals report to managers in more than onedepartment or function.
A matrix structure may be used for justsome of an organisation’s activities or it may cover the whole work of theorganisation. It is often used for organising and managing project teams, wherepeople with specialist skills, perhaps from different levels in the hierarchy,are brought together to solve complex and urgent problems. Project teams may becreated to deal with issues which arise every now and again or they may be anongoing feature of the organisational structure.
Some aspects of marketing, however, may behandled by an ongoing project team drawn from other departments, although themembership of the group may change as different marketing issues arise.
Advantages:
· It promotes increased co-ordination betweendepartments because it cuts across departmental boundaries — it encouragesgreater flexibility and creativity, produced by the cross-fertilisation ofknowledge and skills.
· It allows for the involvement of relativelyjunior staff, giving them valuable experience in a wider field for theexpression and application of their particular skills.
· Staff lower down a line structure can also gainvaluable management development in a project team, preparing them for promotionto higher management positions.
· The involvement of specialists from differentareas reduces the risk of resources
being wasted on projects with nofuture — in non-matrix structures anidea originating in, say, the marketing department may be pursued for a long timebefore it comes to the attention of production which might find thatit is simply not practical.
Disadvantages:The existence of a matrix structure and project teams can lead to confusion as individuals are involved in a large number of different relationships creating a complex pattern of authority and responsibility. A line manager may resent a subordinate receiving instructions from managers based on other departments, especially if they are at a lower level of management. This also raises questions as to who has priority over the subordinate’s time and what information arising out of the work of the project team should also be reported through the line authority. This can be a potential source of conflict and relations may also be strained if the subordinate suffers from divided loyalty.Centralised structure
Organisations are centralised when themajority of decisions are taken by a few people at the top of the organisationand little decision making is delegated to those further down theorganisational structure.
Even if many important decisions aredelegated to subordinates, some aspects of the business are always likely toremain totally under central control. In general, senior managers or acentralised department takes responsibilities for: major financial issues,wages and salaries, manpower planning and personnel records, purchasing.
Advantages:
· Senior management have more control of thebusiness, eg budgets.
· Procedures, such as ordering and purchasing, canbe standardised throughout the organisation, leading to economies of scale andlower costs.
· Senior managers should be more experienced andskilful in making decisions. In theory, centralised decisions by senior peopleshould be of better quality than decentralised decisions made by others lessexperienced.
· In times of crisis, a business may need strongleadership by a central group of senior managers.
· Communication may improve if there are fewerdecision makers. Decentralised structure
Complete decentralisation would meansubordinates would have all the authority to take decisions. It is unlikelythat any business operates in either of these ways. Even if authority isdelegated to a subordinate, it is usual for the manager to retainresponsibility.
Some delegation is necessary in all firmsbecause of the limits to the amount of work senior managers can carry out.Tasks that might be delegated include staff selection, quality control,customer relations and purchasing and stock control. A greater degree ofdecentralisation — over and above the minimum which is essential — has a numberof advantages.
Advantages:
· It empowers and motivates workers.
· It reduces the stress and burdens of seniormanagement. It also frees time for managers to concentrate on more importanttasks.
· It provides subordinates with greater jobsatisfaction by giving them more say in decision-making, which affects theirwork.
· Subordinates may have a better knowledge of‘local’ conditions affecting their area of work. This should allow them to makemore informed, well-judged choices.
· Delegation should allow greater flexibility anda quicker response to changes. If problems do not have to be referred to seniormanagers, decision-making will be quicker. Since decisions are quicker, theyare easier to change in the light of unforeseen circumstances which may arise.
· By allowing delegated authority, management atmiddle and junior levels are groomed to take-over higher positions. They aregiven the experience of decision making when carrying out delegated tasks.Delegation is therefore important for management development. Delayered structure
Delayering involves a business reducing itsstaff. The cuts are directed at particular levels of a business, such asmanagerial posts. Delayering involves removing some of these layers. This givesa flatter structure.
Delayering is likely to play a major rolein a policy of decentralisation as the removal of management layers allowsauthority for decision making to be shifted to a lower level in theorganisation.
Advantages:The savings made from laying off expensive managers. It may also lead to better communication and a better motivated staff if they are empowered and allowed to make their own decisions. However, remaining managers may become demoralised after delayering. Also staff may become overburdened as they have to do more work. Fewer layers may also mean less chance of promotion.Management style
Management style refers to the approachthat an organisation takes in setting objectives for its employees and the wayit manages relations between superiors and subordinates.
Management or leadership styles can becategorised as:
Autocratic: Amanager that adopts an autocratic management style takes entireresponsibility for decisions and, having set objectives and allocated tasks toemployees, expects them to be carried out exactly as specified. Employees aretold exactly what, how and when work must be started and finished. It is thekind of management style often associated with a corporate culture centredalmost exclusively around production. Power is focused at the top, and the centraliseddecision making is geared to getting the goods out of the factory and tocustomers. Little regard is paid to any non-monetary needs of employees; theyare not consulted or involved in decision making.
Democratic:A democratic management style seeks to involve employees in the decision-makingprocess, either by consulting them directly or through their representatives.This approach reflects a corporate culture which is more human resource centredand recognises the organisational benefits from meeting its employees’non-monetary needs — such as a need for job satisfaction and a sense ofbelonging. A consultative approach is particularly important if an organisationis planning to change product design or working conditions, methods and practices.
Laissez-faire style: This style gives people complete freedom to organise and carry outtheir work. It is a very person centred approach. A laissez-faire approach maystill impose some constraints, such as completion dates for certain key tasksor the earliest and latest arrival times for a flexible hours working day.There is no formal structure for decision making as decisions are taken by avariety of processes depending upon the nature of the problem, the opportunityto be explored and the individuals involved.
Consultative style: Leaders consult with others before decision are made. There will bea group influence in the final decision, even though it is made by theleader.
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As diagram above shows, Tesco has manylevels of staff: directors on the top, and step by step to employees on thebottom, therefore I can think that Tesco is a hieratical organisation, whereeach individual knows who he must report to. Communication in a complexorganisation such as Tesco will be dependent on the organisational structure,but this will be discussed later in my section on “Communication”.
I can see that Tesco has a centralised anddecentralised form of organisation because people on the top, who control thecompany, take the majority of decisions and also the company’s Head office iscentralised at Cheshunt in Hertfordshire.
Tesco is very big organisation and has verymany stores in different places – this fact shows that Tesco is a decentralisedorganisation, with much decision-making delegated on a regional and individualstore level.
From the information I have managed toaccess I believe/consider that Tesco has a very good democratic andconsultative management style. It is a very successful firm, as seen earlier,it is now the U.K. market leader with positive leadership from above and anotable corporate culture.
The directors present their annual reportto shareholders on the affairs of the Group together with the auditedconsolidated financial statements of the Group for the 52 weeks.
The principal activity of the Group is theoperation of food stores and associated activities in the UK, Republic ofIreland, France, Czech Republic, Slovakia, Hungary, Poland and Thailand. Areview of the business is contained in the Annual Review which is publishedseparately and, together with this document, comprises the full Tesco PLCAnnual report Accounts. Culture
Culture in organisations is often describedas the set of values, beliefs and attitudes of both employees and managementthat helps to influence decision-making and ultimately behaviour within them.Each organisation has a unique culture. This is what makes studying businessbehaviour so fascinating. The business culture helps to determine how thingsget done in firms and defines, quite simply, how the company works. The factthat organisations are themselves organic, composed of workers constantlyinteracting with each other and their environment, suggests that the culture infirms is not static and constant – the way firms operate can change, eitherintentionally through management action or more likely through naturalevolution. Corporate culture
Corporate culture is a set of values andbeliefs that are shared by people and groups in an organisation. A simple wayof explaining corporate culture might be to say that it is the ‘way that thingsare done in a business’. The corporate culture of a business can influencedecision-making. It also encourages low level managers to behave likeentrepreneurs. Business leaders are able to create a corporate culture toachieve a corporate objectives and strategy of the company. It is importantthat the corporate culture of a business is understood by all the people that workin the organisation. It is usually transmitted to new members and reinforcedinformally, by stores, symbols and socialisation, and more formally throughtraining.
Advantages of a strong corporateculture.
· It provides a sense of identity for employees.They feel part of the business. This may allow workers to be flexible when thecompany needs to change or is having difficulties.
· Workers identify with other employees. This mayhelp with aspects of the business such as team work.
· It increases the commitment of employees to thecompany. This may prevent problems such as high labour turnover or industrialrelations problems .
· It motivates workers in their jobs. This maylead to increased productivity.
· It allows employees to understand what is goingon around them. This can prevent misunderstanding in operations or instructionspassed to them.
· It helps to reinforce the values of theorganisation and senior management.
· It acts as a control device for management. Thiscan help when setting company strategy.
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Figure1.8: Types of business culture.
Culture, presented within Tesco plc.
Tesco has achieved its position as Britain’s leading food retailer byoffering excellent value and service to its customers. Underlying its businesssuccess is a commitment to upholding certain values, working principles andculture within the organisation, and to seek continuous improvement in itsethical performance. As a measure of its achievement to date, in 1997 thecompany came top in the Christian Aid league table for ethical commitment.
Customers.
Tesco must serve its customers by providing the goods they want and theservice they expect. By meeting customer needs better than its competitors do,Tesco earns profits and creates value for its shareholders.
