Introduction
What I need to do?In this coursework I need to produce a detailed business report on onemedium–sized or large business. In investigating a chosen Case Study I mustcomment and analyze each of the following aspects of the Business:ObjectivesOrganizationStructureCultureCommunication ChannelsQuality Assurance and Control“Adding Value”I need to examine how these factors interrelate to affect the success ofthe business. Also I need to explain how quality assurance and controlsystems help the business to add value to its products and services.
As example for my investigation I chose Tesco plc., because Tesco is goodexample of public limited company and Tesco – is a most popularsupermarket’s network in UK.
How businesses are classified?I can classify the business by form, by industrial sector, by ownership, byobjective, by size and by location or market.
Forms of businesses.SOLE TRADER.Oldest, simplest, most common form of business easy to set up enterprise.A sole trader exists where a single person owns a business. This is verycommon form of organization. Over recent years, the number of sole tradershas grown significantly. There are several reasons for this trend includingmore opportunities to work for firms on consultancy basis and governmentsupport for self-employment. Most sole traders work on their own .Initial capital – savings or borrowed. Very common in retailing, servicetrades.Advantages: – Easy to set up with little capital and few legal formalities – The owner controls the business – quick decision making – Personal contact with customers – All profits belong to owner – Satisfaction, motivation, interest in “Working for yourself” – Business affairs are private – except far tax returnsDisadvantages: – Unlimited liability for any loss or debts incurred: owner is responsible or liable – Cannot “Buy in bulk” and enjoy “Economies of scale” – Expansions limited by available capital – Division of labour is difficult – Continuity a problem…Good example of sole trader is T. Regan Plant Hire.
PARTNERSHIPThe minimum membership is two partners and the maximum twenty.Must be at least one general partner who is fully liable for all debts andobligations of the practice. “Sleeping partner” – not active. Partnershipexist mainly in the professions – doctors, lawyers, accountants andsurveyors frequently run their organization in the form of partnership.Partnerships normally operate in local or regional markets, though advancedin information technology are allowing many professions to offer theirservices more widely.Advantages: – Easy to set up – More capital with extra partners – Division of labour – specialization – Responsibility can be shared e.g. long working hours redused Disadvantages: – Partners have unlimited liability – Disagreement can cause problems – no sole decision – maker or owner – Lack of capital may still hinder expansion – Profits must be shared among all co-owners – Problem of continuityGood example of partnership is Rolls-Royce.
COMPANIESA company is defined as an association of persons that contributes money(or equivalent value in goods and assets) to a common stock, employ it insome trade or business, and share the profit or loss arising out of thatbusiness. Join stock companies are governed by and registered under theCompanies Act 1985. A company has a separate legal identity form itsmembers and can sue in its own name. There are two types of company: publiccompanies and private companies. Both require minimum two shareholders, andthere is no upper limit on the number of shareholders. All companies enjoythe benefit of limited liability. Capital is raised by selling shares.
PRIVATE LIMITED COMPANIESShares can be transferred privately. All must agree.Private limitedcompanies are suitable for small and medium-sized operations. This type ofbusiness organization is particularly suitable for family firms and forsmall enterprises involving just a handful of people.Private limited companies find it easier to attract capital becauseinvestors have the benefit of limited liability and this access to financemakes it simpler for the business to grow.Advantages: – Shareholders have limited liability – More capital can be raised – Control of company held within the firm – Shares are transferableDisadvantages: – Profit are shared out among more people – Legal procedures…involve time – Not allowed to cell shares to the public – Restricts amount of capital raised – Difficult to find a buyer if shareholder wishes to “leave”Good example of privet limited company is Littlewoods Ltd.
PUBLIC LIMITED COMPANYThe second type of limited company tends to be larger and is called apublic limited company. There are about 1.2 million registered limitedcompanies in the UK, but only 1 per cent of them are public limitedcompanies. 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 toinvestigate.
CO-OPERATIVESCo-operatives are organised on a regional basis. Members can purchaseshares and each member has one vote at the Annual General Meeting, nomatter how many shares are owned. Members elect a board of directors whoappoint managers to run day to daybusiness. The Co-operative is run in the interests of its customers andpart of any surplus is distributed to members as dividend. Shares are notsold on the stock exchange, which limits the amount of money that can beraised.Good example of co-operative is CRS (Co-operative Retail Society).
CHARITIESCharities are organisations with very specialised aims. They exist to raisemoney for “good” causes and draw attention to the needs of disadvantagedgroups in society. They also rise awareness and pass comment on issues,such as cold weather payments, which relate to the elderly.Charities rely on donations for their revenue. They also organise fundraising events such as fetes, jumble sales, sponsored activities andruffles. A number of charities run business ventures. Charities aregenerally run according to business principles. They aim to minimise costs,market themselves and employ staff. Most staff are volunteers, but some ofthe larger charities employ professionals. In the larger charities a lot ofadministration is necessary to deal with huge quantities of correspondenceand handle charity funds. Provided charities are registered, they are notrequired to pay tax. In addition, business can offset any charitabledonations they make against tax. This helps charities when raising funds.
Good example of charity is British Red Cross.
FRANCHISESA franchise is not a form of business organisation as such, but a way ofmanaging and growing a business. Franchising covers a variety ofarrangements 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, apartnership or a private limited company. The legal form of business thatis chosen will depend on the capital needed, the degree of risk, the numberof people having a stake in the franchise and the personal preferences ofthe owner. The person or organisation selling the idea (the franchisor)gains a number of advantages from the process of franchising. Thefranchisor normally receives a share of the profits generated by thefranchise. Usually the franchisee benefits by being granted rights to anexclusive territory and support from the franchiser in the form of stafftraining, advertising and promotion.Franchising is a cheap and quick way to set up your own business. By theyear 2004, it is estimated that 70 per cent of all new retail outlets inthe US will be franchises.Good example of franchise is McDonald’s.
Industrial sectors.PRIMARY – extractive organisations.SECONDARY – manufacturing organisations.TERTIARY – providing-services organisations. Ownerships.PUBLIC SECTOR: Civil service, Government departments, Public corporations,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
E1 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,responding to new opportunities and pioneering many innovations. Today itis Britain’s leading food retailer.The founder of Tesco was Sir Jack Cohen. He used his gratuity from his Armyservice 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 oftea in the 1920s. The name was based on the initials of T.E. Stockwell, apartner in the firm of tea suppliers, and the first two letters of Cohen.The first store 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 tothe public.Self-service stores came to Britain after the Second World War, and JackCohen opened the first Tesco self-service store in St Albans in 1948.In 1956 the first Tesco self-service supermarket was opened in a convertedcinema in Maldon. By the early 1960s, Tesco had become a familiar name. Aswell as groceries, the stores sold fresh food, clothing and householdgoods. Tesco stores were located in the high streets of many towns. TheTesco store which opened in Leicester in 1961 had 16,500 square feet ofselling space and went into the Guinness Book of Records as the largeststore in Europe.By buying in bulk and keeping costs down, Tesco should have been able tosell at very competitive prices to its customers. Until 1964, however,suppliers were, by law, able to insist that retailers charged a set pricefor their products (the system known as Resale Price Maintenance) whichmeant that it was difficult to reduce prices. The intention was to protectsmall shops against the lower prices that big retailers could offer theircustomers.Tesco introduced trading stamps so that it could bring lower prices to itscustomers. Customers collected stamps as they purchased their groceries andother items. When they had collected enough stamps to fill a book, theycould exchange the book for cash or other gifts. Other retailers sooncopied Tesco. Sir Jack was one of the leaders in persuading Parliament toabolish Resale Price Maintenance in 1964. After this, Tesco continued tooffer trading stamps until 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 Englandand added another 144 stores in 1964 and 1965. In 1968 the Victor Valuechain became 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,designed to provide ease of access to customers coming by car or publictransport. The term superstore was first actually used when Tesco openedits 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 ithigh and sell it cheap’ was the title of Sir Jack Cohen’s autobiography.But as people were becoming better off, they were starting to look for moreexpensive luxury items as well as everyday household and food products. Inthe late 1970s the company decided to broaden its customer base and makeits stores more attractive to a wider range of customers. Many of theolder, high street stores were closed and the company concentrated ondeveloping bigger out-of-town superstores. The superstores sold a broaderrange of goods, and had wider aisles and better lighting. While stilloffering very competitive prices, the emphasis was now on quality, customerservice and a customer-friendly environment. In 1974, the company developedfilling stations at its major sites, selling petrol at very competitiveprices. In line with its new image, Tesco finally stopped giving tradingstamps in 1977, at the same time introducing a price cutting campaign underthe banner “Checkout at Tesco” which proved to be a major success.In one year in the late 1970s, the Tesco market share increased from 7% to12%, and in 1979 its annual turnover reached £1 billion for the first time.
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 stationsat its superstores had made the company Britain’s biggest independentpetrol retailer.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.
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,a pleasant shopping environment, free car parking and an emphasis oncustomer service. Although many financial experts had not believed that thecompany could so radically change its image, the new approach saw sales andprofits rise consistently. Existing customers took advantage of greaterchoice, and new customers discovered that Tesco could successfully matchthe offer of any of its 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,combining a petrol filling station with a local convenience store to givelocal communities a selected range of products. The company also expandedinto Scotland when it acquired a chain of 57 stores from William Low.Tesco broke new ground in food retailing by introducing, in 1995, the firstcustomer loyalty card, which offered benefits to regular shoppers whilsthelping the company discover more about its customers’ needs. Othercustomer services followed, including home shopping for those who hadn’tthe time to visit a superstore, Tesco Direct for catalogue shoppers and theTesco Babyclub for new parents. Currently, the company is adding financialservices to its provision 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 developingstores in Poland, Hungary, Slovakia and the Czech Republic.Closer to home, in 1997 Tesco purchased 109 stores in Ireland, which gavethe company a market leadership both north and south of the border.
Tesco Chairmen 1947-1998Sir 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 name distinguishes a public limitedcompany from a private limited company. Most of Britain’s famousbusinesses such as Marks and Spencer, ICI, BP, and Manchester United arepublic limited companies. All companies with share prices quoted n theLondon Stock Exchange are public limited companies.To become a public limited company, a business must have an issued sharecapital of at least £50,000 and the company must have received at least 25per cent of the nominal value of the shares. Public limited companies mustalso: • be a company limited by shares • have a memorandum of association with a separate clause 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 owners dies. • Huge amount of money can be raised fom the sale of shares to the public. • Production costs may be lower as firm may gain economies of scale. • Because of their size plcs can often dominate the market. • It becomes easier to raise finance as financial institutions 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 is possible for an outside interest to take control of the company. • All of the company’s accounts can be inspected by members of the public. Competitors may be able to use some of this information to their advantage. They have to publish more information than private limited companies. • Because of their size they are not able to deal with their customers at a personal level. • The way they operate is controlled by various Company Acts which
aim to protect shareholders. • There may b a divorce of ownership and control which might lead to the interests of the owners being ignored to some extent. • It is argued that many of these companies are inflexible due to their size. For example they find change difficult to cope with.Tesco plc. is large, private sector organisation. As it is providing-service organisation I can classify it as tertiary sector organisation.Tesco plc. is a national company, but it is becoming to multinational. Mainobjective is to make a profit.As Tesco is a limited company that means all owners have limited liability.If a company has debts, the owners can only lose the money they haveinvested in the firm.Main source of finance is selling shares and borrowing from the banks.Tesco has a thousands of owners, every man who has any shares is owner; butthese people can’t control the company, so company has a board of directorsand chairman who control the company.Tesco has a heavy programme of capital expenditure, investing in new storesand upgrading existing ones. In the year ending 28th February 1998, thegroup capital expenditure was £841 million, compared to £758 million in theyear ending 28th February 1997. This £841 million was divided into £737million spend in the Great Britain, £63 million in Ireland, north andsouth, and £41 million in Europe. Tesco anticipates that in the 1998-9financial year, capital spending will rise to about £950 million, with mostof the extra spending being concentrated in Ireland and Central Europe.Profit is also distributed to shareholders in the form of dividends.For example, in 1998 the profits from Tesco after tax were £505 million.About 50% of the profits were distributed to shareholders as dividends.Subsequently approximately £250 million was retained by the company forinvestment in new stores and improving their service to customers.E2 Objectives of the business.The objectives of the business can vary enormously A charity’s overridingobjective might be to alleviate poverty in the developing world; on theother hand many companies’ major objective is to generate the maximumprofits possible. An organisation’s mission statement gives an indicationof the purpose of the business and dovetails with the objectives theorganisation set itself.
Mission statement.Many organisations attempt to express the purpose of their being within afew sentences. The mission statements are intended to provide a sense ofcommon purpose to direct and stimulate the organisation. This statementrepresents the vision or mission of the organisation. Mission statementschange over time to reflect the changing competitive nature of the marketsin which business sell. Mission statement normally set out to answer 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?
Objectives.Business objectives are medium- to long-term goals or targets that providea sense of direction to the business. Objectives are normally measurableand have a stated timescale. Company may have a number of objectives. In general, the objectivespursued by a business tend to vary according to its size, ownership andlegal structure.Figure 1.1 illustrates the interrelationship between a company’s missionstatement and its objectives.