Customer service is at the heart of Tesco business culture. The baseline is quality and value, but customers also look for a shopping environmentwhich is attractive, well planned, and enjoyable. They also expect staff to behelpful, responsive to their needs, and sympathetic to their problems. Tesco isconstantly seeking new ways of meeting customer needs. These includeintroducing Customer Assistants dedicated to helping customers at every pointduring their shopping, establishing a Customer Service Centre to deal withcustomer enquiries, providing facilities for customers with disabilities, andorganising customer question times when Tesco can hear customers views.
Staff.
Tesco employs 154,000 people in the UK and 27,000 in Ireland andEurope. It is constantly told by customers that its staff are the company’sbest asset. This means that the company must motivate and train its employeesto give the best possible customer service, and provide opportunities for allmembers of staff to develop their talents to the full.
The company believes that the welfare and safety of its employees is ofparamount importance, and applies high ethical standards to protect workers’rights and reward employees fairly for their work. Full and part-time staffhave had their benefits harmonised, including salaries, purchase discounts,pensions and profit-sharing. The company has a national agreement with USDAW,the shop workers’ trade union.
The approach of Tesco to worker welfare goes beyond its own employees.The company insists that its suppliers meet certain employment standards inmatters such as fair pay or minimum working ages. Tesco believes it can play apositive role in influencing working practices around the world.
Like other large companies, however, Tesco recognises that its widerreputation depends on other things, such as its staff relations, its attitudeto the environment, its support to the community, and its relationships withits suppliers. Also, as a leading food retailer, the company must ensure thatit provides products, which are safe to eat or use, as well as giving customersadvice on matters such as healthy diets. Healthand safety
Tesco customers rightly expect that their purchases will be safe to eator use. The company applies the highest standards in meeting these expectationsand makes special provision for those with special dietary needs. Followinggovernment recommendations on the nation’s diet, Tesco was the first retailerto promote healthy eating.
Environmental policies
Tesco is committed to protecting the environment and to using itscommercial strength to put its principles into practice. In many cases, thecompany’s standards far exceed legal requirements. Its environmental policiescover matters such as recycling of packaging, working with suppliers tominimise the use of pesticides, energy conservation, and the siting and designof its stores. Tesco also works closely with environmental organisations inareas relevant to its business.
Animal welfare
The company aims to set the highest standards of animal welfare in theindustry, and has introduced a code of practice on the treatment of animals towhich all its suppliers must adhere. The company is also funding research toimprove understanding of animal welfare, and will continue to promote andimplement high standards in order to improve animal husbandry still further.
Relationships with suppliers
Tesco has relationships with thousands of suppliers in the UK andoverseas, and works closely with these suppliers in order to ensure thatproducts are of the highest quality and delivered in the best possiblecondition. By working in close partnership with its suppliers, Tesco is helpingthem to meet its own high standards, not just in efficiency and productquality, but also in environmental protection, animal welfare and employmentpractices.
The community
Tesco is very much part of local communities throughout the UK and iscommitted to playing a positive role by working with community organisations.The company’s community contribution covers support for education, groupsdedicated to helping people with disabilities, and a wide variety of otherorganisations. The company has introduced schemes which enable its own staffand customers to help raise money for good causes.
Each large supermarket retailer in Britain has its own corporateidentity and culture. Often these are very similar, yet each organisation seeksto present its own individual image. Of the types of cultures that I have discussedabove, I think that Tesco displays many of these differing forms, especially customer driven or customer orientated, task culture, competitive culture, innovativeculture and positiveculture. It is often said that in business “the customer is King” and this isvery true of Tesco, which operates in a very competitive market. It must bevery heavily customer orientated as satisfied customers will usually regularlyreturn, but dissatisfied customers may not …. and go elsewhere! It is also veryinnovative, always encouraging new ideas and products, e.g. the possibleintroduction of car sales. Tesco used to be a food retailer, but now it alsosells clothing, electrical goods, books and stationary, computers, mobilephones, etc. It has a very positive culture as it is always searching for newopportunities for its staff and also its retail products. Its success is now agood indicator of how this blend of business cultures has led to market growthand market leadership.
E5
Communications
The efficient communication of informationis particularly important for organisation that operates in competitivemarkets. Relevant and accurate information is needed to plan and manageefficient production, marketing, distribution and cost control. Information –whatever it is nature and purpose – must be communicated as efficiently aspossible.
All people in an organisation are part ofan information flow – they are involved to varying degrees in providingand receiving information. However, there are three main levels at whichinformation is required:
· operational level
· middle management
· senior management.Operational level
At the operational level – on the factoryfloor, in the office or at premises where consumer services are provided –there are charge hands and supervisors who must ensure that work is planned andcarried out as efficiently as possible. In a factory, for example, a supervisorgiving the task of overseeing the production of a particular item needs toknow:the quantity to be handle the completion date the availability of plans and machine capacity the operations to be performed the kinds of labour needed and its availability the materials and components required to produce the order.
The kind of information assists thesupervisor in planning and controlling he work and it is essential for decisionmaking at an operational level. Activities at the operational of anorganisation produce data that will be processed to provide much of theinformation required by middle management. Middle management
Middle management needs to know howefficiently work at operational level is been carried out and the extend towhich any resources under their control are being used to achieve theorganisation’s objectives. Much of this information relates to the productivityof labour, the utilisation of machine capacity and the rate at which materialsand other inputs are being consumed.
Middle management also needs a great dealof financial information about the costs of the resources consumed in relationto output. This financial data can be used to determine and monitor totalcosts, revenues, profits and the achievement of business objectives forexample, it will be possible to identify any fall-off in productivity or risein labour costs which might contribute to arise in unit labour costs or todetect the excessive use of materials which might suggest an increased inwastage. Senior management
So far, I have mainly considered the needfor information that is processed and generated from sources within theorganisation. At senior level, however, information from internal sources oftenhas to be supported by information derive from external sources to helpmanagers ensure that the resources and their control are used as efficiently aspossible in achieving business objectives. Decision making at senior managementlevel has a major influence on the success or failure of the organisation. Anydecisions concerned with controlling the organisation, assessing itsperformance, planning its future and initiating action must be supported by allrelevant information.
Decision making at senior level in areassuch as business strategy and planning requires information about broad trendsrather than detailed information needed to make many routine decisions onday-to-day matters at lower levels of the organisation. Senior management needinformation about: developments in initial costs and sale trends overall profitability, and the respective contribution of each part of the business capital requirements, and availability of internal funds and the cost and sources of external capital manpower and skills requirements forecast of demand of the organisation’s markets the impact on business of any changes in the economic, political, social and legal environment./>
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Staff Subordinates Staff/>relationships relationships Figure 1.9: Communication network Communication channels and methods
The communication channel refers to themeans by which information is communicated. The actual choice of communicationchannel depends upon a combination of:the need for an immediate feedback or response costs speed and urgency the number and location of the people who need the information the degree of confidentiality and security required the desired degree of formality convenience the complexity and amount of detail to be conveyed the type of information to be communicated the need to keep a record of the communication.
Business information can be communicatedin many ways. Methods include:written reports instruction manuals letters, circulars and memoranda material posted on notice board in-house magazines and newspapers sheets of figures information on standard forms graphs, charts, drawings and photographed video, television and other audio-visual techniques meetings and interviews public address announcements electronic mail network messaging fax telephone and voice mail pager device video conferencing
Whatever communication method is used, theinformation sent should be relevant and avoid superfluous comments andunnecessary detail. The information communicated to a supervisor on a factorymay have to include an exact description of the operations to be carried out.In contrast, much broader information is supplied to middle and seniormanagement. Senior managers may only require general indicators and a broaddescription of the developments that need to be considered when assessing theorganisation’s performance, setting objectives and deciding upon strategies.Exception reporting
To ensure tht the information provided to managementis relevant, clear and concise and makes effective use of managers’ time, someorganisations stipulate that managers are only provided with dada relating toexceptional developments. Middle management, for example, may only receiveinformation connected with performance measurements that deviate by more thanan agreed percentage from their targets. The information dealing withexceptional performance should also be supported by brief statements of theinternal and/or external factors that may have contributed to any exceptionalperformance. Exception reporting makes more effective use of the time andskills that middle management devotes to decision making and to initiating andcontrolling actions.
Downward information flows
A downward information flow describes theprovision of information by a superior to an immediate subordinate. It is,therefore, concerned with internal communications as part of a formalcommunications channels. A downward information flow can cover:
· issuing instructions on the tasks that have tobe carried out by a subordinate and setting objectives, such as the target datafor completing the work
· requesting information concerning the area ofwork for which subordinates are responsible
· communicating the organisation’s procedures,working methods and practices and the rules and regulations
· given feedback on subordinate’s performance inrelation to his or her objectives and targets
· motivating people and encouraging attitudes thatraise productivity and improve quality.
Some information will not come from anemployee’s immediate superior but from other parts of the organisations. Forexample, when employees first start work they receive general information aboutthe structure and goals of the organisation from the personnel department.However, for information that relates to work undertaken by the subordinate,the communication channel should be from superior to immediate subordinate.Upward information flows
An upward information flow along a verticalinformation channel is from a subordinate to a superior. This might be feedbackfrom a downward flow or the communication may originate directly fromsubordinates. An upward information flow can cover:
· responding to a superior’s request forinformation on some aspect of work for which the subordinate is responsible
· informing managers about the subordinate’s ownperformance, problems or their personal ambitions in relation, for example, topromotion or opportunities for developing new skills.
· passing on information about other employees inthe subordinate’s section and relations with sections with which there is adirect link
· submitting ideas on improving working methodsand solving work problems.
In the interests of effective workingrelations. Most organisations expect subordinates to report formally throughtheir immediate supervisor or manager. However, they are likely to communicatein formally with managers higher up the hierarchy and in some situations, suchas grievance procedure, may go directly to a more senior manager than theirimmediate superior.Horizontalinformation flow
Inaddition to upward and downward flows, there are also horizontal informationflows between people of the same status. Because many operations within anorganisation must work very closely together, there must be formal arrangementsfor the exchange of information between sections and departments. Theproduction department, for example, must have close contact with the purchasingdepartment when it is considering changes to materials and components orintroducing advanced machinery and equipment. Production staff also has toexchange information with employees in requirement, training, marketing andtransport.
The quality of information.
The essential characteristics of anefficient information system are that the right people receive the rightinformation at the right time. The information communicated should be:
· internally relevant to the needs of therecipient
· accurate and concise
· comprehensive, avoiding a time-consuming requestfor extra information
· clear – it must be presented and communicatedwithout ambiguity or possible misunderstanding.
The person receiving the information musthave confidence in the ability of the sender and, therefore have the confidenceto take decisions based on the contents of the communication. The personsending the information must be confident that the receiver has the ability tounderstand, use and take effective decisions based upon the informationsupplied.
This information system, the communicationmedia and the kind of information provided should be review on a regular basis.The information system should be adjusted to take into account any developmentswithin the organisation such as changes in its organisational structure ormanagement style. This review should also take into account external factorssuch as advances in information technology.Informal communications
Vertical and horizontal information flowsshould be clearly defined. If individual are not sure about from whom the yshould receive information and instructors, this can lead to the growth ofinformation flows which are not part of the formal system. If there are twoinformation flows running at the same time, there can be confusion and a fallin productivity. These informal systems can generate alternative sources ofinformation and create a situation where the different levels of managementreceive inconsistent, inaccurate or even conflicting information.
Many businesses, however, accept that sometasks would not get completed if they only used formal channels ofcommunications and chains of command. It may be necessary to short cut theformal system if a matter is very argent or a clash of a personalities iscreating communications problems. Some informal channels may be tolerated ifgroups of workers have formed good working and personal relationship outside ofthe formal channels. Informal channels may even be the most effective way ofcommunicating some kinds of information.
All organisations have a grapevine, whichcommunicates information informally through personal contact between employeesboth vertically and horizontally throughout the organisation. The grapevine canbe a quick way of communicating information to the workforce as a whole as ittends to operate by word of mouth. It can be used to pass on importantinformation before an official announcement and, depending upon the feedbackgenerated, the company may modify its intentions before the formalannouncement.
The problem with using the grapevine isthat information can get distorted or exaggerated as it is passed on. Proposalto cut a workforce, through 10% natural wastage and 5% redundancies, may soonget changed to 15% compulsory redundancies as it spreads through the grapevine.This may be useful as the actual announcement may prove to be much moreacceptable than the distorted version on the grapevine.External communications
Efficient internal communications areimportant, but an organisation’s external communications are vital. Itsbusiness prospects will be seriously threatened if it neglects its externalcommunications. An organisation needs to communicate externally with:
· customers and clients
· suppliers of materials, parts, machinery, otherphysical inputs and business services
· local, national and European authorities thatdeal with matters such as taxation, planning permission, environmentalprotection, competition law, investment grants, trading standards, and healthand safety
· pressure groups concerned with issues such asconsumer protection, animal welfare, environmental matters and the welfare oflaw paid workers
· the media and the general public on matters thatcan either damage or enhance the company’s public image.
Organisation must ensure that the qualityof their external communications is as high as possible and select the mosteffective media for communicating information. It is obviously important thatorganisations maintain effective communications with their customers, and mostbusinesses invest heavily in market research promotion to attract and keepcustomers.
Many companies now recognise the importanceof providing a communication channel which allows customers easy access to thecompany. Some companies advertise a customer care telephone number or an E-mailaddress on their packaging or promotional literature. The customer care sectionwill be stuffed by people trained in the kinds of communications skills neededto deal with customers making complains. Larger companies may employspecialists press officers and public relations officers to handle dealingswith the media, pressure groups and the general public.
Organisations relying on other companiesfor materials and components can find themselves in financial difficulties oftheir external communications lets them down and orders are not placed at theright time. This may led to shortages of parts and materials, and productionmay be held up. Relations with suppliers may also be affected by poor verbalcommunications skills which can cause confusion of the exact nature anddelivery of an order. It is for this reason that any changes to an order madeverbally should be supported by some form of written or electronicconfirmation. Opened andrestricted channel of communications
In mostorganisations, some internal channels and communication media are open to allemployees; stuff at all levels can access the information. Organisations wantto provide some information to all their employees. This would include, forexample, information on health and safety regulations, environmental managementpolicies, incentive chemist and any response to resent adverse publicity. Thisdownward information flow from the top of the hierarchy would be open to all.
Thecontent of much downward and upward information flow sis fairly routine, andorganisation are not too concerned about people beyond the sender and recipientbeing aware of what is being communicated. However, access to some informationand channels of communications may be restricted. Some information is sensitive– and if it becomes known to people other than the intended recipients, itcould create either internal or external problems.
Information and communication technology
Bothinternal and external channels of communication are increasingly supported byinformation technology, with computers generating and managing informationflows. A computer-based information management system provides the mean tocommunicate, collect, store, summarise, analyse and present information in away that best suits the controlling and decision making needs of differentmanagers. Inform received by one department or section can be further processedbefore it passed onto other departments through the organisations computernetwork.
Computersystems can help organisations:
· react changes in the business environment
· process complex information
· provides administrative support
· increase job certification
· collect information at source
· communicate via the internet.
The Data Protection Act 1984
The DataProtection Act was introduced to ensure that organisations structured andmanaged the data held on their computers in a responsible way. These are itsmain provisions.
· Organisations must register the kind ofinformation it keeps on individuals with The Data Protection Agency (DPA).
· Data must be obtained and processed fairly.People should know if the information they give to organisations will be kepton computer and why it is needed.
· Organisations can only collect the kind ifinformation that they have registered with the DPA, and the data must not beused outside of the purpose for which it has been registered.
· The information held on individuals must beaccurate and, where necessary, up to date and it must not be kept longer thannecessary.
· Organisations must take precautions againstunauthorised access to the information they hold on individuals.
· Individuals are allowed access to the personaldata held by organisations and, where necessary they can correct mistakes.
In March2000 the Data Protection Art was extended to cover records kept on a paper aswell as information stored on computers and to provide additional protectionfor the individual. The protection includes new rights to know who holdsinformation on you. It provides a statutory right to know the identity of theperson in a business responsible for data protection issues, right to have aphotocopy of personal information held by organisations and greater rights toobject to anyone holding personal data.
There arealso new rules to prevent organisations sending data to a country outside theEuropean Union in an attempt to avoid complying with legislation on dataprotection. There are new provisions which can lead to individuals being heldpersonally responsible for not abiding by the rules.
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Communication within Tesco plc.
An illustration of communication withinTesco plc.
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Figure2.0: Example of vertical and lateral communication within Tesco.
I have analysed the communication withinTesco plc. and now I can say that Tesco uses relevant and accurate informationto plan and manage efficient development, marketing, distribution and costcontrol. Information, vertical and lateral, communicated within Tesco veryefficiently at the all levels. Every single person who works in Tesco is sureabout from whom he should receive information and instructions.
But apart of internal communications Tescohas very good external communications as well. The company communicates withcustomers and suppliers very well. The quality of Tesco’s external informationis very high. Tesco has many communication channels which allow customers easyaccess to the company, for example, Tesco advertises a customer care freetelephone number and e-mail address on its packaging literature.
E6
Production.
Production involves activities, whichcombine inputs in order to bring about the physical changes that eventuallyproduce the desired output – the product. The product may be goods forconsumers and households or parts and machinery for other producers andmanufacturers. Production can create a physical change through:
· Processing
· Manufacturing
· Assembly
· Craft-based processes.
Value added
A common feature of all forms of productionis that they are the means by which organisations add value to theiroperations. Put simply, all organisations add value to the externally sourcedmaterials and other inputs that contribute to their output. Value added is thedifference between the value of an organisation’s output, as measured by salesrevenue, and the costs of its inputs bought in from outside which contribute tooutput.
The relative importance of the input costsincurred by a producer depend upon the nature of the business. Most businessesgenerally consume a combination of:
· Raw materials
· Parts and components
· Energy
· Business services.Quality
Quality has always been an importantcompetitive factor in some markets, but during the 1980s an increasing numberof UK producers began to devote more attention to quality improvement. The risein the spending power of the average household meant that consumers’ choice ofgoods and services was no longer so dependent on price. At the same time,consumers were being offered a wider choice obliged producers to improve andcomplete on quality. Because firms producing consumer goods and services soughtto raise quality, their suppliers – companies producing materials, parts,machinery and business services – were also forced to improve quality.
A growing number of organizations nowoperate in markets where product differentiation is rapidly decreasing. Forexample, advances in technology mean that there is now very little differencebetween personal computers offered by the different manufacturers in particularprice range. A PC producer must therefore strive to gain a competitiveadvantage by establishing a reputation as a company with high quality and goodcustomer care. Consider training shoes as another example. Manufactures oftrainers periodically introduce new features into their shoes in an effort tocreate a greater degree of product differentiation, but they all remainessentially the same design and product. If the identifying logos are removed,the average buyer might find it difficult to distinguish between brands.
Producers of both consumer goods andconsumer durables must therefore place more emphasis on quality when marketingtheir products.
The increasing importance of quality canalso be seen in the market for consumer services. The main features of servicesprovided by airlines, banks and fast food chains are often virtually identical,and product differentiation can only really be achieved by improvements inquality.