Figure 1.1: The hierarchy of objectives
The goals pursued by any business can be separated into primary andsecondary objectives. • Primary objectives are those 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 objectives tend to measure the efficiency of the organisation. They may affect the chances of success, but only in the long term. Examples include administrative efficiency and labour turnover rates. Profit maximisation.Profit maximisation one of the most important objective for companies whichare owned by shareholders. Profit, at is simplest, refers to the extent towhich revenues exceed costs, so profit maximisation occurs when thedifference between sales revenue and total cost is greatest.
Survival.Survival is an important objective for many businesses. It is particularlyimportant when businesses are vulnerable such as: • during their first few years of trading • during periods of recession or intense competition • at a time of crisis such as a hostile takeover.Most recently established businesses have survival as an objective.
Increasing sales or market share.Growth increases the scale of a business, resulting in higher levels ofoutput and more sales. Many businesses pursue growth strategies becausetheir managers believe that this is essential for survival. If a firmgrows, it might be able to attract more customers, earn higher profits andbegin 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 for managers. It is increasingly common formanagers’ pay packages to be a combination of shares and salary.
Providing social or community service.A number of organisations provide services to the community. Theseorganisations are part of the public sector – they are managed, directly orindirectly, on behalf of the government – yet they are a form of business.Their overriding objective is to provide the best positive service to thelocal community.
Charitable and non-profit objectives.Charities have a high profile in the UK. Charities have a number of clearobjectives: • to rise the public’s awareness of the cause that thy support. • To rise funds to support their projects.Charities trade with the intention of earning as much revenue as possibleto spend on their particular causes.
Producing high quality products.Just as many businesses seek to provide high quality service, a largenumber of businesses also have the provision of high quality product as animportant objective. Acquiring reputation for top quality can allowbusinesses to charge a premium price and to enjoy higher profits.Reputations for supplying quality products are jealously guarded.
Tesco is committed to retaining its position as the UK’s largestsupermarket retailer. Customer feedback forms, in-store discussion groupsand a continuous analysis of sales figures has enabled Tesco to recognisethe importance of the key principles of price, quality and service.The company owes its success to its emphasis on meeting changing customerneeds through service and innovation, while maintaining its commitment tovalue and quality. Underlying its business success is a commitment to upholding certainvalues and working and working principles and seeking continuousimprovement in its ethical performance.Companies are part of the society in which they operate and must take noteof the interests and concerns of many different groups. For Tesco theseincludes its customers, its stuff, its shareholders, its suppliers andpeople in the local communities close to its stores and in the worldbeyond. Each group has expectations of the company which Tesco has to meetand manage if it is to maintain its position as a leading and successfulretailer. Tesco must serve its customers by providing the goods they want and theservice they expect. By meeting customers needs better than itscompetitors, Tesco earns profits and creates value for its shareholders. Tesco, like other large companies, however, recognises that its widerreputation depends on other things such as its stuff relations, itsattitude to the environment, its support to the community, and itsrelationships with suppliers. Also as a leading food retailer, the companymust ensure that its provides products which are safe to eat or use, aswell as giving customers advice on matters such as healthy diets.
Tesco’s main business objectives:
• to provide customers with outstanding, naturally delivered, personal service • to earn the respect of its stuff for the values and appreciate their contribution • to understand customers better than anyone • to be competitive even on the basics • give customers a broad range of strong relevant promotions in all departments of the store • give customers what they want under one roof • provide an environment that is easy and pleasant to shop in • upgrade existing stores to the standards that is expected from Tesco • to recognise Tesco has brilliant people, use this strength to make customers’ shopping enjoyable in a way no competitor can • use intelligence, scale and technology to deliver unbeatable value to customers in everything Tesco does • to maximise profits to provide high returns for shareholders • to increase sales or market share as much as possible • advertising should appeal to all customers in a relevant
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.
How Tesco is going to achieve these objectives? What Tesco 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.
What is the comment Tesco has to its customers?Tesco customers want the best possible value for their money. Tesco isdetermined to offer its customers quality products, 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 Value lines, which offer exceptionalvalue for money, followed by New Deal Pricing on leading commodities andbrands in 1994. In 1996, Tesco introduced Unbeatable Value with the pledgethat nobody would sell the equivalent product for less price.
E3
Organisational functions. All organisations require resources to carry out their functions. One wayof judging the success of a business is to compare the resources it useswith the value of the product that results. For example if it is a smallbusiness running by it’s owner, for example small shop, so it doesn’t needany workers, large piece of land and big capital, owner can work alone. Butif it is a very large business like car manufacturing so it requires a lotof workers, very large piece of land and big capital. The resources of the business.One way of considering the resources used by a business is to classify theminto the factors of production. The main capital of production are capital,labour and land.
– CAPITAL refers to any manufactured product used by the business to make other products. This category therefore includes all machinery, vehicles and office equipment used in businesses. It also includes the company’s buildings. – LABOUR is the human resources used by business organisations during production. – LAND – site on which the business is located and natural resources it might use. – ENTERPRISE – owners and shareholders.
Functional areas.All businesses combine factors of production as an essential part of theirproduction activities. To combine these factors, to engage in productionand to achieve their objectives organisations undertake a number offunctions. The major business functions include: • finance • production • human resources • administration • research and developmentBusiness requirements for functional areas depends on its size, for examplesmall business might merge many of these functions within theiradministration department, with responsibility in the hand of one or twopeople. As a business grows the number of people required to carry outthese functions increases.
The financial function.
Extensive use of IT
Produces standards
cost data
Customers Auditors InlandRevenue and (price list) (accounts)Custom & Excise (informationrelating
to tax liability)
Figure 1.3: The financial function
A separate department normally carries out the finance function of thebusiness. The finance department carries out a number of key activities: • records all financial data • chases up slow payers • collects payments from customers • provides information to external bodies • analyses costs • advises board of directors • monitors and analyses financial data • advices managers and budget holders
Production function.
Production covers all the activities that must be undertaken to make thefirm’s products, from the receipt, of raw materials through to the outputof the final product. The production function concentrates primarily uponplanning and controlling the various stages of production so that the mostefficient use is made of business resources. Production manager responsible for: • maintaining supplies of components and raw materials to ensure continuous production • ensuring that the precise requirements of customers are met • monitoring quality to insure that finished products meet the quality standards expected by customers • using resources – people, machinery and production space – as efficiently as possible to make the business competitive in the markets in which it trades.
One of the most important issues in production is quality. Modernbusinesses compete just as strongly on the quality of their goods andservices as they do on price.For example it is vital for a washing machine manufacturer to produce ahigh-quality product. If the machine is not reliable or does not have awide range of functions, customers are more likely to purchase acompetitor’s product.
Figure 1.4: The links between the production function and otherdepartments
The human resource function.
Personnel management considers the tasks involved in managing people –recruitment, selection and so forth – as separate elements. It does nottake into account how these elements can combine to achieve organisationalobjectives.The personnel management approach makes decisions relating to recruitment,training and pay systems independently, without considering the impact theindividual decisions have on each other aspects of management and theachievement of corporate objectives.Human resources management (HRM) elevates the effective use of a business’slabour force to an issue to be considered by senior managers as anessential element of the organisation’s strategy. This approach has raisedthe profile (and salaries) of those employed in human resource management.The human resources function engages in a number of activities to ensureemployees are utilised affectively. These activities are carried out withthe aim of contributing to the achievement of the business’s objectives.Workforce plan sets out likely future needs for labour and how these needsmight be met. Achieving the workforce plan involves the human resourcefunction in a number of day-to-day activities. • recruiting employees – both internally and externally • training new and existing employees • paying salaries • dealing with disciplinary matters and grievances • overseeing industrial relations, by seeking to avoid disputes and maintain harmonious relations and constant production • developing and monitoring an employee appraisal system designed to assess performance, set targets for achievement and identify any training needs
Figure 1.5: Developing a human resources plan
The marketing function.
The marketing department carries out a wide range of functions on behalf ofthe business. Essentially marketing is communications. The marketingdepartment communicates with a number of groups inside and outside thebusiness as it carries out its tasks.Marketing activities: • keeping customers satisfied • discovering the needs of customers and advising the production function accordingly • carrying the responsibility for ensuring the effective distribution of products to wholesalers and retailers • liasing with marketing agencies to provide the necessary expertise (small firms) • if the firm is an export, the marketing department may have contact with government agencies.Marketing provides the organisation with information about its customersand its markets. Effective marketing can offer businesses a number ofbenefits: • early warning of changes in consumer tastes and fashions through regular market research • knowledge about competitors and information regarding competitors’ product • the means to present the company in a positive light through public relations activities • allowing the firm to improve the quality of its products by coordinating and analysing customer complaints • providing a catalyst for growth by forging relationships with distributors, retailers and customers in new markets • supplying consumers with the products they want and giving high levels of customer satisfaction, which might permit a business to charge higher prices thereby increasing its profitability.
The administration function.
The scope of the administration department varies enormously betweenorganisations. In a small business the administration function mightincorporate a number of the functions like finance , personnel andmarketing. However, larger organisations are more likely to operate aspecialist administration department.A typical administration department has a number of functions: • Administration department carries out organisation’s IT system. • Clerical and support service. Information processing, data processing, filing and reception services can be provided to all areas of the organisation. • Security and maintenance. These services are essential to the smooth
running of the business and to the effective operation of other business functions such as production in particular. • In some businesses, the administration function takes responsibility for important public relations activities such as customer services.The research and development function.
The nature of research and development (R&D) varies enormously betweenbusinesses. Traditionally, the term research and development is taken torefer to scientific research undertaken by firms producing manufacturedgoods, high technology products or pharmaceuticals. However, R&D is equallyimportant to firms providing services.By investigating in research and development a business seeks to maintaincompetitiveness against its rivals. Competitiveness measures a business’sperformance in comparison with rival firms in the same market. A highlycompetitive firm has some advantage over other businesses. This competitiveedge can take a number of forms: • lower prices • more advanced and sophisticated products • a better image with consumers • a good reputation for advise and after-sales service • reliability in terms of operation and delivery dates
Types of research: • basic research • applied research • development
The prime function of R&D is to develop new products that can give the firma competitive edge in the market. This necessary involves the R&Ddepartment in close liaison with staff in market research, design andproduction.
Function 1.6: The nature of business activity
Functional areas of Tesco plc.
The diagram above shows the key functional areas or departments of Tesco,as one of the leading retailers in the U.K. It is currently the leadingsupermarket chain in Britain, with a higher market share than its leadingrivals, Asda-Wallmart, Sainsbury’s and Safeway. I have explained earlier the key functional areas of a typical businessand Tesco, as the diagram shows, displays this type of structure. Forexample, the Company Secretary, Rowley Ager is responsible for Pensions,the Company Secretariat (the administrative staff), the Treasury, Taxation,Site Facilities, Transport and all aspects of Consumer Law. The Finance Department, directed by Andrew Higginson, is responsible forall aspects of finance and audit, and also for European affairs. Thesefunctions are shown in Figure 1.3 in my introductory section. I have nodetailed information on Finance within Tesco other than financial dataavailable from the Company Accounts and from the Tesco and Bizedwebsites……… and these are more relevant to a detailed finance study ofTesco as a company, a topic to be studied in a later Unit. The Marketing Department, directed by Tim Mason, is responsible for allaspects of marketing , Customer Service, Advertising, Market Research,Clubcard, Estates and Metros. Since the early 1990s Tesco marketingstrategy has been to become the best in terms of price, quality andservice. Objectives are set, and ways found of meeting them, in all aspectsof company’s operation. The Retail Department, directed by Michael Wemms, is responsible for allretail operations and express stores.Tesco first ventured into foreign markets when it acquired stores in IrishRepublic in 1978, but these were sold in 1986. The 1990s produced a muchbetter climate for European expansion. Now Tesco operates 80 stores inCentral Europe, and 16 stores in two Far East countries trading both underthe Tesco and subsidiary fascias. The 13 Tesco stores in the Czech Republicand Slovakia, 29 stores including 5 supermarkets in Hungary, 31 stores inPoland. Also Tesco plan to open 12 hypermarkets in Thailand and in SouthKorea over the next three years.The Human Resources Department within Tesco is responsible for manythousands of employees across the whole spectrum of the organisation. Tescoemploys 154,000 people in the UK and 27,000 in Ireland and Europe. It doesnot appear on the organisation chart, which I obtained from Tesco, becausethis function is somewhat complex and shared between the main headquartersat Cheshunt. Hertfordshire, and the many stores operated by Tesco aroundthe country. For example, there are two Tesco superstores in Leicester, atHamilton and Beaumont Leys, both of which have a Human Resources officer incharge of personnel administration.The Commercial Department, directed by John Gildersleeve, responsible forall commercial operations and technical services.The Distribution Department, directed by Philip Clarke, responsible forSupply Chain and all distribution operations. Distribution Directorresponsible for products delivery, logistics and transport. Its purpose isto ensure that Tesco stores have the right products delivered againstagreed delivery schedules and in good condition, enabling the stores toprovide a consistently high level of customer service. Tesco products aresent to stores from distribution centres around the country. Tesco runs 13centres and a further six centres are run for Tesco by contractors. Atypical centre covers 300,000 square feet and handles some 50 million unitsa year. The centres work around the clock, seven days a week, providing2,500 deliveries daily, amounting to 19 million cases per week. Tescoemploys 6,800 people in distribution (excluding the staff at the contractor-run centres), and has about 1,000 tractor units and 2,000 trailers in itsnational vehicle fleet.The Operations department, directed by David Potts, responsible foroperations of Tesco stores in Northen Ireland & the Republic of Ireland. InMay 1997, Tesco completed an agreement with Associated British Foods topurchase all their supermarkets in the north and south of Ireland. Thepurchase price was £641 million, giving Tesco a further 110 food stores anda leading position as a food retailer on both sides of the Irish border.