Another factor in changing businessattitudes to quality was the success of Japanese manufacturing companies. Itwas perceived that quality played an important role in helping Japanesecompanies succeed in European and US markets. By the end of the Second WorldWar very little manufacturing capacity remained in Japan, and in the immediatepost-war period Japanese products generally had a reputation as being cheap butinferior quality versions of products manufactured by US and European producers.However by the early 1980s Japanese companies had become closely associatedwith high-quality products for which they were able to charge premium prices.In the early 1980s, Japan had 18 per cent of the world trade in themanufactured goods, substantially more than the UK’s 5 per cent share.Quality control
Quality control involves an organisationusing some kin of inspection system for identifying materials, parts,components and finished products which do not meet the company’sspecifications. Inspection or testing may be carried out at various stages ofproduction to ensure that faulty items do not remain in the production chain.
The operative or inspection department maycheck every item or just a sample of production. Processing industries, such asthe brewing and chemical industries, also test regular samples of theirproducts. Quality inspection is supported by highly sophisticated monitoring,measuring and testing equipment. This allows organisations to make adjustmentsto machine settings and control devices to improve quality.
There are some drawbacks to a qualityinspection system. Using an inspection system to control quality encouragesemployees to take it for granted that some output is bound to be defective.Less attention is paid to preventing errors and defects in the first place asthey will be picked up later by the inspection system.
A quality control system must ensure thatthere is regular contact between those departments that have a particularinterest in quality matters. The marketing department, for example, mayidentify issues raised by customers, while the design research and developmentdepartments should work with production on developing the product so thatcurrent defects are eliminated when work is being processed.Quality assurance schemes
A quality assurance scheme is the means bywhich an organisation implements its commitment to quality. It helps firms todo the job properly the first time, because the scheme is designed to preventfailures rather than detecting errors once they have occurred. In this way aquality assurance scheme (QAS) differs radically from quality control systemswhich involve inspection procedures at various stages of production. The designof a QAS recognises that defects do not just happen; they are caused by people.Assuring quality
Once an organisation has identified thereasons why people are responsible for defects and errors, it can develop asystem which eliminates the causes of defects. In this way, quality is assured.There is no single format for a QAS, and an organisation chooses a system whichis most appropriate to its particular product or service. What it must do is toinsure that every stage of production (or in the provision of a service) thatmaterials, equipment, methods and procedures are used in exactly the same way,every single time.
All employees should be aware of what isexpected of them, and should know how their own particular performance has tomeet certain clearly identified requirements.
Product Evaluation andQuality Assurance within Tesco plc.
What product evaluationand quality assurance in Tesco plc.
Tesco products are continually monitored and tested for their qualityand customer acceptability; this is product evaluation. Tesco staff andmanagement procedures are also monitored to ensure that they maintain thehighest standards; this is quality assurance.
Why does Tesco carry out product evaluation?
Product evaluation is carried out for a variety of reasons. Theseinclude:testing new products under development testing existing products when a change of supplier is being considered testing Tesco products against those of competitors to update information on the packaging to monitor quality and safety standards.
Changing of packaging information
Even when a product remains the same, packaging information may have tobe altered because of a change in legal requirements, changes in nutritionalconcepts, or advances in food preservation and cooking. For example, a productmight have its packaging altered to indicate that it could be suitable formicrowave cooking. It will therefore be necessary to test the product incompany’s laboratory. Here Tesco inserts fibre optic probes into the product.This allows us to monitor the temperature of the product whilst it is cooking,in order to ensure that it reaches a high enough temperature for it to beconsumed with safety.
Tests on existing products
Quality control tests are conducted regularly on all existing own-brandproducts at Head Office, in Consumer Advice Centres, and in specialistlaboratories. These include tests on food safety.
Consumer Advice Centre
The purpose of five Consumer Advice Centres in Sandhurst, Shoreham,Southport, Cheshunt and Perth is to carry out practical research with customersinto new and existing products. Each centre is staffed by two consumer serviceofficers who are qualified home economists. Their most important role is toconduct consumer acceptability tests and sensory analysis. Over a four-dayperiod, six to eight products will be tested.
Their role also includes being available to the customer for anyqueries concerning diet, health and nutrition, PR work at a local and nationallevel, quality control, and giving talks and demonstrations to local communitygroups.
Organising a taste panel
Market researchers will recruit customers who are shopping in thestore. These customers take part in the test only if they fulfil therecruitment criteria that have been established for the product being tested.For example,Tesco might ensure that all participants are heavy users of theproduct, or a product aimed at children will be tested on children only.
As far as possible, consumers test Tesco products against a benchmark.This other product is normally the market leader; testing against it allows usto ensure that product matches or exceeds this quality standard. Products aretested «blind» and identified by codes so that consumers do not knowwhich one is the Tesco product and which one is the benchmark.
The questionnaire is designed so that consumers give scores for variousquestions, such as their opinion as to the appearance of the product; they arealso asked to tell us what they liked and disliked about the product.
Sensory analysis
Sensory analysis is a more technical evaluation of a product which iscarried out by consumer service officers who have been specially trained toanalyse the product using uniform objectives and technical descriptions. Theywill evaluate the product and forward a description of it to Head Office foruse in the final report.
What is done with the data?
Data from sensory analysis, questionnaires and customer comments arecollated and subjected to statistical analysis at Head Office which will leadto a product either passing or failing the tests. If it is failed, the productis reformulated according to the comments made by customers in response to thequestionnaire. Products are then re-tested and will be launched only when theyachieve a pass result.
Implementing of qualityassurance
Quality assurance is implemented at all levels in Tesco. Everyone is«focused» on giving the customer the best possible shoppingexperience in terms of service, quality, availability, price, car parkingfacilities and store design. This «focus» is set in Annual TradingPlan and is implemented through various departmental objectives and throughspecific training programmes. Tesco invests large amounts of money in training,so that Tesco can achieve specific objectives, for example First Class Serviceinitiative.
Usually each initiative has a sponsor, normally a Main Board member. Itis the directors and managers who brief the teams, and then it is up toindividuals to «buy in» to an idea. Tesco has found that this processworks well as it is not prescriptive and it allows people to implement newideas in their own way.
Setting standards for quality
A common tool for creating «benchmarking» standards is calledSWOT analysis. This stands for «strengths, weaknesses, opportunities andthreats» and it provides a useful way of evaluating quality standards.Standards cannot exist in isolation, and SWOT allows comparison withcompetitors to be taken into account. Tesco therefore uses SWOT a good deal forspecific products, for example in evaluating a new range of merchandising orevaluating a new process provided by a supplier.
TescoPackaging design.
Tesco has many «Own Brand» products, and in orderto promote its own brand correctly Tesco has its own Packaging DesignDepartment. Products sell for a variety of reasons; in the first instance, thevisual appeal of a product is important to attract customers to the productinitially, as it is only after the first purchase that the customer isattracted because of the quality of the product and its value for money.
How does Tesco add value to its product?
Usually value for product depends on onevery important key – quality of the product, better quality – more tests aredone – bigger value, but Tesco tries to keep prices lower than all other nationalsupermarkets. Tesco adds value to its products by means of buying it fromcontractor for lower price, testing it, and selling it for higher price.
C1Success of thebusiness in meeting its objectives.
Tesco is one of Britain's leading food retailers and has 586 storesthroughout Great Britain. In Europe Tesco has 41 stores in Hungary, 32 inPoland, 13 in the Czech Republic and Slovakia, 33 in Northern Ireland, 76 inthe Republic of Ireland and 1 in France, to prove that business meets itsobjectives successfully I’ll present some diagrams and company’s financialrecords.
Turnover and profits ofTesco in 1997-1998
The turnover and profits for the year ending 28th February 1998 were asfollows:
· Group Turnover (incl VAT) — £17.8 billion (£17,800 million),an increase of 18.7% on the previous twelve months. This figure is for 53 weekscompared to 52 weeks for the previous year and includes the newly acquiredbusinesses in Northern Ireland and the Republic of Ireland. On a comparablebasis with the previous year, excluding the Irish acquisitions, turnover was£16.4 billion, and increase of 9.2%
· Profits on ordinary activities before tax, integration costs anddisposal loss — £832 million, an increase of 10.9% on the previous twelvemonths.
Changing of company'sfinancial fortunes 1992-98/> />
Thechanges in the company's financial fortunes are shown in graphs 1 and 2
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Graph1,2: Group turnover and operating profit 1992-8
Graph 3: Share earnings and dividends 1992-8
Profits share
In 1998 the profits from Tesco after taxwere £505 million. About 50% of the profits were distributed toshareholders as dividends. Subsequently approximately £250 million wasretained by the company for investment in new stores and improving theirservice to customers.
Changing of share pricein recent years
Between February 1997 and February 1998, the Tesco share price rosefrom 349p per share to 517p. It reached a peak in the period of 539p. In theyear 1998-9, the price continued to rise, being 586p on 21st April 1998, andhaving peaked at 603p at the previous stock market high.
Market share of Tesco/> />
InFebruary 1998, Tesco had 15.2% of the UK retail food market. The company'sshare has increased consistently since 1992 when it held 10.4% of the market.
Graph 4:Market share growth 1992-8
Turnover, profits andmarket share of Tesco in 1999-2000 Profit and loss account
/>This year was another successful trading year for Tesco plc. Totalsales increased by 9.8% to £20,358m and underlying pre-tax profitincreased by 8.4% to £955m. Adjusted diluted earnings per share rose 8.6%to 10.18p. A final dividend of 3.14p per share is proposed, making the fullyear dividend 4.48p, an increase of 8.7% over last year.
/>UK retail sales have grown 7.4% to £18,331m. Like-for-likesales were 4.2% which consists of volume of 3.2% and inflation of 1.0%, withnew stores continuing to perform well, contributing 3.2% to sales.
UK operating profit increased to£993m up 8.1% on last year. Tesco’s UK operating margin remained broadlyflat at 5.9% in a year when Tesco made substantial investments in price.
Company change programmes continue todeliver increasing levels of efficiencies enabling us to invest for customersand grow profits.
/>Sales in the rest of Europe accelerated with total sales up 18.8% to£1,527m and contributed an operating profit of £51m, up 6.3%. Salesin the Republic of Ireland in local currency are up 6.1%, reflecting thebenefits of company’s store rebranding programme. In Central Europe sales areup 76.8% at constant exchange rates. Tesco 11 new hypermarkets across theregion have all traded strongly since opening.
Business in Thailand has seen good growthand the three new stores have contributed to sales of £357m up 96%. InSouth Korea, Tesco Homeplus achieved sales of £140m in the period sinceacquisition. In the Asian region Tesco made a small operating loss of £1m.
Tesco Personal Finance has now been tradingfor nearly three years and share of losses this year are £4m compared toa £12m loss last year.
Tax on underlying profit has been chargedfor the year at an effective rate of 27.4%.
CHRISTMAS & NEW YEAR TRADING STATEMENT
Monday 15 January 2001
GROUP SALES GROWTH CONTINUING TO ACCELERATE
Group sales for the seven weeks ending 6January 2001 increased by 15.4%. This growth was driven by excellentperformances from all four elements of Tesco strategy: a strong core UK,increasing non-food sales, rapidly developing international stores andexpansion into retailing services.
OUTSTANDING UK GROWTH UP 10.5%
Total UK sales for this seven weeks,covering Christmas and the New Year, were up 10.5%. Compared to last year thisperiod included one extra day's trading over the New Year. Like-for-like saleswere up 6.9% driven by excellent sales volumes of 7.3%. This performancereflects determination to deliver the best offer for customers as Tescocontinue to cut prices. Overall deflation was -0.4%.
STRONG INTERNATIONAL PERFORMANCE
In 2000 Tesco opened 32 storesinternationally adding over 3m sq. ft. of new trading space. This represents anincrease in International trading space of over 45% on the previous year.International sales were up 50% over the Christmas and New Year period as aresult of existing stores maturing and new store openings.
RECORD NON FOOD PERFORMANCE
Company’s strategy of offering excellentvalue in non-food to customers was a resounding success this Christmas. Tescoachieved sales in all areas including 14,000 DVD players and 8,000 widescreentelevisions.
TESCO.COM SALES QUADRUPLE
The roll-out of Tesco.com to cover 90% ofthe UK population helped drive the performance over Christmas with sales up400% on last year. To meet this demand Tesco.com recruited 400 new staff,allocated 10,000 additional delivery slots and delivered 30m products.
Some examples of meeting itsobjectives by Tesco plc.
Product promotions
Objective: to give customers a broadrange of strong relevant promotions in all departments of the store.
Examples: hundreds of MultiSave, Link Save and SpecialOffer promotions in all stores every month.
Product range
Objective: to give customers what theywant under one roof.
Examples: constant development of newand exciting food products; introduction of clothing, CDs and videos.
Pricing
Objective: to be competitive especiallywith regard to the basic lines.
Examples: Value Lines and UnbeatableValue pricing, giving low prices on key brands and own-brand products.
Customer Service
Objective: to provide customers withoutstanding, naturally delivered personal service.
Examples: baby changing facilities, noquibble money back guarantee, «one in front» queuing policy.
Store design
Objective: to provide an environmentthat is easy and pleasant to shop in.
Example: store layouts, fixtures andambience improved to ease customer flow and make shopping more enjoyable.
Store refurbishment
Objective: to upgrade existing storesto the standard that is expected from Tesco.
Example: existing stores improved toinclude recent innovations.
Communications
Objective: advertising should appeal to allsocial and economic groups in a relevant and friendly way. Example: recent television ads.
C2
Howthe organisational structure, culture and management style of the businessaffects its performance and operation and helps it to meet its objectives?
I have analysed each of the major functionsof Tesco separately. However, it is the effective interaction of businessfunctions that is essential to the success of an organisation in attaining itsobjectives.Marketing
Advertising.
Tesco uses advertising in the press, onthe radio as well as on television to support the company’s marketing by makingthe public aware of the products and services available in its stores.
The Tesco logo.
The Tesco logo is a vital part of its image. By 1995 many versionsof the logo had evolved and company’s corporate identity was not focused.Company therefore began to use one single Tesco logo that is the sameeverywhere, on stores, letterheads, posters, lorries....
Thenew logo has the company name in red, the underlining in blue and thebackground white. However, given the cost of this change Tesco did notimmediately change every logo for the sake of it, but gradually as old itemswere replaced, repaired, repainted, reprinted or re-designed. This means thatit is taking about three years for the new logo to completely supersede allother versions.
Chef’s Club.
The Chefs'Club is an initiative which brings the best advice on food and drink tocustomers and aims to make shopping more enjoyable. Tesco is working with someof the country's top chefs and other experts who want to share their passionfor good food and drink with customers.
Tesco Packaging Design.
Tesco hasmany «Own Brand» products, and in order to promote its own brandcorrectly Tesco has its own Packaging Design Department. Products sell for avariety of reasons; in the first instance, the visual appeal of a product isimportant to attract customers to the product initially, as it is only afterthe first purchase that the customer is attracted because of the quality of theproduct and its value for money.
Tesco Product Promotion.
Productpromotion is the responsibility of the Tesco public relations team. The team isalways involved at the planning stage of any new product or service, and itsbrief is to generate extensive and appropriate coverage for the new product.Tesco has three key objectives for any productpromotion; these are:to reinforce the Tesco brand values of quality, choice, price and service to maintain the Tesco image as a market leader through its products and services to manage product issues — both positive and negative. Distribution Purpose of thedistribution departmentIts purpose is to ensure that Tesco stores have theright products delivered against agreed delivery schedules and in goodcondition, enabling the stores to provide a consistently high level of customerservice.
Tesco products are sent to stores from distribution centres around thecountry. Tesco runs 13 centres and a further six centres are run for Tesco bycontractors. A typical centre covers 300,000 square feet and handles some 50million units a year. The centres work around the clock, seven days a week,providing 2,500 deliveries daily, amounting to 19 million cases per week. Tescoemploys 6,800 people in distribution (excluding the staff at the contractor-runcentres), and has about 1,000 tractor units and 2,000 trailers in its nationalvehicle fleet.
How does Tesco keep each storesupplied with what it needs?
The key to the distribution system’s ability to supply each store’sneeds are the advanced use of IT at all stages of the distribution system.Information from stores about their sales and requirements is sent to TescoHead Office and from there to the distribution centres. The centres run acomputer system that has been specially designed to fit with Tesco workingpractices and to maximise efficiency).
How does Tesco achieve maximumefficiency in its distribution centres?
Computerised information arrives via printers in the warehouse offices.The system feeds this information directly to the staff on the warehouse floorvia radio links mounted on the fork-lift trucks. The system helps to controlthe movement of stock and the activity of staff. Thus when a person hasfinished a particular job, the computer decides which would be the mostefficient job to allocate next to that person, based on his or her currentposition in the warehouse.
Also, in the past, Tesco’s operations have been slowed down at peak timesby the need for product identification and purchase-order matching. Now eachgoods-in checker is equipped with a scan gun which can scan the outer case codeof each product and radio the information back to the Head Office computer,which matches a delivery with its purchase order in an instant. As well aseasing bottlenecks, this system enforces accurate outer case coding, whichTesco believes to be essential to future developments in its distributionsystem.
Human Resources
People are fundamental to business and the way company recruit,develop and reward people is the key to success. Human Resourcing in Tesco istherefore influential, leading edge and proactive to ensure continued success.
Human Resources at Tesco is divided into a number of central areaswhich focus on the design and research of Tesco HR policies and a number offront line HR professionals that work in partnership with company’s LineManagers to deliver the business plan.
Promote management development
Tesco does this by providing opportunities for everyone to increasetheir learning, thus enabling Tesco to thrive in a constantly changing andcompetitive market place. Tesco does this by:designing training packages which equip people with the knowledge, skills and experience needed to reach high standards of performance, and equipping trainers to coach others thus maintaining excellent quality standards. enabling training to be delivered in the workplace by people who know how to do the job themselves. exploiting new methods of learning, and thereby providing a supply of general business managers for the future. developing effective working relationships with colleagues and suppliers through listening and challenging, and designing products which inspire them.
Research and development of effective corporate human resource policies
Tesco does this by:being constantly aware of UK and European employment legislation, and translating it into policy that maintains a balance between cost effectiveness, fairness, developing relationships with people, and company’s business aims. researching and developing people involvement strategies; this involves analysing staff research, which includes both large-scale corporate surveys and specialist staff research. providing updates on employment law. scanning and benchmarking other organisations, in order to import best practice and maintain a competitive stance. ensuring specific policies, for example regarding the employment of disabled people and equal opportunities. achieving external recognition, to ensure that Tesco is seen as a quality employer.
Developing selection standards andimplement corporate entry programmes
Two crucial roles for the Human Resources Department are:developing selection standards which will enable managers to select the best people who will continually increase value for customers. implementing corporate programmes in order to ensure that the company's manpower requirements are met.