I have considered each of the major functions of Tesco separately. However,it is the effective interaction of business functions that is essential tothe success of an organisation in attaining its objectives.As an example, Tesco has recently introduced a customer-oriented website onthe Internet. Company has developed within this service facility a directorder system via E-mail – called “Tesco Direct”. Customers can ordertheir produce/product for home delivery.There are now many thousands of such deliveries but these all depend uponthe successful interaction of the major business functions outlinedearlier.In other word, – • Marketing – responding to the initial enquiry, receiving and processing an order, distributing the product to customer. • Administration – adding the customers details to the IT system, passing on details to other departments within the business. • Finance – investigating the financial status of the customer, offering credit terms if appropriate, invoicing for payment. • Distribution – receiving details of order and meeting 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 requirements of the order, arranging overtime payments if necessary.
Hence these functions help meet the objectives successfully. All Tesco’sorganisation structure works as links of a chain, if one link falls down,all the organisation will experience difficulty. For example, mostimportant department of Tesco, I consider, is Distribution department. Ifthis department fails, products will not be delivered to the store, socustomers will go to another store. Tesco’s success is built on the goodwork of each department.
E4 Organisational structureIn many small firms, the owner may have a very hands-on approach and may beresponsible for getting customers, hiring any extra labour and acquiringother inputs and taking all financial decisions. As organisations grow,however, their structure takes on a greater significance and those at thetop have to pay more attention to its formal structure and presentation.The various business functions will show an increasing degree ofspecialisation as an organisation expands and people will be employed tomanage and take decisions in specialist areas.
In general, an organisational structure sets out: 1. Major roles and job titles, showing who is in control of the business as a whole and who manages its major business functions within departments. 2. The level of seniority of people holding different positions and their respective positions in the organisation’s overall hierarchy. 3. The working relationships between individuals, identifying relationships in terms of superiors and their subordinates and indicating who has authority to take certain kinds of decisions and who are responsible for carrying out the work arising from those decisions. 4. The extent to which decision making is concentrated in the hands of people at or near the top of the organisation or handed down to those at lower levels of management. 5. The broad channels through which information is communicated throughout the organisation, indicating the route by which instructions flow down the hierarchy and how information flows back up the hierarchy.
Organisational charts
Organisational charts are representations of the job titles and the formalpatterns of authority and responsibility in an organisation.Business may produce organisational charts for several reasons. First, itis important that a company reviews its organisational structure on aregular basis to take account of any changes in the business environment.A formal organisational chart helps the company to identify where changesneed to be made and to decide the relationship between any new sections ordepartments and the rest of the organisation. Business also produceorganisational charts because they allow a company to review its structureand to identify areas where cost saving changes and improvements can bemade. Organisational charts are useful when changes take place in thecompany. It can be updated to take account of any informal developments inits structure that have been good for the company. A revised organisationalchart is particularly useful for informing people about the new structureof the company after mergers or take-overs.The organisational chart can also be used during an induction period togive new employees a useful overview of the company and their own positionwithin the structure in terms of their authority and the managers to whomthey are responsible. Although an organisational chart has several uses, itshould not be taken as giving an exact description of how the organisationactually operates. It does not give the exact nature of jobresponsibilities or indicate what levels of cooperation may be necessarybetween departments.
Function 1.7: Line authority in a production department.
Chain of command – is the line of command flowing down from the top to thebottom of an organisation. It passes down the management hierarchy, fromdirector and senior management levels to those in middle and juniormanagement positions and eventually to employees in supervisory jobs who,for example may have authority over assembly line workers or staffproviding services to the organisation’s customers. Organisations with along chain of command – with a hierarchy made up of many levels ofmanagement – are said to have tall organisational structures.
Span of control – refers to the number of subordinates a manager isresponsible for and has authority over. Organisations with a long chain ofcommand will tend to have narrow spans of control. Organisations with ashort chain of command tend to have wider spans of control. This produces aflat organisational structure because it has a hierarchy with fewer levelsof management.
Flat organisational structures: are generally desirable, there is a limitto the number of subordinates who can be placed under one superior. Evenvery experienced managers who have the qualities and personalities thatpromote loyalty and hard work can only be responsible for so manyemployees.
Tall organisational structure : some organisations have many levels andgrades of staff with a tree-like management structure and strong patternsof vertical communication. This means that there are many different gradesof staff between people lower down the organisation and the person at thetop. Tall organisations suffer from problems with bureaucracy, asinformation needs to be directed through the correct channels beforeappropriate action is taken.The main features of such a structure are as follows: 6. At each level there are several staff responsible to a person at the next level up. The process is repeated until the top of the organisation is reached. 7. In a limited company the person at the top is the Managing Director who is ultimately responsible for the whole organisation. 8. As the levels within the organisation are ascended, the number of people at each level decreases and this gives the organisation a pyramidal structure.In an organisation with flat structure there are fewer levels or grades ofstaff and much more emphasis on communication across the organisation. Thisis more likely to be the structure of a small business where everyone knowseach other and works together more as a team.In some situations, however, a relatively wide span of control may beacceptable if: 9. The potential disadvantages of a wide span are outweighed by the costs of employing the extra managers needed to produce narrower spans of control. 10. Junior employees are engaged mainly in routine work and as a result the manager is required to make relatively few decisions. 11. Managers are willing to reduce the pressure on their own time by delegating more decision making and they can identify staff who are likely to respond well to the extra responsibility. 12. An effective range of financial and non-financial motivational factors produces a committed group of people who need very little supervision. 13. The group within the span are highly skilled or talented and are given a great deal of scope to be creative and imaginative in their work.
Line structure
In a line structure, a company is usually organised into functionaldepartments, each headed by a senior manager, below whom there is a chainof command. This indicates that there is a line of authority andresponsibility as one goes down the structure.Each person in the line has authority over those below, while beingresponsible for making sure that the work handed down to them from theirimmediate manager is completed. This applies even if the subordinate doesnot personally undertake the actual work.Advantages: 14. It is hierarchical structure which is simple to understand – staff know precisely where they are in the structure, who can allocate work to them and to whom they are responsible. 15. Managers have a clear understanding of the roles of people when allocating work and spend less time monitoring work because subordinates are not distracted or confused by instructions from other sources. 16. A well-established line authority makes it possible for work to be delegated further down the line – this can be valuable when superior is seeking to widen the experience subordinates and develop their management or supervisory skills.Disadvantages: 17. It can involve a very long chain of command – instructions may take a considerable time to filter from the top and impact on production, which can be an important drawback if the organisation operates in a rapidly changing market. 18. The flow of information back up a long chain to management may be a lengthy process, causing a considerable delay before problems are identified and tackled. 19. Individuals might only respond to requests from the superior, creating inflexibility in the organisation which may be totally unnecessary if co-operation with other managers does not effect working relations with their superior.
Line and staff structure
A line and staff structure combines both a line authority and what is knownas staff authority. The term staff authority refers to those staff, usuallyat a relatively senior level, whose are of work often involves dealing withdifferent departments. Someone with the relevant staff authority canprovide services and advises to those in the line of authority of otherdepartments. Managers with staff authority do not have the power to controlor give instructions, but rather the authority to deal with differentdepartments and to offer advice or support services in relation to problemsor exploiting new opportunities. However, since those with staff authorityare appointed because of their expertise, experience and good personalskills, their advice, though not binding, is likely to be very persuasive.Advantages: 20. Staff authority enables the expertise and experience of specialists to be utilised more fully across the organisation. 21. By having access to all areas of the company, managers with staff authority, communications between departments are at director level, and so any inter-departmental communication has to pass up the chain of command in one department to director level and then down the other before it reaches the appropriate level. 22. Staff authority prevents individual departments from being too inward looking – departments remain aware of their interdependence and their role in seeking to achieve the organisation’s objectives.Disadvantages:There is a risk that staff authority may diminish the authority ofindividuals in the line management, particularly if those with stafffunctions acquire informal power and authority.
Matrix structure
In a matrix structure, a senior manager heads a division or team ofspecialists drawn from different departments. These specialists are alsolocated in departments where they are part of a line authority; they aretherefore subject to two sources of authority.In a matrix structure the simple chain of command found in a line structureis replaced by a very large number of reporting relationships as
individuals report to managers in more than one department or function.A matrix structure may be used for just some of an organisation’sactivities or it may cover the whole work of the organisation. It is oftenused for organising and managing project teams, where people withspecialist skills, perhaps from different levels in the hierarchy, arebrought together to solve complex and urgent problems. Project teams may becreated to deal with issues which arise every now and again or they may bean ongoing feature of the organisational structure.Some aspects of marketing, however, may be handled by an ongoing projectteam drawn from other departments, although the membership of the group maychange as different marketing issues arise.Advantages: 23. It promotes increased co-ordination between departments because it cuts across departmental boundaries – it encourages greater flexibility and creativity, produced by the cross-fertilisation of knowledge and skills. 24. It allows for the involvement of relatively junior staff, giving them valuable experience in a wider field for the expression and application of their particular skills. 25. Staff lower down a line structure can also gain valuable management development in a project team, preparing them for promotion to higher management positions. 26. The involvement of specialists from different areas reduces the risk of resourcesbeing wasted on projects with no future – in non-matrix structures an idea originatingin, say, the marketing department may be pursued for a long time before it comes to the attention of production which might find that it issimply 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 the majority of decisions are taken by afew people at the top of the organisation and little decision making isdelegated to those further down the organisational structure.Even if many important decisions are delegated to subordinates, someaspects of the business are always likely to remain totally under centralcontrol. In general, senior managers or a centralised department takesresponsibilities for: major financial issues, wages and salaries, manpowerplanning and personnel records, purchasing.Advantages: 27. Senior management have more control of the business, eg budgets. 28. Procedures, such as ordering and purchasing, can be standardised throughout the organisation, leading to economies of scale and lower costs. 29. Senior managers should be more experienced and skilful in making decisions. In theory, centralised decisions by senior people should be of better quality than decentralised decisions made by others less experienced. 30. In times of crisis, a business may need strong leadership by a central group of senior managers. 31. Communication may improve if there are fewer decision makers.
Decentralised structure
Complete decentralisation would mean subordinates would have all theauthority to take decisions. It is unlikely that any business operates ineither of these ways. Even if authority is delegated to a subordinate, itis usual for the manager to retain responsibility.Some delegation is necessary in all firms because of the limits to theamount of work senior managers can carry out. Tasks that might be delegatedinclude staff selection, quality control, customer relations and purchasingand stock control. A greater degree of decentralisation – over and abovethe minimum which is essential – has a number of advantages.
Advantages: 32. It empowers and motivates workers. 33. It reduces the stress and burdens of senior management. It also frees time for managers to concentrate on more important tasks. 34. It provides subordinates with greater job satisfaction by giving them more say in decision-making, which affects their work. 35. Subordinates may have a better knowledge of ‘local’ conditions affecting their area of work. This should allow them to make more informed, well-judged choices. 36. Delegation should allow greater flexibility and a quicker response to changes. If problems do not have to be referred to senior managers, decision-making will be quicker. Since decisions are quicker, they are easier to change in the light of unforeseen circumstances which may arise. 37. By allowing delegated authority, management at middle and junior levels are groomed to take-over higher positions. They are given the experience of decision making when carrying out delegated tasks. Delegation is therefore important for management development.
Delayered structure
Delayering involves a business reducing its staff. The cuts are directed atparticular levels of a business, such as managerial posts. Delayeringinvolves removing some of these layers. This gives a flatter structure.Delayering is likely to play a major role in a policy of decentralisationas the removal of management layers allows authority for decision making tobe shifted to a lower level in the organisation.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 approach that an organisation takes insetting objectives for its employees and the way it manages relationsbetween superiors and subordinates.Management or leadership styles can be categorised as:
Autocratic: A manager that adopts an autocratic management style takesentire responsibility for decisions and, having set objectives andallocated tasks to employees, expects them to be carried out exactly asspecified. Employees are told exactly what, how and when work must bestarted and finished. It is the kind of management style often associatedwith a corporate culture centred almost exclusively around production.Power is focused at the top, and the centralised decision making is gearedto getting the goods out of the factory and to customers. Little regard ispaid to any non-monetary needs of employees; they are not consulted orinvolved in decision making.