Tesco does this by:designing recruitment and selection processes which will equip managers with the skill and knowledge to select the best. training managers to maintain selection standards, and to select using the most reliable and leading-edge processes. developing corporate competency frameworks which enable managers to select the right people, who have the skills the business will need in the future. developing corporate entry programmes to ensure that corporate manpower needs are met in terms of skills and numbers. developing and implementing Tesco employment branding and marketing strategy in order to ensure that Tesco is seen as a quality employer which attracts the highest calibre candidates. developing a pool of Excel graduates providing a supply of managers with broad business experience. developing at a national level links with leading education/industry establishments, and planning initiatives whereby managers can develop links with education at a local level.
Reward Development
Reward Development researches and develops rewards and organisationaldesign strategy which enable Tesco to recruit, motivate and retain the best.Tesco does this by:sourcing and analysing pay and benefits data to enable Tesco to keep remuneration and benefits packages competitive. continually shaping innovative ways of rewarding staff, thereby enhancing the value of the reward package and increasing staff retention and stakeholding. developing performance management processes and tools which will improve performance and encourage motivation in staff providing advice and if necessary challenging organisational design, thereby ensuring a maximum return on corporate reward spend and creating organisational structures which will deliver business goals.
HR professionals
HR professionals operate out of the Line, working as part of the seniormanagement team in order to influence and implement HR strategy. They workclosely with the central HR departments and line managers to deliver keyaspects of company’s business plan:Develop the best Recruit the best Retain loyal and committed people Live the values of the company Transfer HR skills effectively to the line.
Hence these functions help meet theobjectives successfully. All Tesco’s organisation structure works as links of achain, if one link falls down, all the organisation will experience difficulty.For example, most important department of Tesco, I consider, is Distributiondepartment. If this department fails, products will not be delivered to thestore, so customers will go to another store. Tesco’s success is built on thegood work of each department.
As an example, Tesco has recentlyintroduced Customer-Oriented Initiatives, such as:Loyaltycards Clubcard was test-launched in October 1993and was rolled out nationally in February 1995. Clubcard has transformed theretail grocery sector and has brought Tesco closer to its customer. At theheart of the programme is one of the most sophisticated customer databases inEurope.
Clubcard is a magnetic «swipe» card obtainedfree in store. The checkout assistant swipes the card prior to scanning thecustomers shopping. For every £1 spent, one point is earned. Each pointis worth 1p. When shopping at the originating store, the till receipt advises:Points earned from that shopping trip Points accumulated during the quarter.
The points earned are recorded on a centralcomputer and are converted into money-off vouchers every quarter.
Customers can earn Clubcardpoints at:Tesco stores Tesco petrol stations B&Q Energi — through Norweb Tesco Personal Finance Tesco Home Shopping.
In addition Clubcard has recently beenextended to Ireland and to the Tesco Vin Plus store near Calais.
Homeshopping Manypeople today, both single people and couples, are working longer hours and donot want to spend part of their leisure time making a trip to the localsupermarket. To help people save time on shopping, Tesco has introduced HomeShopping, a service which makes use of information technology so that peoplecan do their shopping via the Internet from their home computer. This was firstintroduced on CD-ROM in July 1996, and Tesco followed this up by becoming thefirst UK food retailer to offer an Internet-based home shopping service inNovember 1996.
PersonalFinance In 1997, Tesco decided to extend its customeroffer to include personal financial services. In partnership with the RoyalBank of Scotland, Tesco is providing new ways of banking and other services toits customers.
C3. The impact of ICT on internal and external communicationsImportance of ICT
IT is vital to Tesco because every aspect of its operationis controlled or monitored by IT — stock, distribution, payroll, accounts, andso on. For example, when an item has its barcode read at the checkout, thesystem not only logs the price onto the till, but also logs the financialtransaction between Tesco and the customer and the fact that the stock has beenreduced by one item. On the distribution side, instructions from the mainframecomputer are sent directly to fork-lift truck operators at depots by radiolinks.
All stores are connected to the mainframes at Head Officevia the Tesco Network. There are a large number of different applications thatstores use both independently and via the mainframe connection. For examplethere are Personnel and Scheduling systems in-store, and access to electronicmail via the mainframe.
IT capacity
Tesco has a three-level architecture with mainframe, middlesystem servers and PC clients. Their main frame has a 6 million Mb storagecapacity (equivalent to 6 million 500-page books!). Their private digitalnetwork to 600 stores has a capacity of 11.5 Mb. They use some 100Tesco-written computer applications and over 200 PC packages.
How much does Tesco spend on IT each year?
Last year, Tesco spent about £133 million on IT, thatis about 1.4% of turnover.
How does that compare with other companies?
A recent independent survey of Europe's leading 500companies in all commercial and industrial sectors placed Tesco 112th overallin Europe in terms of IT spending, but 3rd in the list of Europeansupermarkets, and 1st amongst British supermarkets. [Source: Information Week19-20/12/97].
How many on-line card authorisation requests does Tesco receive each day?
Over one million on-line card authorisation requests aredealt with every day.
Internet site
The Internet site receives 250,000 hits per week and was usedto launch Tesco’s home shopping service and the Tesconet Inertrnet Serviceprovider. The internet site has proved to be a great success, with theintroduction of Tesco Direct, the home ordering and delivery service. Such“home shopping” is becoming increasingly important as more and more customersgain access to the internet via home PCs. Sainsbury’s, one of Tesco’s greatrivals, has also now launched its own home delivery service via the internet.
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Tesco own Internetsite. Home page.
ICT systems used by Distribution Department
IT hasrevolutionised all aspects of the selling, ordering, distribution and analysisof Tesco products. The operation of Tesco large distribution centres is ahighly complex business. In recent years new computer systems haverevolutionised distribution operations, allowing more effective stock controlprocedures, increasing productivity and making the best use of time, space andlabour.
Thebase system used to control the distribution operation was purchased from DallasSystems and customised to Tesco requirements. There are two particularlyimportant sub-systems, known by the acronyms DCOTA and DCAMS.
DCOTA(Distribution Centre On-board Terminal Access) is a system which sendsinformation by radio directly to the special terminals in the trucks of thefork-lift truck
driversat the distribution centres. The system controls the movement of stock andtrucks in order to make the most efficient use of time and space, automaticallymatching up locations and trucks. As soon as one assignment is finished, thenext brief will be transmitted to the truck-mounted terminal, showing thedriver where to go next. Every warehouse location has a check numberprominently displayed on the racks; this number is entered by the driver eachtime he visits a location, enabling the computer to check that each pallet hasbeen placed in the correct slot.
DCAMS(Distribution Centre Assignment Monitoring System) is the system that monitorshow far each job has progressed, and the deployment of staff. It is availableto supervisory staff via hand-held radio frequency terminals, enabling them topredict and pre-empt problems by re-deploying staff and, if necessary, changingwork priorities.
Radiofrequency communications are also used in the checking in of goods.
Orderingby stores now relies heavily on IT, using Sales Based Ordering. Data isreceived by the distribution centre from the Head Office mainframe system, andthen passed to the warehouse systems described above.
These mainframe computers are among the largest in Britain. The mainframes areeither IBM or compatible (Amdahl), running IBM operating systems. There aremainframes situated in two separate locations.
Theloss of a whole mainframe would have serious effects, and for this reason companyhas two mainframes to provide backup capacity. In the event of a disaster whichinvolved the complete destruction of one of the computer centres, the othercould re-establish these vital systems within 48 hours. The backup procedure istested regularly each year.
Thebackup systems for the distribution depots include specialist routines thatallow depots to switch between computer sites, and are at the leading edge ofdata processing technology. If a complete computer centre were lost, ITcommunication with all affected depots would be re-established within six hoursat the most.
Goodsare now ordered from suppliers using a system called Electronic DataInterchange (EDI). Orders for goods are transferred to the supplierselectronically using a service called INS-TRADANET. The use of EDI keepssuppliers precisely informed of Tesco requirements for company’s stores. Itallows Tesco to run the business more effectively and efficiently because ofits speed and accuracy. It is both quicker and more cost-effective thantelephone, post or fax, and eliminates errors due to loss, or to wronglyprinted orders.
EDI isalso used for:sending sales forecasts so that suppliers can anticipate demand and reduce lead-times for stock to reach the stores securing the best payment terms and discounts for Tesco simplifying the invoicing process, so that invoices are generated automatically and postage and paperwork are eliminated working internationally, to eliminate time and language differences.
ICT systems used in Management.
ManagementInformation is data stored electronically for use by business executives at alllevels to support their decision making. This type of information is typicallyhistorical, and needs human interpretation before a decision is made. Tesco isplanning to introduce a new system, called Data Warehouse, which will give muchgreater analysis and flexibility, and will further enhance the ability ofmanagers to make informed decisions.
The sections below describe Tesco’s current Management Information environment,and the planned Data Warehouse, broken down into four topics: Business use,Technology, Data and Analytical tools.
A) Business use
CurrentManagement InformationAccess to summarised data at pre-defined levels Most decisions made at a macro (e.g. regional level)
PlannedData WarehouseAccess to in-depth information for informed decisions Decision made at micro level, e.g. in store Use of balanced score carding for suppliers, stores, etc. with supporting details Use shopper behaviour to influence new lines, promotions, and product ranging.
B) Technology
CurrentManagement InformationMainframe, text-based reporting and analysis Downloaded to local PCs for in-depth analysis and graphics
PlannedData WarehouseSpecialised hardware and software to manage data (the 'Information Warehouse') Information from the Information Warehouse to be accessible from anywhere within Tesco and available also to designated outside users, e.g. suppliers, agencies Cost of computer hardware and software is «scaleable», i.e. Tesco can add processing power and storage capacity at reasonable cost and in manageable chunks to keep pace with the information needs Dedicated NCR machine and peripherals.