Democratic: A democratic management style seeks to involve employees in thedecision-making process, either by consulting them directly or throughtheir representatives. This approach reflects a corporate culture which ismore human resource centred and recognises the organisational benefits frommeeting its employees’ non-monetary needs – such as a need for jobsatisfaction and a sense of belonging. A consultative approach isparticularly important if an organisation is planning to change productdesign or working conditions, methods and practices.
Laissez-faire style: This style gives people complete freedom to organiseand carry out their work. It is a very person centred approach. A laissez-faire approach may still impose some constraints, such as completion datesfor certain key tasks or the earliest and latest arrival times for aflexible hours working day. There is no formal structure for decisionmaking as decisions are taken by a variety of processes depending upon thenature of the problem, the opportunity to be explored and the individualsinvolved.
Consultative style: Leaders consult with others before decision are made.There will be a group influence in the final decision, even though it ismade by the leader.
As diagram above shows, Tesco has many levels of staff: directors on thetop, and step by step to employees on the bottom, therefore I can thinkthat Tesco is a hieratical organisation, where each individual knows who hemust report to. Communication in a complex organisation such as Tesco willbe dependent on the organisational structure, but this will be discussedlater in my section on “Communication”.I can see that Tesco has a centralised and decentralised form oforganisation because people on the top, who control the company, take themajority of decisions and also the company’s Head office is centralised atCheshunt in Hertfordshire.Tesco is very big organisation and has very many stores in different places– this fact shows that Tesco is a decentralised organisation, with muchdecision-making delegated on a regional and individual store level.From the information I have managed to access I believe/consider that Tescohas a very good democratic and consultative management style. It is a verysuccessful firm, as seen earlier, it is now the U.K. market leader withpositive leadership from above and a notable corporate culture.The directors present their annual report to shareholders on the affairs ofthe Group together with the audited consolidated financial statements ofthe Group for the 52 weeks.The principal activity of the Group is the operation of food stores andassociated activities in the UK, Republic of Ireland, France, CzechRepublic, Slovakia, Hungary, Poland and Thailand. A review of the businessis contained in the Annual Review which is published separately and,together with this document, comprises the full Tesco PLC Annual reportAccounts.
Culture
Culture in organisations is often described as the set of values, beliefsand attitudes of both employees and management that helps to influencedecision-making and ultimately behaviour within them. Each organisation hasa unique culture. This is what makes studying business behaviour sofascinating. The business culture helps to determine how things get done infirms and defines, quite simply, how the company works. The fact thatorganisations are themselves organic, composed of workers constantlyinteracting with each other and their environment, suggests that theculture in firms is not static and constant – the way firms operate canchange, either intentionally through management action or more likelythrough natural evolution.
Corporate culture
Corporate culture is a set of values and beliefs that are shared by peopleand groups in an organisation. A simple way of explaining corporate culturemight be to say that it is the ‘way that things are done in a business’.The corporate culture of a business can influence decision-making. It alsoencourages low level managers to behave like entrepreneurs. Businessleaders are able to create a corporate culture to achieve a corporateobjectives and strategy of the company. It is important that the corporateculture of a business is understood by all the people that work in theorganisation. It is usually transmitted to new members and reinforcedinformally, by stores, symbols and socialisation, and more formally throughtraining.
Advantages of a strong corporate culture. • It provides a sense of identity for employees. They feel part of the business. This may allow workers to be flexible when the company needs to change or is having difficulties. • Workers identify with other employees. This may help with aspects of the business such as team work. • It increases the commitment of employees to the company. This may prevent problems such as high labour turnover or industrial relations problems . • It motivates workers in their jobs. This may lead to increased productivity. • It allows employees to understand what is going on around them. This can prevent misunderstanding in operations or instructions passed to them. • It helps to reinforce the values of the organisation and senior management. • It acts as a control device for management. This can help when setting company strategy.
Figure 1.8: 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 itsbusiness success is a commitment to upholding certain values, workingprinciples and culture within the organisation, and to seek continuousimprovement in its ethical performance. As a measure of its achievement todate, in 1997 the company came top in the Christian Aid league table forethical commitment.
Customers.Tesco must serve its customers by providing the goods they want and theservice they expect. By meeting customer needs better than its competitorsdo, Tesco earns profits and creates value for its shareholders.Customer service is at the heart of Tesco business culture. The base lineis quality and value, but customers also look for a shopping environmentwhich is attractive, well planned, and enjoyable. They also expect staff tobe helpful, responsive to their needs, and sympathetic to their problems.Tesco is constantly seeking new ways of meeting customer needs. Theseinclude introducing Customer Assistants dedicated to helping customers atevery point during their shopping, establishing a Customer Service Centreto deal with customer enquiries, providing facilities for customers withdisabilities, and organising customer question times when Tesco can hearcustomers views.
Staff.Tesco employs 154,000 people in the UK and 27,000 in Ireland and Europe. Itis constantly told by customers that its staff are the company’s bestasset. This means that the company must motivate and train its employees togive 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 protectworkers’ rights and reward employees fairly for their work. Full and part-time staff have had their benefits harmonised, including salaries, purchasediscounts, pensions and profit-sharing. The company has a nationalagreement with USDAW, the shop workers’ trade union.The approach of Tesco to worker welfare goes beyond its own employees. Thecompany insists that its suppliers meet certain employment standards inmatters such as fair pay or minimum working ages. Tesco believes it canplay a positive 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, itsattitude to the environment, its support to the community, and itsrelationships with its suppliers. Also, as a leading food retailer, thecompany must ensure that it provides products, which are safe to eat oruse, as well as giving customers advice on matters such as healthy diets.
Health and safety
Tesco customers rightly expect that their purchases will be safe to eat oruse. The company applies the highest standards in meeting theseexpectations and makes special provision for those with special dietaryneeds. Following government recommendations on the nation’s diet, Tesco wasthe first retailer to 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 environmentalpolicies cover matters such as recycling of packaging, working withsuppliers to minimise the use of pesticides, energy conservation, and thesiting and design of its stores. Tesco also works closely withenvironmental organisations in areas relevant to its business.
Animal welfareThe company aims to set the highest standards of animal welfare in theindustry, and has introduced a code of practice on the treatment of animalsto which all its suppliers must adhere. The company is also fundingresearch to improve understanding of animal welfare, and will continue topromote and implement high standards in order to improve animal husbandrystill further.
Relationships with suppliersTesco has relationships with thousands of suppliers in the UK and overseas,and works closely with these suppliers in order to ensure that products areof the highest quality and delivered in the best possible condition. Byworking in close partnership with its suppliers, Tesco is helping them tomeet its own high standards, not just in efficiency and product quality,but also in environmental protection, animal welfare and employmentpractices.
The communityTesco is very much part of local communities throughout the UK and iscommitted to playing a positive role by working with communityorganisations. The company’s community contribution covers support foreducation, groups dedicated to helping people with disabilities, and a widevariety of other organisations. The company has introduced schemes whichenable its own staff and customers to help raise money for good causes.
Each large supermarket retailer in Britain has its own corporate identityand culture. Often these are very similar, yet each organisation seeks topresent its own individual image. Of the types of cultures that I havediscussed above, I think that Tesco displays many of these differing forms,especially customer driven or customer orientated, task culture,competitive culture, innovative culture and positive culture. It is oftensaid that in business “the customer is King” and this is very true ofTesco, which operates in a very competitive market. It must be very heavilycustomer orientated as satisfied customers will usually regularly return,but dissatisfied customers may not …. and go elsewhere! It is also very
innovative, always encouraging new ideas and products, e.g. the possibleintroduction of car sales. Tesco used to be a food retailer, but now italso sells clothing, electrical goods, books and stationary, computers,mobile phones, etc. It has a very positive culture as it is alwayssearching for new opportunities for its staff and also its retail products.Its success is now a good indicator of how this blend of business cultureshas led to market growth and market leadership.E5 CommunicationsThe efficient communication of information is particularly important fororganisation that operates in competitive markets. Relevant and accurateinformation is needed to plan and manage efficient production, marketing,distribution and cost control. Information – whatever it is nature andpurpose – must be communicated as efficiently as possible. All people in an organisation are part of an information flow – they areinvolved to varying degrees in providing and receiving information.However, there are three main levels at which information is required: • operational level • middle management • senior management.
Operational level
At the operational level – on the factory floor, in the office or atpremises where consumer services are provided – there are charge hands andsupervisors who must ensure that work is planned and carried out asefficiently as possible. In a factory, for example, a supervisor giving thetask of overseeing the production of a particular item needs to know: • 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 the supervisor in planning and controllinghe work and it is essential for decision making at an operational level.Activities at the operational of an organisation produce data that will beprocessed to provide much of the information required by middle management.
Middle management
Middle management needs to know how efficiently work at operational levelis been carried out and the extend to which any resources under theircontrol are being used to achieve the organisation’s objectives. Much ofthis information relates to the productivity of labour, the utilisation ofmachine capacity and the rate at which materials and other inputs are beingconsumed.Middle management also needs a great deal of financial information aboutthe costs of the resources consumed in relation to output. This financialdata can be used to determine and monitor total costs, revenues, profitsand the achievement of business objectives for example, it will be possibleto identify any fall-off in productivity or rise in labour costs whichmight contribute to arise in unit labour costs or to detect the excessiveuse of materials which might suggest an increased in wastage.
Senior management
So far, I have mainly considered the need for information that is processedand generated from sources within the organisation. At senior level,however, information from internal sources often has to be supported byinformation derive from external sources to help managers ensure that theresources and their control are used as efficiently as possible inachieving business objectives. Decision making at senior management levelhas 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 byall relevant information.Decision making at senior level in areas such as business strategy andplanning requires information about broad trends rather than detailedinformation needed to make many routine decisions on day-to-day matters atlower levels of the organisation. Senior management need information 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.
Superior
Prep Line manager Prep
group group
Staff Subordinates Staff
relationships relationships
Figure 1.9: Communication network
Communication channels and methods
The communication channel refers to the means by which information iscommunicated. The actual choice of communication channel depends upon acombination 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 communicated in 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 conferencingWhatever communication method is used, the information sent should berelevant and avoid superfluous comments and unnecessary detail. Theinformation communicated to a supervisor on a factory may have to includean exact description of the operations to be carried out. In contrast, muchbroader information is supplied to middle and senior management. Seniormanagers may only require general indicators and a broad description of thedevelopments that need to be considered when assessing the organisation’sperformance, setting objectives and deciding upon strategies.
Exception reporting
To ensure tht the information provided to management is relevant, clear andconcise and makes effective use of managers’ time, some organisationsstipulate that managers are only provided with dada relating to exceptionaldevelopments. Middle management, for example, may only receive informationconnected with performance measurements that deviate by more than an agreedpercentage from their targets. The information dealing with exceptionalperformance should also be supported by brief statements of the internaland/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 initiatingand controlling actions.
Downward information flowsA downward information flow describes the provision of information by asuperior to an immediate subordinate. It is, therefore, concerned withinternal communications as part of a formal communications channels. Adownward information flow can cover: • issuing instructions on the tasks that have to be carried out by a subordinate and setting objectives, such as the target data for completing the work • requesting information concerning the area of work 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 in relation to his or her objectives and targets • motivating people and encouraging attitudes that raise productivity and improve quality.Some information will not come from an employee’s immediate superior butfrom other parts of the organisations. For example, when employees firststart work they receive general information about the structure and goalsof the organisation from the personnel department. However, for informationthat relates to work undertaken by the subordinate, the communicationchannel should be from superior to immediate subordinate.
Upward information flows
An upward information flow along a vertical information channel is from asubordinate to a superior. This might be feedback from a downward flow orthe communication may originate directly from subordinates. An upwardinformation flow can cover: • responding to a superior’s request for information on some aspect of work for which the subordinate is responsible • informing managers about the subordinate’s own performance, problems or their personal ambitions in relation, for example, to promotion or opportunities for developing new skills. • passing on information about other employees in the subordinate’s section and relations with sections with which there is a direct link • submitting ideas on improving working methods and solving work problems.
In the interests of effective working relations. Most organisations expectsubordinates to report formally through their immediate supervisor ormanager. However, they are likely to communicate in formally with managershigher up the hierarchy and in some situations, such as grievanceprocedure, may go directly to a more senior manager than their immediatesuperior.
Horizontal information flow
In addition to upward and downward flows, there are also horizontalinformation flows between people of the same status. Because manyoperations within an organisation must work very closely together, theremust be formal arrangements for the exchange of information betweensections and departments. The production department, for example, must haveclose contact with the purchasing department when it is considering changesto materials and components or introducing advanced machinery andequipment. Production staff also has to exchange information with employeesin requirement, training, marketing and transport.
The quality of information.The essential characteristics of an efficient information system are thatthe right people receive the right information at the right time. Theinformation communicated should be: • internally relevant to the needs of the recipient • accurate and concise • comprehensive, avoiding a time-consuming request for extra information • clear – it must be presented and communicated without ambiguity or possible misunderstanding.The person receiving the information must have confidence in the ability ofthe sender and, therefore have the confidence to take decisions based onthe contents of the communication. The person sending the information mustbe confident that the receiver has the ability to understand, use and takeeffective decisions based upon the information supplied.This information system, the communication media and the kind ofinformation provided should be review on a regular basis. The informationsystem should be adjusted to take into account any developments within theorganisation such as changes in its organisational structure or managementstyle. This review should also take into account external factors such asadvances in information technology.
Informal communications
Vertical and horizontal information flows should be clearly defined. Ifindividual are not sure about from whom the y should receive informationand instructors, this can lead to the growth of information flows which arenot part of the formal system. If there are two information flows runningat the same time, there can be confusion and a fall in productivity. Theseinformal systems can generate alternative sources of information and createa situation where the different levels of management receive inconsistent,inaccurate or even conflicting information.Many businesses, however, accept that some tasks would not get completed ifthey only used formal channels of communications and chains of command. Itmay be necessary to short cut the formal system if a matter is very argentor a clash of a personalities is creating communications problems. Someinformal channels may be tolerated if groups of workers have formed goodworking and personal relationship outside of the formal channels. Informalchannels may even be the most effective way of communicating some kinds ofinformation.All organisations have a grapevine, which communicates informationinformally through personal contact between employees both vertically andhorizontally throughout the organisation. The grapevine can be a quick wayof communicating information to the workforce as a whole as it tends tooperate by word of mouth. It can be used to pass on important informationbefore an official announcement and, depending upon the feedback generated,the company may modify its intentions before the formal announcement.The problem with using the grapevine is that information can get distortedor exaggerated as it is passed on. Proposal to cut a workforce, through 10%natural wastage and 5% redundancies, may soon get changed to 15% compulsoryredundancies as it spreads through the grapevine. This may be useful as theactual announcement may prove to be much more acceptable than the distortedversion on the grapevine.
External communications
Efficient internal communications are important, but an organisation’sexternal communications are vital. Its business prospects will be seriouslythreatened if it neglects its external communications. An organisationneeds to communicate externally with: • customers and clients • suppliers of materials, parts, machinery, other physical inputs and business services • local, national and European authorities that deal with matters such as taxation, planning permission, environmental protection, competition law, investment grants, trading standards, and health and safety • pressure groups concerned with issues such as consumer protection, animal welfare, environmental matters and the welfare of law paid workers • the media and the general public on matters that can either damage or enhance the company’s public image.Organisation must ensure that the quality of their external communicationsis as high as possible and select the most effective media forcommunicating information. It is obviously important that organisationsmaintain effective communications with their customers, and most businessesinvest heavily in market research promotion to attract and keep customers.Many companies now recognise the importance of providing a communicationchannel which allows customers easy access to the company. Some companiesadvertise a customer care telephone number or an E-mail address on theirpackaging or promotional literature. The customer care section will bestuffed by people trained in the kinds of communications skills needed todeal 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 companies for materials and components canfind themselves in financial difficulties of their external communicationslets them down and orders are not placed at the right time. This may led toshortages of parts and materials, and production may be held up. Relationswith suppliers may also be affected by poor verbal communications skillswhich can cause confusion of the exact nature and delivery of an order. Itis for this reason that any changes to an order made verbally should besupported by some form of written or electronic confirmation.
Opened and restricted channel of communications
In most organisations, some internal channels and communication media areopen to all employees; stuff at all levels can access the information.Organisations want to provide some information to all their employees. Thiswould include, for example, information on health and safety regulations,environmental management policies, incentive chemist and any response toresent adverse publicity. This downward information flow from the top ofthe hierarchy would be open to all.The content of much downward and upward information flow sis fairlyroutine, and organisation are not too concerned about people beyond thesender and recipient being aware of what is being communicated. However,access to some information and channels of communications may berestricted. Some information is sensitive – and if it becomes known topeople other than the intended recipients, it could create either internalor external problems.
Information and communication technologyBoth internal and external channels of communication are increasinglysupported by information technology, with computers generating and managinginformation flows. A computer-based information management system providesthe mean to communicate, collect, store, summarise, analyse and presentinformation in a way that best suits the controlling and decision makingneeds of different managers. Inform received by one department or sectioncan be further processed before it passed onto other departments throughthe organisations computer network.Computer systems 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 1984The Data Protection Act was introduced to ensure that organisationsstructured and managed the data held on their computers in a responsibleway. These are its main provisions. • Organisations must register the kind of information 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 kept on computer and why it is needed. • Organisations can only collect the kind if information that they have registered with the DPA, and the data must not be used outside of the purpose for which it has been registered. • The information held on individuals must be accurate and, where necessary, up to date and it must not be kept longer than necessary. • Organisations must take precautions against unauthorised access to the information they hold on individuals. • Individuals are allowed access to the personal data held by organisations and, where necessary they can correct mistakes.In March 2000 the Data Protection Art was extended to cover records kept ona paper as well as information stored on computers and to provideadditional protection for the individual. The protection includes newrights to know who holds information on you. It provides a statutory rightto know the identity of the person in a business responsible for dataprotection issues, right to have a photocopy of personal information heldby organisations and greater rights to object to anyone holding personal
data.There are also new rules to prevent organisations sending data to a countryoutside the European Union in an attempt to avoid complying withlegislation on data protection. There are new provisions which can lead toindividuals being held personally responsible for not abiding by the rules.Communication within Tesco plc.
An illustration of communication within Tesco plc.
Figure 2.0: Example of vertical and lateral communication within Tesco.
I have analysed the communication within Tesco plc. and now I can say thatTesco uses relevant and accurate information to plan and manage efficientdevelopment, marketing, distribution and cost control. Information,vertical and lateral, communicated within Tesco very efficiently at the alllevels. Every single person who works in Tesco is sure about from whom heshould receive information and instructions.But apart of internal communications Tesco has very good externalcommunications as well. The company communicates with customers andsuppliers very well. The quality of Tesco’s external information is veryhigh. 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, which combine inputs in order to bringabout the physical changes that eventually produce the desired output – theproduct. The product may be goods for consumers and households or parts andmachinery for other producers and manufacturers. Production can create aphysical change through: • Processing • Manufacturing • Assembly • Craft-based processes.
Value addedA common feature of all forms of production is that they are the means bywhich organisations add value to their operations. Put simply, allorganisations add value to the externally sourced materials and otherinputs that contribute to their output. Value added is the differencebetween the value of an organisation’s output, as measured by salesrevenue, and the costs of its inputs bought in from outside whichcontribute to output.The relative importance of the input costs incurred by a producer dependupon the nature of the business. Most businesses generally consume acombination of: • Raw materials • Parts and components • Energy • Business services.
Quality
Quality has always been an important competitive factor in some markets,but during the 1980s an increasing number of UK producers began to devotemore attention to quality improvement. The rise in the spending power ofthe average household meant that consumers’ choice of goods and serviceswas no longer so dependent on price. At the same time, consumers were beingoffered a wider choice obliged producers to improve and complete onquality. Because firms producing consumer goods and services sought toraise quality, their suppliers – companies producing materials, parts,machinery and business services – were also forced to improve quality.A growing number of organizations now operate in markets where productdifferentiation is rapidly decreasing. For example, advances in technologymean that there is now very little difference between personal computersoffered by the different manufacturers in particular price range. A PCproducer must therefore strive to gain a competitive advantage byestablishing a reputation as a company with high quality and good customercare. Consider training shoes as another example. Manufactures of trainersperiodically introduce new features into their shoes in an effort to createa greater degree of product differentiation, but they all remainessentially the same design and product. If the identifying logos areremoved, the average buyer might find it difficult to distinguish betweenbrands.Producers of both consumer goods and consumer durables must therefore placemore emphasis on quality when marketing their products.The increasing importance of quality can also be seen in the market forconsumer services. The main features of services provided by airlines,banks and fast food chains are often virtually identical, and productdifferentiation can only really be achieved by improvements in quality.Another factor in changing business attitudes to quality was the success ofJapanese manufacturing companies. It was perceived that quality played animportant role in helping Japanese companies succeed in European and USmarkets. By the end of the Second World War very little manufacturingcapacity remained in Japan, and in the immediate post-war period Japaneseproducts generally had a reputation as being cheap but inferior qualityversions of products manufactured by US and European producers. However bythe early 1980s Japanese companies had become closely associated with high-quality products for which they were able to charge premium prices. In theearly 1980s, Japan had 18 per cent of the world trade in the manufacturedgoods, substantially more than the UK’s 5 per cent share.
Quality control
Quality control involves an organisation using some kin of inspectionsystem for identifying materials, parts, components and finished productswhich do not meet the company’s specifications. Inspection or testing maybe carried out at various stages of production to ensure that faulty itemsdo not remain in the production chain. The operative or inspection department may check every item or just asample of production. Processing industries, such as the brewing andchemical industries, also test regular samples of their products. Qualityinspection is supported by highly sophisticated monitoring, measuring andtesting equipment. This allows organisations to make adjustments to machinesettings and control devices to improve quality. There are some drawbacks to a quality inspection system. Using aninspection system to control quality encourages employees to take it forgranted that some output is bound to be defective. Less attention is paidto preventing errors and defects in the first place as they will be pickedup later by the inspection system. A quality control system must ensure that there is regular contact betweenthose departments that have a particular interest in quality matters. Themarketing department, for example, may identify issues raised by customers,while the design research and development departments should work withproduction on developing the product so that current defects are eliminatedwhen work is being processed.
Quality assurance schemes
A quality assurance scheme is the means by which an organisation implementsits commitment to quality. It helps firms to do the job properly the firsttime, because the scheme is designed to prevent failures rather thandetecting errors once they have occurred. In this way a quality assurancescheme (QAS) differs radically from quality control systems which involveinspection procedures at various stages of production. The design of a QASrecognises that defects do not just happen; they are caused by people.
Assuring quality
Once an organisation has identified the reasons why people are responsiblefor defects and errors, it can develop a system which eliminates the causesof defects. In this way, quality is assured. There is no single format fora QAS, and an organisation chooses a system which is most appropriate toits particular product or service. What it must do is to insure that everystage of production (or in the provision of a service) that materials,equipment, methods and procedures are used in exactly the same way, everysingle time.All employees should be aware of what is expected of them, and should knowhow their own particular performance has to meet certain clearly identifiedrequirements.
Product Evaluation and Quality Assurance within Tesco plc.
What product evaluation and quality assurance in Tesco plc.Tesco products are continually monitored and tested for their quality andcustomer 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. These include:testing new products under developmenttesting existing products when a change of supplier is being consideredtesting Tesco products against those of competitorsto update information on the packagingto monitor quality and safety standards.
Changing of packaging informationEven when a product remains the same, packaging information may have to bealtered because of a change in legal requirements, changes in nutritionalconcepts, or advances in food preservation and cooking. For example, aproduct might have its packaging altered to indicate that it could besuitable for microwave cooking. It will therefore be necessary to test theproduct in company’s laboratory. Here Tesco inserts fibre optic probes intothe product. This allows us to monitor the temperature of the productwhilst it is cooking, in order to ensure that it reaches a high enoughtemperature for it to be consumed with safety.
Tests on existing productsQuality 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 CentreThe purpose of five Consumer Advice Centres in Sandhurst, Shoreham,Southport, Cheshunt and Perth is to carry out practical research withcustomers into new and existing products. Each centre is staffed by twoconsumer service officers who are qualified home economists. Their mostimportant role is to conduct consumer acceptability tests and sensoryanalysis. Over a four-day period, six to eight products will be tested.Their role also includes being available to the customer for any queriesconcerning diet, health and nutrition, PR work at a local and nationallevel, quality control, and giving talks and demonstrations to localcommunity groups.
Organising a taste panelMarket researchers will recruit customers who are shopping in the store.These customers take part in the test only if they fulfil the recruitmentcriteria that have been established for the product being tested. Forexample,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. Thisother product is normally the market leader; testing against it allows usto ensure that product matches or exceeds this quality standard. Productsare tested “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; theyare also asked to tell us what they liked and disliked about the product.
Sensory analysisSensory 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.They will evaluate the product and forward a description of it to HeadOffice for use 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 willlead to a product either passing or failing the tests. If it is failed, theproduct is reformulated according to the comments made by customers inresponse to the questionnaire. Products are then re-tested and will belaunched only when they achieve a pass result.
Implementing of quality assuranceQuality assurance is implemented at all levels in Tesco. Everyone is“focused” on giving the customer the best possible shopping experience interms of service, quality, availability, price, car parking facilities andstore design. This “focus” is set in Annual Trading Plan and is implementedthrough various departmental objectives and through specific trainingprogrammes. Tesco invests large amounts of money in training, so that Tescocan achieve specific objectives, for example First Class Serviceinitiative.Usually each initiative has a sponsor, normally a Main Board member. It isthe directors and managers who brief the teams, and then it is up toindividuals to “buy in” to an idea. Tesco has found that this process workswell as it is not prescriptive and it allows people to implement new ideasin their own way.