C) Data
Over 10million customers, over 60,000 products and 586 stores
CurrentManagement InformationData held on mainframe, PC or on paper Internal data analysed using SAR reports and MAS analysis tool (see below) External data received by EDI or on paper
PlannedData WarehouseData collected from Tesco operational systems and external sources, and stored centrally to provide one consistent source of information Data is stored on customer behaviour, product performance, branch performance supplier performance, depot performance Data held at lowest level to enable ad hoc groupings,
e.g. salt sales in stores by the seaside last Easter.
D) Analytical tools
CurrentManagement InformationMainframe based FOCUS — report generator SAR — report viewer MAS — Tesco-written multi-dimensional analysis tool PC Lotus suite — spreadsheet and database applications
PlannedData WarehouseA simple interface with the information using the score card concept, with top level measures and capability to «drill» to the level of information required to support decisions IT populate the Information Warehouse and users control their reporting requirements Logical access to information, with user choice of level, groupings, stores, products, measures, and other parameters
ICT systems used instore operations.
IT isessential to the running of a modern store. It is used for planning, monitoringand auditing store operations. In fact, the logistics of running a major storewould be severely hampered without IT, and the expansion to Superstores andHypermarkets would have been difficult without modern IT developments.
Tescostores vary greatly in size, from small Express stores covering 2,500 squarefeet to giant hypermarkets covering 120,000 square feet. The product rangedepends on the size of the store, and varies from 2,000 lines in a small storeup to about 40,000 lines in the biggest. Computerised Store Merchandising andPlanning systems ensure that Tesco get the right products to the right store,and get the right amount of space on each shelf within a store. This allowsTesco to get optimum sales for the space allocated to the product, and givesthe customer the most appropriate range of products.
A store can monitor what has been soldthrough the scanning operation at the checkout. The introduction of barcodesand scanners not only allows items to be checked out more easily, but itprovides information that is constantly fed back to the store's computer forthe monitoring of sales, both in terms of stock depletion and money taken.
Barcodes and scanners provide severalbenefits to company’s customers:As purchases are no longer entered manually into a cash register, accurate pricing is guaranteed. The scanning till is faster, reducing the time for which customers have to queue by about 15%. Produce is now weighed at checkouts, removing the need to queue twice (once for weighing and once at the checkout) as used to happen. Improved promotions may be offered, such as Multisavers. The customer gets an itemised till receipt giving details of the product purchased, price, weight (if weighed), total cost and method of payment. It also shows the store telephone number, plus details which will trace the sale quickly if a customer has an enquiry.
Tesco benefits as much as the customer from the new systems. Notably:Improved transaction accuracy: operator error is removed; fraud is limited as there is no opportunity to enter a lower price on the keyboard. Improved customer service — customers are important! Improved productivity. There is no need to label each item with its price, which can now be displayed on the shelf edge near to the product. Removing separate weighing stations removes the need for a manned point in the produce department; customers move through the checkout faster. Selective promotions can be initiated. Stock levels can be reduced as the exact quantity held is always known and re-ordering can be made more accurate Wastage of perishable goods is reduced, as they too can be ordered more accurately. Monitoring sales analysis and the effectiveness of promotions provides valuable information for Tesco buyers and also the company's suppliers.
Everyproduct has a unique number, the European Article Number or EAN. This number isallocated to each product by the Article Number Association, which oversees theoperation of the numbers for all businesses in the UK. The number can be foundbelow the bar code. The bar code is a representation of that number in a binaryform that can be read by a scanner. The scanner uses a laser and measures the differencein reflection to the laser of the bars and spaces.
The EANand barcodes normally consist of 13 digits, although there may be only eight onsmaller products. The first two digits are a national code, representing themarketing country. The next five digits identify the supplier of the productand the following five identify the product itself. The final figure is a«check digit» based on the other twelve numbers, which allows thecomputer to validate the code.
The introduction of IT in shopping has been matched by banks. This has resultedin new developments in payment. The simplest of these is that cheque detailscan be printed out by the till, based on the information used to produce thereceipt. Credit card vouchers can be printed similarly, and credit card detailsread electronically from the card.
Afurther advance has come with Electronic Funds Transfer at Point of Sale(EFTPOS). This allows Tesco to transfer money from a customer's bank account orcredit card account automatically. Two developments that have come from thisare the debit card and «cashback».
Debitcards are a means of purchasing without cash or a cheque. Unlike cheques, thereis no limit to the amount a customer can spend with a debit card as thetransaction is automatically checked at the customer's bank and, providingthere are sufficient funds in the customer's bank account, the payment is thenguaranteed to Tesco. Unlike credit cards, the customer pays at the time of thesale.
Thefacility to give customers up to £50 in cash also comes from being ableto check the customer's bank or credit card account, and has proved a popularinnovation with customers, who are saved the necessity of a trip to a bank orcashpoint.
Within a store there are two crucial systems that enable Tesco to sellproducts. These are the front-end system, called ProgreSS, and thereplenishment system, SBO.
TheProgreSS system holds pricing details of the 60,000 different products thatTesco sells, their description, and details of any special offers on them. Itrecords details about each sale, not just the amount of each item sold, butwhether the price has been reduced, the amount of money tendered and the changegiven. It also controls Clubcard processing, registering the points earned onthe card. Whilst the system manages the main grocery tills, it also has theability to be aligned to specific business functions. So different«personalities» are used within the garage, pharmacy, hot chickencounter and pizza areas.
Thesystem is also used to control the back office and cash areas. During a normalday's operation the system will transmit batches of information to themainframe systems at Head Office. This is primarily sales data, but alsoincludes details on reduction sales and Clubcard details, together with dailytotals and so on. In return it receives price changes, and new and delistedproduct information.
TheProgreSS system runs on an RS6000 machine.
Thestock replenishment system is called Sales Based Ordering (SBO). As its nameimplies, it orders new stock on the basis of what has been sold. It alsomanages in-store stock control and the central ranging and ordering process.
Whilst there are some 60,000 products sold by Tesco, eventhe biggest hypermarket will stock only about 40,000 of them. Some Expressstores will stock only 2,000 lines. The system keeps track of what products arestocked and how much is in the store, and is then able to use this information,together with the sales data, to calculate how much more should be ordered.Most products have to be calculated every day, on a one or two day lead time(the time between ordering and delivery).
The SBOsystem also manages the recording of all store-based stock movements (forexample damaged goods, out-of-code waste, transfers to other stores), stockcount scheduling and validation. The stores also use the system to influencetheir orders, for example factoring up expected sales of ice cream when a hotspell is forecast.
ICT systems used by Customer Service Centre.
The centre provides a central customerservice operation for the company; it handles requests for information andcustomer enquiries. It also handles the management and administration of TescoClubcard, and the processing of orders for the Baby Catalogue and the HomeShopping service.
Thescale of the operation, and the efficient organisation of staff to provideexceptional customer service, requires the extensive use of IT both intelephone and information systems.
To giveyou an idea of the scale of company operation, Tesco employs over 400 staff,both full and part-time. The Clubcard loyalty scheme has over 10 millioncustomers. In a typical week Tesco get 100,000 telephone calls, 5,000 letters,and 1,500 e-mails from customers, and company generates 7,000 outbound lettersto customers.
Tescouses IT to manage 100,000 calls a week, both to organise the calls efficientlyand to provide information on the timing and length of calls for planning andmonitoring purposes. Among the systems Tesco uses are:
ACD — Automatic call distribution (Meridian)
This system manages the way calls get routed to CustomerService Centre staff. Calls into the centre are distributed to ensure that callqueues are managed effectively. Real time monitoring facilities provideinformation on service levels.
Call forecasting and scheduling system (QMax)
The distribution of calls varies significantly throughoutthe week. This system is used for forecasting when calls are likely to be made.The information is then used to schedule staff availability so that they arethere to take the calls.
IVR — Interactive voice response
This is a menuing system on the telephone to filter outthose calls that can be handled without an operator. The customer selectsvarious options so that calls can be transferred directly to the appropriateservice or person.
There are many ways in which IT providesand organises information for Tesco. For example: Customer services have systems to assist in logging customer enquiries, handling responses and tracking progress on outstanding issues. Tesco has an addressing system, based on the Post Office Address File, that enables accurate addresses to be captured quickly. Tesco has a knowledge base on an intranet to help staff deal with customer queries. This contains frequently asked information about the company’s stores, products, services and policies, as well as general information about nutrition and healthy eating. Management reporting is used extensively to provide information to the business on customer concerns. Tesco is now looking at new technology as a way of pro- actively reporting on any serious issues that emerge requiring close, urgent attention.
Ordersfrom Home Shopping customers may be received over the telephone, by fax or viathe Internet. These are collated by store and go through a delivery schedulingsystem which plans the most efficient delivery route, and are then transmittedto the stores for packing and delivery.
TheClubcard system enables staff to deal with customer queries related to theservice. This involves managing a large number of routine calls with regard tochanges of address, lost cards, and so on. IVR systems are used to interceptthese routine calls so that they can be handled automatically.
A1
Alternativeapproaches which might enable the business to better meet its objectives.
The retail grocery market is intensely competitive today and no seriouscontender can afford to rest on its past achievements. This should encourageTesco to pioneer many new ideas. By listening and responding to customer needs,Tesco will continue to bring in new ideas and services. Its latest venture,with the Royal Bank of Scotland, launched in November 1997, is to offercustomers competitive financial services through its stores. It is fifty yearssince Jack Cohen opened his first self-service shop, and we expect Tesco storesin fifty years' time to be as different from those we know today as Tesco’scurrent stores are to the stores of fifty years ago.