Setting standards for qualityA common tool for creating “benchmarking” standards is called SWOTanalysis. 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 dealfor specific products, for example in evaluating a new range ofmerchandising or evaluating a new process provided by a supplier.
Tesco Packaging design.Tesco has many “Own Brand” products, and in order to promote its own brandcorrectly Tesco has its own Packaging Design Department. Products sell fora variety of reasons; in the first instance, the visual appeal of a productis important to attract customers to the product initially, as it is onlyafter the first purchase that the customer is attracted because of thequality of the product and its value for money.
How does Tesco add value to its product?Usually value for product depends on one very important key – quality ofthe product, better quality – more tests are done – bigger value, but Tescotries to keep prices lower than all other national supermarkets. Tesco addsvalue to its products by means of buying it from contractor for lowerprice, testing it, and selling it for higher price.
C1
Success of the business 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, 76in the Republic of Ireland and 1 in France, to prove that business meetsits objectives successfully I’ll present some diagrams and company’sfinancial records. Turnover and profits of Tesco in 1997-1998The turnover and profits for the year ending 28th February 1998 were asfollows: 1. 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 weeks compared to 52 weeks for the previous year and includes the newly acquired businesses in Northern Ireland and the Republic of Ireland. On a comparable basis with the previous year, excluding the Irish acquisitions, turnover was £16.4 billion, and increase of 9.2% 2. Profits on ordinary activities before tax, integration costs and disposal loss – £832 million, an increase of 10.9% on the previous twelve months. Changing of company’s financial fortunes 1992-98 The changes in the company’s financial fortunes are shown in graphs 1 and 2
Graph 1,2: Group turnover and operating profit 1992-8
Graph 3: Share earnings and dividends 1992-8
Profits shareIn 1998 the profits from Tesco after tax were £505 million. About 50% ofthe 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.
Changing of share price in recent yearsBetween February 1997 and February 1998, the Tesco share price rose from349p 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,and having peaked at 603p at the previous stock market high. Market share of TescoIn February 1998, Tesco had 15.2% of the UK retail food market. Thecompany’s share has increased consistently since 1992 when it held 10.4% ofthe market.
Graph 4: Market share growth 1992-8
Turnover, profits and market share of Tesco in 1999-2000
Profit and loss account
This year was another successful trading year for Tesco plc. Total salesincreased by 9.8% to £20,358m and underlying pre-tax profit increased by8.4% to £955m. Adjusted diluted earnings per share rose 8.6% to 10.18p. Afinal dividend of 3.14p per share is proposed, making the full yeardividend 4.48p, an increase of 8.7% over last year.UK retail sales have grown 7.4% to £18,331m. Like-for-like sales were 4.2%which consists of volume of 3.2% and inflation of 1.0%, with new storescontinuing to perform well, contributing 3.2% to sales.UK operating profit increased to £993m up 8.1% on last year. Tesco’s UKoperating margin remained broadly flat at 5.9% in a year when Tesco madesubstantial investments in price.Company change programmes continue to deliver increasing levels ofefficiencies enabling us to invest for customers and 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%. Sales in theRepublic of Ireland in local currency are up 6.1%, reflecting the benefitsof company’s store rebranding programme. In Central Europe sales are up76.8% at constant exchange rates. Tesco 11 new hypermarkets across theregion have all traded strongly since opening.Business in Thailand has seen good growth and the three new stores havecontributed to sales of £357m up 96%. In South Korea, Tesco Homeplusachieved sales of £140m in the period since acquisition. In the Asianregion Tesco made a small operating loss of £1m.Tesco Personal Finance has now been trading for nearly three years andshare of losses this year are £4m compared to a £12m loss last year.
Tax on underlying profit has been charged for the year at an effective rateof 27.4%.CHRISTMAS & NEW YEAR TRADING STATEMENT
Monday 15 January 2001GROUP SALES GROWTH CONTINUING TO ACCELERATEGroup sales for the seven weeks ending 6 January 2001 increased by 15.4%.This growth was driven by excellent performances from all four elements ofTesco strategy: a strong core UK, increasing non-food sales, rapidlydeveloping international stores and expansion 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 this period included one extra day’strading over the New Year. Like-for-like sales were up 6.9% driven byexcellent sales volumes of 7.3%. This performance reflects determination todeliver the best offer for customers as Tesco continue to cut prices.Overall deflation was -0.4%.
STRONG INTERNATIONAL PERFORMANCEIn 2000 Tesco opened 32 stores internationally adding over 3m sq. ft. ofnew trading space. This represents an increase in International tradingspace of over 45% on the previous year. International sales were up 50%over the Christmas and New Year period as a result of existing storesmaturing and new store openings.
RECORD NON FOOD PERFORMANCECompany’s strategy of offering excellent value in non-food to customers wasa resounding success this Christmas. Tesco achieved sales in all areasincluding 14,000 DVD players and 8,000 widescreen televisions.
TESCO.COM SALES QUADRUPLEThe roll-out of Tesco.com to cover 90% of the UK population helped drivethe performance over Christmas with sales up 400% on last year. To meetthis demand Tesco.com recruited 400 new staff, allocated 10,000 additionaldelivery slots and delivered 30m products. Some examples of meeting its objectives by Tesco plc.Product promotionsObjective: to give customers a broad range of strong relevant promotions inall departments of the store.Examples: hundreds of MultiSave, Link Save and Special Offer promotions inall stores every month.Product rangeObjective: to give customers what they want under one roof.Examples: constant development of new and exciting food products;introduction of clothing, CDs and videos.PricingObjective: to be competitive especially with regard to the basic lines.Examples: Value Lines and Unbeatable Value pricing, giving low prices onkey brands and own-brand products.Customer ServiceObjective: to provide customers with outstanding, naturally deliveredpersonal service.Examples: baby changing facilities, no quibble money back guarantee, “onein front” queuing policy.Store designObjective: to provide an environment that is easy and pleasant to shop in.Example: store layouts, fixtures and ambience improved to ease customerflow and make shopping more enjoyable.Store refurbishmentObjective: to upgrade existing stores to the standard that is expected fromTesco.Example: existing stores improved to include recent innovations.CommunicationsObjective: advertising should appeal to all social and economic groups in arelevant and friendly way. Example: recent television ads.C2 How the organisational structure, culture and management style of the business affects its performance and operation and helps it to meet its objectives?
I have analysed each of the major functions of Tesco separately. However,it is the effective interaction of business functions that is essential tothe success of an organisation in attaining its objectives.
Marketing
Advertising. Tesco uses advertising in the press, on the radio as well as on televisionto support the company’s marketing by making the public aware of theproducts and services available in its stores.
The Tesco logo. The Tesco logo is a vital part of its image. By 1995 many versions of thelogo had evolved and company’s corporate identity was not focused. Companytherefore began to use one single Tesco logo that is the same everywhere,on stores, letterheads, posters, lorries…. The new 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 olditems were replaced, repaired, repainted, reprinted or re-designed. Thismeans that it is taking about three years for the new logo to completelysupersede all other versions.
Chef’s Club. The Chefs’ Club is an initiative which brings the best advice on food anddrink to customers and aims to make shopping more enjoyable. Tesco isworking with some of the country’s top chefs and other experts who want toshare their passion for good food and drink with customers.
Tesco Packaging Design. Tesco has many “Own Brand” products, and in order to promote its own brandcorrectly Tesco has its own Packaging Design Department. Products sell fora variety of reasons; in the first instance, the visual appeal of a productis important to attract customers to the product initially, as it is onlyafter the first purchase that the customer is attracted because of thequality of the product and its value for money.
Tesco Product Promotion. Product promotion is the responsibility of the Tesco public relationsteam. The team is always involved at the planning stage of any new productor service, and its brief is to generate extensive and appropriate coveragefor 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 the distribution department
Its purpose is to ensure that Tesco stores have the right productsdelivered against agreed delivery schedules and in good condition, enablingthe stores to provide a consistently high level of customer service.
Tesco products are sent to stores from distribution centres around thecountry. Tesco runs 13 centres and a further six centres are run for Tescoby contractors. A typical centre covers 300,000 square feet and handlessome 50 million units a year. The centres work around the clock, seven daysa week, providing 2,500 deliveries daily, amounting to 19 million cases perweek. Tesco employs 6,800 people in distribution (excluding the staff atthe contractor-run centres), and has about 1,000 tractor units and 2,000trailers in its national vehicle fleet.
How does Tesco keep each store supplied with what it needs?The key to the distribution system’s ability to supply each store’s needsare 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 maximum efficiency in its distribution centres?Computerised information arrives via printers in the warehouse offices. Thesystem feeds this information directly to the staff on the warehouse floorvia radio links mounted on the fork-lift trucks. The system helps tocontrol the movement of stock and the activity of staff. Thus when a personhas finished 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. Noweach goods-in checker is equipped with a scan gun which can scan the outercase code of each product and radio the information back to the Head Officecomputer, which matches a delivery with its purchase order in an instant.As well as easing bottlenecks, this system enforces accurate outer casecoding, which Tesco believes to be essential to future developments in itsdistribution system.
Human Resources
People are fundamental to business and the way company recruit, developand reward people is the key to success. Human Resourcing in Tesco istherefore influential, leading edge and proactive to ensure continuedsuccess. Human Resources at Tesco is divided into a number of central areas whichfocus on the design and research of Tesco HR policies and a number of frontline HR professionals that work in partnership with company’s Line Managersto deliver the business plan.
Promote management developmentTesco does this by providing opportunities for everyone to increase theirlearning, 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, skillsand experience needed to reach high standards of performance, and equippingtrainers to coach others thus maintaining excellent quality standards.enabling training to be delivered in the workplace by people who know howto do the job themselves.exploiting new methods of learning, and thereby providing a supply ofgeneral business managers for the future.developing effective working relationships with colleagues and suppliersthrough listening and challenging, and designing products which inspirethem.
Research and development of effective corporate human resource policiesTesco does this by:being constantly aware of UK and European employment legislation, andtranslating it into policy that maintains a balance between costeffectiveness, fairness, developing relationships with people, andcompany’s business aims.researching and developing people involvement strategies; this involvesanalysing staff research, which includes both large-scale corporate surveysand specialist staff research.providing updates on employment law.scanning and benchmarking other organisations, in order to import bestpractice and maintain a competitive stance.ensuring specific policies, for example regarding the employment ofdisabled people and equal opportunities.achieving external recognition, to ensure that Tesco is seen as a qualityemployer.
Developing selection standards and implement corporate entry programmesTwo crucial roles for the Human Resources Department are:developing selection standards which will enable managers to select thebest people who will continually increase value for customers.implementing corporate programmes in order to ensure that the company’smanpower requirements are met.Tesco does this by:designing recruitment and selection processes which will equip managerswith the skill and knowledge to select the best.training managers to maintain selection standards, and to select using themost reliable and leading-edge processes.developing corporate competency frameworks which enable managers to selectthe right people, who have the skills the business will need in the future.
developing corporate entry programmes to ensure that corporate manpowerneeds are met in terms of skills and numbers.developing and implementing Tesco employment branding and marketingstrategy in order to ensure that Tesco is seen as a quality employer whichattracts the highest calibre candidates.developing a pool of Excel graduates providing a supply of managers withbroad business experience.developing at a national level links with leading education/industryestablishments, and planning initiatives whereby managers can develop linkswith education at a local level.
Reward DevelopmentReward Development researches and develops rewards and organisationaldesign strategy which enable Tesco to recruit, motivate and retain thebest. Tesco does this by:sourcing and analysing pay and benefits data to enable Tesco to keepremuneration and benefits packages competitive.continually shaping innovative ways of rewarding staff, thereby enhancingthe value of the reward package and increasing staff retention andstakeholding.developing performance management processes and tools which will improveperformance and encourage motivation in staffproviding advice and if necessary challenging organisational design,thereby ensuring a maximum return on corporate reward spend and creatingorganisational structures which will deliver business goals.
HR professionalsHR 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 bestRecruit the bestRetain loyal and committed peopleLive the values of the companyTransfer HR skills effectively to the line.
Hence these functions help meet the objectives successfully. All Tesco’sorganisation structure works as links of a chain, if one link falls down,all the organisation will experience difficulty. For example, mostimportant department of Tesco, I consider, is Distribution department. Ifthis department fails, products will not be delivered to the store, socustomers will go to another store. Tesco’s success is built on the goodwork of each department. As an example, Tesco has recently introduced Customer-OrientedInitiatives, such as:
Loyalty cards
Clubcard was test-launched in October 1993 and was rolled out nationallyin February 1995. Clubcard has transformed the retail grocery sector andhas brought Tesco closer to its customer. At the heart of the programme isone of the most sophisticated customer databases in Europe.
Clubcard is a magnetic “swipe” card obtained free in store. The checkoutassistant swipes the card prior to scanning the customers shopping. Forevery £1 spent, one point is earned. Each point is worth 1p. When shoppingat 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 central computer and are converted intomoney-off vouchers every quarter. Customers can earn Clubcard points at: • Tesco stores • Tesco petrol stations • B&Q • Energi – through Norweb • Tesco Personal Finance • Tesco Home Shopping.In addition Clubcard has recently been extended to Ireland and to the TescoVin Plus store near Calais.Home shopping Many people today,both single people and couples, are working longer hours and do not want tospend part of their leisure time making a trip to the local supermarket. Tohelp people save time on shopping, Tesco has introduced Home Shopping, aservice which makes use of information technology so that people can dotheir shopping via the Internet from their home computer. This was firstintroduced on CD-ROM in July 1996, and Tesco followed this up by becomingthe first UK food retailer to offer an Internet-based home shopping servicein November 1996.Personal Finance In 1997, Tescodecided to extend its customer offer to include personal financialservices. In partnership with the Royal Bank of Scotland, Tesco isproviding new ways of banking and other services to its customers.
C 3.
The impact of ICT on internal and external communications
Importance of ICT
IT is vital to Tesco because every aspect of its operation is controlledor monitored by IT – stock, distribution, payroll, accounts, and so on. Forexample, when an item has its barcode read at the checkout, the system notonly logs the price onto the till, but also logs the financial transactionbetween Tesco and the customer and the fact that the stock has been reducedby 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 Office via the TescoNetwork. There are a large number of different applications that stores useboth independently and via the mainframe connection. For example there arePersonnel and Scheduling systems in-store, and access to electronic mailvia the mainframe.
IT capacityTesco has a three-level architecture with mainframe, middle system serversand PC clients. Their main frame has a 6 million Mb storage capacity(equivalent to 6 million 500-page books!). Their private digital network to600 stores has a capacity of 11.5 Mb. They use some 100 Tesco-writtencomputer applications and over 200 PC packages.
How much does Tesco spend on IT each year?Last year, Tesco spent about £133 million on IT, that is about 1.4% ofturnover.
How does that compare with other companies?A recent independent survey of Europe’s leading 500 companies in allcommercial and industrial sectors placed Tesco 112th overall in Europe interms of IT spending, but 3rd in the list of European supermarkets, and 1stamongst British supermarkets. [Source: Information Week 19-20/12/97].
How many on-line card authorisation requests does Tesco receive each day?Over one million on-line card authorisation requests are dealt with everyday.
Internet siteThe Internet site receives 250,000 hits per week and was used to launchTesco’s home shopping service and the Tesconet Inertrnet Service provider.The internet site has proved to be a great success, with the introductionof Tesco Direct, the home ordering and delivery service. Such “homeshopping” 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 theinternet.
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Tesco own Internet site. Home page.
ICT systems used by Distribution Department IT has revolutionised all aspects of the selling, ordering, distributionand analysis of Tesco products. The operation of Tesco large distributioncentres is a highly complex business. In recent years new computer systemshave revolutionised distribution operations, allowing more effective stockcontrol procedures, increasing productivity and making the best use oftime, space and labour.The base system used to control the distribution operation was purchasedfrom Dallas Systems and customised to Tesco requirements. There are two
particularly important sub-systems, known by the acronyms DCOTA and DCAMS.DCOTA (Distribution Centre On-board Terminal Access) is a system whichsends information by radio directly to the special terminals in the trucksof the fork-lift truckdrivers at the distribution centres. The system controls the movement ofstock and trucks in order to make the most efficient use of time and space,automatically matching up locations and trucks. As soon as one assignmentis finished, the next brief will be transmitted to the truck-mountedterminal, showing the driver where to go next. Every warehouse location hasa check number prominently displayed on the racks; this number is enteredby the driver each time he visits a location, enabling the computer tocheck that each pallet has been placed in the correct slot.DCAMS (Distribution Centre Assignment Monitoring System) is the system thatmonitors how far each job has progressed, and the deployment of staff. Itis available to supervisory staff via hand-held radio frequency terminals,enabling them to predict and pre-empt problems by re-deploying staff and,if necessary, changing work priorities.Radio frequency communications are also used in the checking in of goods.Ordering by stores now relies heavily on IT, using Sales Based Ordering.Data is received by the distribution centre from the Head Office mainframesystem, and then passed to the warehouse systems described above.
These mainframe computers are among the largest in Britain. The mainframesare either IBM or compatible (Amdahl), running IBM operating systems. Thereare mainframes situated in two separate locations.
The loss of a whole mainframe would have serious effects, and for thisreason company has two mainframes to provide backup capacity. In the eventof a disaster which involved the complete destruction of one of thecomputer centres, the other could re-establish these vital systems within48 hours. The backup procedure is tested regularly each year.The backup systems for the distribution depots include specialist routinesthat allow depots to switch between computer sites, and are at the leadingedge of data processing technology. If a complete computer centre werelost, IT communication with all affected depots would be re-establishedwithin six hours at the most. Goods are now ordered from suppliers using a system called Electronic Data Interchange (EDI). Orders for goods are transferred to the suppliers electronically using a service called INS-TRADANET. The use of EDI keeps suppliers precisely informed of Tesco requirements for company’s stores. It allows Tesco to run the business more effectively and efficiently because of its speed and accuracy. It is both quicker and more cost-effective than telephone, post or fax, and eliminates errors due to loss, or to wrongly printed orders.EDI is also used for:sending sales forecasts so that suppliers can anticipate demand and reducelead-times for stock to reach the storessecuring the best payment terms and discounts for Tescosimplifying the invoicing process, so that invoices are generatedautomatically and postage and paperwork are eliminatedworking internationally, to eliminate time and language differences.
ICT systems used in Management.Management Information is data stored electronically for use by businessexecutives at all levels to support their decision making. This type ofinformation is typically historical, and needs human interpretation beforea decision is made. Tesco is planning to introduce a new system, calledData Warehouse, which will give much greater analysis and flexibility, andwill further enhance the ability of managers to make informed decisions.
The sections below describe Tesco’s current Management Informationenvironment, and the planned Data Warehouse, broken down into four topics:Business use, Technology, Data and Analytical tools.
A) Business useCurrent Management InformationAccess to summarised data at pre-defined levelsMost decisions made at a macro (e.g. regional level)Planned Data WarehouseAccess to in-depth information for informed decisionsDecision made at micro level, e.g. in storeUse of balanced score carding for suppliers, stores, etc. with supportingdetailsUse shopper behaviour to influence new lines, promotions, and productranging.
B) TechnologyCurrent Management InformationMainframe, text-based reporting and analysisDownloaded to local PCs for in-depth analysis and graphics
Planned Data WarehouseSpecialised hardware and software to manage data (the ‘InformationWarehouse’)Information from the Information Warehouse to be accessible from anywherewithin Tesco and available also to designated outside users, e.g.suppliers, agenciesCost of computer hardware and software is “scaleable”, i.e. Tesco can addprocessing power and storage capacity at reasonable cost and in manageablechunks to keep pace with the information needsDedicated NCR machine and peripherals.
C) DataOver 10 million customers, over 60,000 products and 586 storesCurrent Management InformationData held on mainframe, PC or on paperInternal data analysed using SAR reports and MAS analysis tool (see below)External data received by EDI or on paperPlanned Data WarehouseData collected from Tesco operational systems and external sources, andstored centrally to provide one consistent source of informationData is stored on customer behaviour, product performance, branchperformance supplier performance, depot performanceData held at lowest level to enable ad hoc groupings,
e.g. salt sales in stores by the seaside last Easter.
D) Analytical toolsCurrent Management InformationMainframe basedFOCUS – report generatorSAR – report viewerMAS – Tesco-written multi-dimensional analysis toolPC Lotus suite – spreadsheet and database applicationsPlanned Data WarehouseA simple interface with the information using the score card concept, withtop level measures and capability to “drill” to the level of informationrequired to support decisionsIT populate the Information Warehouse and users control their reportingrequirementsLogical access to information, with user choice of level, groupings,stores, products, measures, and other parameters
ICT systems used in store operations.IT is essential to the running of a modern store. It is used for planning,monitoring and auditing store operations. In fact, the logistics of runninga major store would be severely hampered without IT, and the expansion toSuperstores and Hypermarkets would have been difficult without modern ITdevelopments.
Tesco stores vary greatly in size, from small Express stores covering 2,500square feet to giant hypermarkets covering 120,000 square feet. The productrange depends on the size of the store, and varies from 2,000 lines in asmall store up to about 40,000 lines in the biggest. Computerised StoreMerchandising and Planning systems ensure that Tesco get the right productsto the right store, and get the right amount of space on each shelf withina store. This allows Tesco to get optimum sales for the space allocated tothe product, and gives the customer the most appropriate range of products.
A store can monitor what has been sold through the scanning operation atthe checkout. The introduction of barcodes and scanners not only allowsitems to be checked out more easily, but it provides information that isconstantly fed back to the store’s computer for the monitoring of sales,both in terms of stock depletion and money taken.
Barcodes and scanners provide several benefits to company’s customers:As purchases are no longer entered manually into a cash register, accuratepricing is guaranteed.The scanning till is faster, reducing the time for which customers have toqueue by about 15%.Produce is now weighed at checkouts, removing the need to queue twice (oncefor 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 productpurchased, price, weight (if weighed), total cost and method of payment. Italso shows the store telephone number, plus details which will trace thesale 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 limitedas 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. Removingseparate weighing stations removes the need for a manned point in theproduce 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 andre-ordering can be made more accurateWastage of perishable goods is reduced, as they too can be ordered moreaccurately.Monitoring sales analysis and the effectiveness of promotions providesvaluable information for Tesco buyers and also the company’s suppliers.
Every product has a unique number, the European Article Number or EAN.This number is allocated to each product by the Article Number Association,which oversees the operation of the numbers for all businesses in the UK.The number can be found below the bar code. The bar code is arepresentation of that number in a binary form that can be read by ascanner. The scanner uses a laser and measures the difference in reflectionto the laser of the bars and spaces.The EAN and barcodes normally consist of 13 digits, although there may beonly eight on smaller products. The first two digits are a national code,representing the marketing country. The next five digits identify thesupplier of the product and the following five identify the product itself.The final figure is a “check digit” based on the other twelve numbers,which allows the computer to validate the code.
The introduction of IT in shopping has been matched by banks. This hasresulted in new developments in payment. The simplest of these is thatcheque details can be printed out by the till, based on the informationused to produce the receipt. Credit card vouchers can be printed similarly,and credit card details read electronically from the card.A further advance has come with Electronic Funds Transfer at Point of Sale(EFTPOS). This allows Tesco to transfer money from a customer’s bankaccount or credit card account automatically. Two developments that havecome from this are the debit card and “cashback”.Debit cards are a means of purchasing without cash or a cheque. Unlikecheques, there is no limit to the amount a customer can spend with a debitcard as the transaction is automatically checked at the customer’s bankand, providing there are sufficient funds in the customer’s bank account,the payment is then guaranteed to Tesco. Unlike credit cards, the customerpays at the time of the sale.The facility 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 apopular innovation with customers, who are saved the necessity of a trip toa bank or cashpoint.
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.The ProgreSS system holds pricing details of the 60,000 different productsthat Tesco sells, their description, and details of any special offers onthem. It records details about each sale, not just the amount of each itemsold, but whether the price has been reduced, the amount of money tenderedand the change given. It also controls Clubcard processing, registering thepoints earned on the card. Whilst the system manages the main grocerytills, it also has the ability to be aligned to specific businessfunctions. So different “personalities” are used within the garage,pharmacy, hot chicken counter and pizza areas.The system is also used to control the back office and cash areas. During anormal day’s operation the system will transmit batches of information tothe mainframe systems at Head Office. This is primarily sales data, butalso includes details on reduction sales and Clubcard details, togetherwith daily totals and so on. In return it receives price changes, and newand delisted product information.The ProgreSS system runs on an RS6000 machine.The stock replenishment system is called Sales Based Ordering (SBO). As itsname implies, it orders new stock on the basis of what has been sold. Italso manages in-store stock control and the central ranging and orderingprocess.Whilst there are some 60,000 products sold by Tesco, even the biggesthypermarket will stock only about 40,000 of them. Some Express stores willstock only 2,000 lines. The system keeps track of what products are stockedand 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 leadtime (the time between ordering and delivery).The SBO system also manages the recording of all store-based stockmovements (for example damaged goods, out-of-code waste, transfers to otherstores), stock count scheduling and validation. The stores also use thesystem to influence their orders, for example factoring up expected salesof ice cream when a hot spell is forecast.