Non-food retailing is a major part of Tesco strategy. Tesco is increasing competitionand offering customers real value and choice in all areas from sportswear tosoftware, electricals to spectacles. By introducing these ranges to more ofcompany’s stores Tesco also offer customers the convenience of shopping forgreat value non-food along with their food and household goods.
More choice in-store includes many newlines for the home and garden, motoring and leisure, fashion and cosmetics.Opticians, mobile phones and health and beauty are examples of departments thathave been expanded to meet customer demand. Tesco relaunched its clothing rangeto offer better value, quality and choice.
In this year Tesco should continue tobring its customers big names at competitive prices. Last year, for example,Tesco sold 14-inch Bush TVs and Vodafone, Orange, One 2 One and Cellnet mobilephones at record low prices. Film and batteries came down by 30% and cuts ofbetween 15% and 50% are being made on stationery, pet accessories, video tapes,CDs and DVDs and many other popular products.
The convenience of shopping fornon-food alongside food is what Tesco should offer customers. At the start of the year Tesco already had 90 stores trading withfull non-food offer in the UK. During the year Tesco should increase this asmuch as possible through extensions, refits and new store developmentprogrammes.
Through these programmes Tesco will havemore Tesco Extra stores including its newest at Newcastle upon Tyne. It isTesco’s first UK store to be designed and built to hypermarket blueprint,using many of the elements which Tesco has found to be successful in Europeanand Asian stores. It has given to the company the opportunity to introduce amuch wider range of non-food products to the UK, giving its customers even morechoice when they shop at Tesco.
Through innovating and investing for its customers Tesco is leading the way in new forms ofretailing. Tesco is the largest on-line grocer in the world, and through therapid development of its e-business Tesco is now offering customers real choiceand value on the internet.
Tesco.com is new 100% subsidiary companythat runs company’s e-commerce business, which is an important part ofcompany’s future strategy. Tesco should ensure that it has a real focus, therelevant resources and can move quickly.
Grocery home shopping business offerscustomers shopping on-line choice, value and convenience. Hundreds of newcustomers are registering every day and Tesco has the capacity to grow thisbusiness at a significant rate.
On the internet Tesco is not constrained byspace as the store can be as large as you like. Company’s Internet customersnow have an exciting range of non-food offers beyond food shopping — just a fewclicks away. Tesco’s new book store offers a choice of 1.2 million titles, with50% off top lines and Tesco has an entertainment store selling over 300,000 CD,video and DVD titles.
Tesco’s European business is focused on the Republic of Ireland and the four Central Europeancountries of Hungary, Poland, the Czech Republic and Slovakia accessing apopulation of 68 million people. In Ireland the business is progressing well asTesco near completion of rebranding programme. And in Central Europe Tescocontinue its rapid hypermarket roll-out opening 11 stores and 1.3 millionsquare feet in the year.
Regional focus and market leadership is akey objective of Tesco’s strategy in Central Europe. Tesco is the only retailerin all four countries — Hungary, Poland, the Czech Republic and Slovakia.Company’s portfolio now includes 19 hypermarkets totalling two million squarefeet of retail space. Tesco is meeting and stimulating demand in these marketsas customers begin to recognise the better choice, quality and value that Tescooffers.
Tesco is pursuing an active programme ofstore openings which will take the company to 69 hypermarkets by the end of2002, and will make the company the market leader across the region.
The hypermarket blueprint is the focus ofCentral European activities. At 100,000 square feet or more, hypermarkets giveTesco the space to offer customers extensive food and non-food ranges atoutstanding prices.
Tesco is learning all the time. The formatis internationally transferable and adaptable to different regions, and part ofthe success has been to supplement UK skills in grocery retailing and customerservice with international expertise.
In the Republic of Ireland Tesco shouldcontinue to make good progress. Without the benefit of any new stores, salesincreased by 6.1% in the year. Cumulative sales growth since acquisition is now20%, moving market share to 23.3%.
Ireland and Central Europe are already asignificant part of the Group employing 27,000 people which will grow evenfurther as Tesco move forward.
Asia is thesecond international region where Tesco is expanding. The Tesco Lotus businessin Thailand now has 17 hypermarkets and is well on the way to marketleadership. In South Korea, through Tesco’s partnership with Samsung, Tesco nowhas two outstanding hypermarkets which are among the highest turnover stores inthe Tesco Group. Now Tesco should open its store in Taiwan. These three marketswill give to the company access to 130 million people.
In South Korea, a country where 50% ofhouseholds own a PC and 78% a mobile phone, the retail industry has huge growthpotential. In 1999 Tesco invested £142m in a partnership with Samsung,which brought two world-class hypermarkets operating under a top retail brandas well as a number of sites that Tesco will now develop. Tesco should t expandmore hypermarkets in next years.
Tesco now should move rapidly towardsglobal sourcing, which will enable company to buy quality products at the bestprices and deliver them at the lowest cost. Tesco has already set up threesourcing centres in Hong Kong, India and Thailand. These now source 30% ofTesco non-food products (excluding Health and Beauty). Tesco should move thishigher in next years, with the opening of a fourth sourcing centre in CentralEurope.
As a student from Russia (I live inKazakstan) I would like to see Tesco further expand its activities in EasternEurope, and therefore why not Russia? At the present time there is nothingsimilar to Tesco on the Russian market, so I think Tesco won’t have anyproblems to get into it.
It is difficult to suggest alternativeapproaches for Tesco’s strategy because the firm is evidently doing very well.I would suggest however that Tesco continues to seek markets overseas tofurther develop its growing global presence.
As mentioned above, Tesco has been verysuccessful over recent years, and it is therefore quite difficult to suggest “Alternative strategies”.
However, from my I might suggest thefollowing:
· Expansion overseas – e.g. Russia.
· Increase market share – e.g. merge with Safeway.If Walmart took over Asda, why can’t Tesco take over Safeway, for example.
· Expand into new market / product – e.g. cars,travel.
· Rewards to staff, introduce a widespread – bonusor share ownership (if Tesco doesn’t do it yet)
A2
Evaluationof the effects that the alternative approaches might have on the structure andfunctions of the business, and how it achieves its objectives.
Alternative approaches, suggested in A1 canaffect the functions of the organisation and how it achieves its objectivesvery much, but they won’t really affect structure of the organisation, becauseTesco’s organisation structure is very good and there is no point of changingit. Expand to Russia
If Tesco expands to Russia, in general, itis going to be only benefit to the company. Of course first Tesco will have tospend some money to build and open new supermarkets, but it is not going to bevery difficult because there are no other companies like Tesco. Big advantageof expanding Tesco into Russian market is that straight way after it Tesco willdefinitely become a dominant firm on market, because there are not very strongcompetitors and very soon Tesco can become a monopoly on the Russian market.Disadvantage of expanding is that Tesco can get failure as well. Russian pricesand British prices are very different, so if Tesco retails goods, which aremore expensive then in others stores, not many people will by it.
Increase market share
Every single organisation wants to increaseits market share, and the best way of doing it is to merge or take over anothercompany. And I suggest that Tesco also could increase its market share bymerging another retailer, for example Safeway. Safeway is not as big as Tesco,so it is not going to be very difficult to merge it or take it over. Theadvantage of the merger is that Tesco will increase its market share very much(by 10%) and two dominant firms of UK’s market joined together can easy becomea monopoly. The disadvantage of it that it is not very easy to do, because nowTesco has 35% market share, and if it merges Safeway, Tesco’s market share willbe increased up to 45%. But British law says that firm which has 45% of marketshare is monopoly, so competition commission won’t be happy about it and itwill never agree with this merge. Expand into new market
Non-food retailing now becoming a majorpart of Tesco strategy. As I said before, Tesco is increasing competition andoffering customers real value and choice in all areas from sportswear tosoftware, electricals to spectacles. But still, I think Tesco didn’t get intoone very perspective market – cars. Cars are very important in our time andthere is a very high demand for cars in the UK. I think for Tesco it is won’tbe very difficult do get into this market, because Tesco is known as cheapestretailer in the UK, therefore people will continue to by everything from Tesco,and cars as well. But it could be easy and could be not, because currentlythere are many different firms on this market, and what I think is that thereare could be some barriers to entry.Rewards to staff – introduce a widespread
At the present time, many successful firmsintroducing new types of rewarding to staff. What I suggest is that Tesco alsoshould introduce a widespread of rewarding to staff, for example employeescould be awarded an annual bonus, which they can take in cash, vouchers orshares. The advantage of this type of payment is that if employees take shares,they will be interested in good work of the company and if they take vouchers,they will have to spend all salary in Tesco stores. So I think that it is verygood way of rewarding with all benefits to the company.Affects of the alternative approaches
As I mentioned before, alternativeapproaches, suggested in A1 can affect the functions of the organisation andhow it achieves its objectives very much, but they won’t really affectstructure of the organisation, because Tesco now has very good organisationstructure with very good consultative and democratic management style.
If Tesco expands to Russia and mergesSafeway, there are will be “Operation – Russia” department in the organisationchart. More people will be involved to work for Tesco, so Human Resourcesdepartment will become bigger. After expanding to Russia Tesco easy can expandto other countries of Soviet Union such as Kazakstan, Uzbekistan, Kirgiztan andso on. It also will definitely help Tesco to prove itself as very strongmultinational firm.
List of resourcesThe main resource was Tesco’s own web site: www.tesco.com. I asked Tesco for some information and they sent me it. Web site: www.bized.ac.uk Business for Vocational A level – book. Newspapers