ICT systems used by Customer Service Centre. The centre provides a central customer service operation for the company;it handles requests for information and customer enquiries. It also handlesthe management and administration of Tesco Clubcard, and the processing oforders for the Baby Catalogue and the Home Shopping service.The scale of the operation, and the efficient organisation of staff toprovide exceptional customer service, requires the extensive use of IT bothin telephone and information systems.To give you an idea of the scale of company operation, Tesco employs over400 staff, both full and part-time. The Clubcard loyalty scheme has over 10million customers. In a typical week Tesco get 100,000 telephone calls,5,000 letters, and 1,500 e-mails from customers, and company generates7,000 outbound letters to customers.Tesco uses IT to manage 100,000 calls a week, both to organise the callsefficiently and to provide information on the timing and length of callsfor planning and monitoring purposes. Among the systems Tesco uses are:ACD – Automatic call distribution (Meridian) This system manages the way calls get routed to Customer Service Centre staff. Calls into the centre are distributed to ensure that call queues are managed effectively. Real time monitoring facilities provide information on service levels.Call forecasting and scheduling system (QMax) The distribution of calls varies significantly throughout the 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 are there to take the calls.IVR – Interactive voice response This is a menuing system on the telephone to filter out those calls that can be handled without an operator. The customer selects various options so that calls can be transferred directly to the appropriate service or person. There are many ways in which IT provides and organises information forTesco. 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, thatenables accurate addresses to be captured quickly.Tesco has a knowledge base on an intranet to help staff deal with customerqueries. This contains frequently asked information about the company’sstores, products, services and policies, as well as general informationabout nutrition and healthy eating.Management reporting is used extensively to provide information to thebusiness on customer concerns. Tesco is now looking at new technology as away of pro- actively reporting on any serious issues that emerge requiringclose, urgent attention. Orders from Home Shopping customers may be received over the telephone, byfax or via the Internet. These are collated by store and go through adelivery scheduling system which plans the most efficient delivery route,and are then transmitted to the stores for packing and delivery.The Clubcard system enables staff to deal with customer queries related tothe service. This involves managing a large number of routine calls withregard to changes of address, lost cards, and so on. IVR systems are usedto intercept these routine calls so that they can be handled automatically.
A1
Alternative approaches 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 shouldencourage Tesco to pioneer many new ideas. By listening and responding tocustomer needs, Tesco will continue to bring in new ideas and services. Itslatest venture, with the Royal Bank of Scotland, launched in November 1997,is to offer customers competitive financial services through its stores. Itis fifty years since Jack Cohen opened his first self-service shop, and weexpect Tesco stores in fifty years’ time to be as different from those we
know today as Tesco’s current stores are to the stores of fifty years ago. Non-food retailing is a major part of Tesco strategy. Tesco is increasingcompetition and offering customers real value and choice in all areas fromsportswear to software, electricals to spectacles. By introducing theseranges to more of company’s stores Tesco also offer customers theconvenience of shopping for great value non-food along with their food andhousehold goods. More choice in-store includes many new lines for the home and garden,motoring and leisure, fashion and cosmetics. Opticians, mobile phones andhealth and beauty are examples of departments that have been expanded tomeet customer demand. Tesco relaunched its clothing range to offer bettervalue, quality and choice. In this year Tesco should continue to bring its customers big names atcompetitive prices. Last year, for example, Tesco sold 14-inch Bush TVs andVodafone, Orange, One 2 One and Cellnet mobile phones at record low prices.Film and batteries came down by 30% and cuts of between 15% and 50% arebeing made on stationery, pet accessories, video tapes, CDs and DVDs andmany other popular products. The convenience of shopping for non-food alongside food is what Tescoshould offer customers. At the start of the year Tesco already had 90stores trading with full non-food offer in the UK. During the year Tescoshould increase this as much as possible through extensions, refits and newstore development programmes.Through these programmes Tesco will have more Tesco Extra stores includingits newest at Newcastle upon Tyne. It is Tesco’s first UK store to bedesigned and built to hypermarket blueprint, using many of the elementswhich Tesco has found to be successful in European and Asian stores. Ithas given to the company the opportunity to introduce a much wider range ofnon-food products to the UK, giving its customers even more choice whenthey shop at Tesco.Through innovating and investing for its customers Tesco is leading the wayin new forms of retailing. Tesco is the largest on-line grocer in theworld, and through the rapid development of its e-business Tesco is nowoffering customers real choice and value on the internet.Tesco.com is new 100% subsidiary company that runs company’s e-commercebusiness, which is an important part of company’s future strategy. Tescoshould ensure that it has a real focus, the relevant resources and can movequickly. Grocery home shopping business offers customers shopping on-line choice,value and convenience. Hundreds of new customers are registering every dayand Tesco has the capacity to grow this business at a significant rate.On the internet Tesco is not constrained by space as the store can be aslarge as you like. Company’s Internet customers now have an exciting rangeof non-food offers beyond food shopping – just a few clicks away. Tesco’snew book store offers a choice of 1.2 million titles, with 50% off toplines and Tesco has an entertainment store selling over 300,000 CD, videoand DVD titles.
Tesco’s European business is focused on the Republic of Ireland and thefour Central European countries of Hungary, Poland, the Czech Republic andSlovakia accessing a population of 68 million people. In Ireland thebusiness is progressing well as Tesco near completion of rebrandingprogramme. And in Central Europe Tesco continue its rapid hypermarket roll-out opening 11 stores and 1.3 million square feet in the year.Regional focus and market leadership is a key objective of Tesco’s strategyin Central Europe. Tesco is the only retailer in all four countries –Hungary, Poland, the Czech Republic and Slovakia. Company’s portfolio nowincludes 19 hypermarkets totalling two million square feet of retail space.Tesco is meeting and stimulating demand in these markets as customers beginto recognise the better choice, quality and value that Tesco offers.Tesco is pursuing an active programme of store openings which will take thecompany to 69 hypermarkets by the end of 2002, and will make the companythe market leader across the region.The hypermarket blueprint is the focus of Central European activities. At100,000 square feet or more, hypermarkets give Tesco the space to offercustomers extensive food and non-food ranges at outstanding prices.Tesco is learning all the time. The format is internationally transferableand adaptable to different regions, and part of the success has been tosupplement UK skills in grocery retailing and customer service withinternational expertise.In the Republic of Ireland Tesco should continue to make good progress.Without the benefit of any new stores, sales increased by 6.1% in the year.Cumulative sales growth since acquisition is now 20%, moving market shareto 23.3%.Ireland and Central Europe are already a significant part of the Groupemploying 27,000 people which will grow even further as Tesco move forward.
Asia is the second international region where Tesco is expanding. The TescoLotus business in Thailand now has 17 hypermarkets and is well on the wayto market leadership. In South Korea, through Tesco’s partnership withSamsung, Tesco now has two outstanding hypermarkets which are among thehighest turnover stores in the Tesco Group. Now Tesco should open its storein Taiwan. These three markets will give to the company access to 130million people.
In South Korea, a country where 50% of households own a PC and 78% a mobilephone, the retail industry has huge growth potential. In 1999 Tescoinvested £142m in a partnership with Samsung, which brought two world-classhypermarkets operating under a top retail brand as well as a number ofsites that Tesco will now develop. Tesco should t expand more hypermarketsin next years.Tesco now should move rapidly towards global sourcing, which will enablecompany to buy quality products at the best prices and deliver them at thelowest cost. Tesco has already set up three sourcing centres in Hong Kong,India and Thailand. These now source 30% of Tesco non-food products(excluding Health and Beauty). Tesco should move this higher in nextyears, with the opening of a fourth sourcing centre in Central Europe.As a student from Russia (I live in Kazakstan) I would like to see Tescofurther expand its activities in Eastern Europe, and therefore why notRussia? At the present time there is nothing similar to Tesco on theRussian market, so I think Tesco won’t have any problems to get into it.It is difficult to suggest alternative approaches for Tesco’s strategybecause the firm is evidently doing very well. I would suggest however thatTesco continues to seek markets overseas to further develop its growingglobal presence.
As mentioned above, Tesco has been very successful over recent years, andit is therefore quite difficult to suggest “Alternative strategies”.However, from my I might suggest the following: • 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 – bonus or share ownership (if Tesco doesn’t do it yet)
A2
Evaluation of the effects that the alternative approaches might have on the structure and functions of the business, and how it achieves its objectives.Alternative approaches, suggested in A1 can affect the functions of theorganisation and how it achieves its objectives very much, but they won’treally affect structure of the organisation, because Tesco’s organisationstructure is very good and there is no point of changing it.
Expand to Russia
If Tesco expands to Russia, in general, it is going to be only benefit tothe company. Of course first Tesco will have to spend some money to buildand open new supermarkets, but it is not going to be very difficult becausethere are no other companies like Tesco. Big advantage of expanding Tescointo Russian market is that straight way after it Tesco will definitelybecome a dominant firm on market, because there are not very strongcompetitors and very soon Tesco can become a monopoly on the Russianmarket. Disadvantage of expanding is that Tesco can get failure as well.Russian prices and British prices are very different, so if Tesco retailsgoods, which are more expensive then in others stores, not many people willby it.
Increase market share
Every single organisation wants to increase its market share, and the bestway of doing it is to merge or take over another company. And I suggestthat Tesco also could increase its market share by merging anotherretailer, for example Safeway. Safeway is not as big as Tesco, so it is notgoing to be very difficult to merge it or take it over. The advantage ofthe 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 become amonopoly. The disadvantage of it that it is not very easy to do, becausenow Tesco has 35% market share, and if it merges Safeway, Tesco’s marketshare will be increased up to 45%. But British law says that firm which has45% of market share is monopoly, so competition commission won’t be happyabout it and it will never agree with this merge.
Expand into new market
Non-food retailing now becoming a major part of Tesco strategy. As I saidbefore, Tesco is increasing competition and offering customers real valueand choice in all areas from sportswear to software, electricals tospectacles. But still, I think Tesco didn’t get into one very perspectivemarket – cars. Cars are very important in our time and there is a very highdemand for cars in the UK. I think for Tesco it is won’t be very difficultdo get into this market, because Tesco is known as cheapest retailer in theUK, therefore people will continue to by everything from Tesco, and cars aswell. But it could be easy and could be not, because currently there aremany different firms on this market, and what I think is that there arecould be some barriers to entry.
Rewards to staff – introduce a widespread
At the present time, many successful firms introducing new types ofrewarding to staff. What I suggest is that Tesco also should introduce awidespread of rewarding to staff, for example employees could be awarded anannual bonus, which they can take in cash, vouchers or shares. Theadvantage of this type of payment is that if employees take shares, theywill 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 isvery good way of rewarding with all benefits to the company.
Affects of the alternative approaches
As I mentioned before, alternative approaches, suggested in A1 can affectthe functions of the organisation and how it achieves its objectives verymuch, but they won’t really affect structure of the organisation, becauseTesco now has very good organisation structure with very good consultativeand democratic management style.If Tesco expands to Russia and merges Safeway, there are will be “Operation– Russia” department in the organisation chart. More people will beinvolved to work for Tesco, so Human Resources department will becomebigger. After expanding to Russia Tesco easy can expand to other countriesof Soviet Union such as Kazakstan, Uzbekistan, Kirgiztan and so on. It alsowill definitely help Tesco to prove itself as very strong multinationalfirm.
List of resources 1. The main resource was Tesco’s own web site: www.tesco.com. 2. I asked Tesco for some information and they sent me it. 3. Web site: www.bized.ac.uk 4. Business for Vocational A level – book. 5. Newspapers
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Finance department
• accountants • account technicians • account clerks
Records all financial data
Chases up slow payers
Collects payments from customers
Provides information to external bodies
Advises managers and budget holders
Monitors and analyses financial data
Advises board of directors
Analyses costs
Production activities
Finance department
Research and development department
Marketing department
Corporate objectives
Demand of labour
• numbers of workers needed • skills required • location of employees
Supply of labour
• existing workforce• skills shown through skills audit• changes in productivity and working week
Human resources plan
This may require the use of one or more of the following: • recruitment • training • redundancy and redeployment
BUSINESS ACTIVITY
Marketing
Finance
Administration
Human resources
Research & Development
Production
LAND
Labour
Capital
Enterp-rise
GOODS OR SERVICES
WASTE
Chairman (non executive)
Chief Executive
Deputy Chairman
CompanySecretary
Marketing Department
Finance Department
Retail Department
Commercial Department
Distribution Department
Operations: Ireland
BusinessActivity
Managing director
Research and development director
Finance director
Marketing director
Production director
Human resource director
Production manager
Plant manager
Quality control manager
Production control manager
Assistant plant manager
Supervisor: materials
Supervisor: materials
Supervisor: buildings
Supervisor: mechanical
Supervisor: electrical
Section manager
Section manager
Section manager
Supervisor
Supervisor
Supervisor
Supervisor
Supervisor
Supervisor
Operatives
Operatives
Operatives
Operatives
Operatives
Operatives
Deputy Chairman
Chairman (non executive)
Chief Executive
Marketing Director
Finance Director
Retail Director
Commercial Director
Distribution Director
Head of Operations Ireland
Company Secretary
Section managers
Section managers
Section managers
Section managers
Section managers
Section managers
Section managers
Supervisors
Supervisors
Supervisors
Supervisors
Supervisors
Supervisors
Supervisors
Operatives
Operatives
Operatives
Operatives
Operatives
Operatives
Operatives
Dynamic/innovative culture
BUSINESSCULTURE
Customer driven culture
Bureaucratic culture
Task culture
Risk averse culture
Technological culture
Person culture
Negative culture
Positive culture
Competitive culture
Power culture.
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Board of directors
Marketing Department
Distribution Department
Retail Department
Employees in Retail Department
Employees in Distribution Department
Employees in Marketing Department
Mission statement
Business objectives
Divisional/departmental objectives
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