The revenues and profits of TESCO

Tesco Plc is the third largest retailer in the world in terms of revenues and second largest in terms of profits. (http://en.wikipedia.org/wiki/Tesco ). Tesco is a conglomerate business which offers alternative goods and services such as food, insurance, banking, fuel, online shopping-through its subsidiary Tesco.com, optician, mobile, clothing etc. Tesco has designed various outlets to meet different customers’ needs. The United Kingdom (UK) is the company’s largest market. Tesco operate under four banners namely Express, Metro, Extra and Superstore.

Retail analysts have identified three main reasons for this.

Tesco’s are everywhere;

Sell to everyone;

Sell everything

Tesco has a market share of 30% in the UK according to the data from TNS world panel. Tesco’s market share is double than its closest competitor Asda Supermarket which has a market share of 17% in UK. In UK there are more than 2280 stores and internationally it has 2077 stores. Around 469,000 staff work for Tesco and about 283,000 of them work in UK. Tesco almost has sixteen and half million club card members in UK and twenty million outside the UK, in nine countries across the globe. (http://www.guardian.co.uk/business/2009/apr/21/tesco-facts).

Tesco have stores in 14 countries across Asia, Europe, North America, Malaysia and Thailand.

Tesco was set up in 1919 by Jack Cohen and is now the biggest private sector employer in the UK. Tesco’s first store was open in 1929 – Burnt oak in Edgware. Since overtime the company is growing and developing and responding to the dynamic environment.

Tesco’s main competitors are Asda, Sainsbury, and Morrisons

TESCO’S VALUES

The core value of Tesco is to ‘create value for customers to earn their lifetime loyalty’.

‘Our success depends on people; the people who shop with and the people who work with us.’

No one tries harder for customer: (understand customers, be first to meet their needs, act responsibly for our communities)

Treat people as we like to be treated. (Work as a team, trust and respect for each other, listen, support and say thank you share knowledge and experience)

All the above mentioned in Tesco’s ‘Every little Helps’ Strategy. (www.tescoplc/ourvalues)

Tesco’s planning process runs each year on a quarterly basis in May, August and November, which helps to adjust staffing level and recruit new staffs when necessary. This allows Tesco to get sufficient time and flexibility to meet the demands for staffs and allows the company to meet its strategic objectives, for example open new stores and maintain customer service levels. The organization applies Maslow’s theory of motivation to internally motivate esteems needs of their employees by recognizing the importance of motivating their staff to progress their career within the company.

Tesco practice of so called ‘talent planning’ which will encourage people to work their way through, on the steps that will help the organization achieve its business goals and employees to achieve their personal and career goals. (http://www.thetimes100.co.uk/case-study–recruitment-selection–132-323-2.php)

Goals and objectives of the organization

The goals and objectives of a company is what the company hopes to achieve in a specific time period. It is the reason for the existence of the organization; it is what drives the organization, the employees and management in their day to day activities.

Tesco’s goals and objectives are:

1. To maximize sales

2. To grow and maintain the number one retail company in the United Kingdom

3. Tesco wants to outshine their competitors and remain the market leader

4. The main aim of Tesco is to maximize profit

5. To provide goods/services that is cheap and affordable to consumers or the public

(http://wiki.answers.com/Q/What_are_the_aims_and_objectives_of_Tesco)

According to Tesco their core purpose is to create value for customers to earn their lifetime loyalty. They further go on to state that their success depends on people, both those who shop with and work with them. As Britain’s largest retailer and the number three in the world, Tesco endeavors to meet their lofty objectives by providing their customers with excellent value for their money with highly competitive prices and top notch customer service. Ultimately by pleasing, their customer and capturing their business for life, this will make them a highly profitable business and in turn also please their shareholders.

The aims and objectives of Tesco are based on product, price, place and public. Tesco place is a wide supermarket chain and is one of the biggest in the world. Inclusive in its general aims is also the need for survival and meeting stake holders needs.

Subtly underlying all of Tesco’s beliefs, values, policies and practices is the aim to retain loyal customers. Tesco has captured this in their mission statement, which says to ‘Retain Loyal People’. In order to achieve this goal Tesco gives out club cards to its customers and gives them points anytime they come shopping.

Organizations structure and design

The purpose of organizational structure is to define the protocols, parameters and the procedural process necessary for a group to achieve the organizational objectives. In many organizations structure is a communication channel through which information is passed. No one structure is the best one. Structure will depend on the organization size, when the organization is big it has to have a formal organizational structure.

Structure is the pattern of relationships among positions in the organizations and among members of the organization. Structure of the organization does not only affects productivity and economic efficiency but it also increases the morale and job satisfaction of the employs.

Drucker (1989) stated that “good organization structure does not by itself produce good performance. But a poor organization structure makes good performance impossible, no matter how good the individual managers may be. To improve organization structure…will therefore always improve performance.

Importance of good structure is emphasized by child as “the allocation of responsibilities, the grouping of functions, decision-making, coordination, control and reward – all these are the fundamental requirements for the continued operation of an organization. The quality of an organization’s structure will affect how well these requirements are met.” – Child (1988).

Mannud (1999) emphasized that organizational design is a key feature for allowing an individual to achieve their personal needs as well as objective of the organization.

The structure and design of an organization will determine if the goals of the organization and that of the work force would be achieved. The organizational design provides a framework within which the individual and group can work effectively in order to meet collective goals.

The various types of organizational structure includes flat, hierarchical, functional, divisional, matrix among others. Some organizations may use one or a combination of two structures to run the organization more smoothly depending on the size and situation of the organization.

In our research we discovered that Tesco use a combination of both the flat (decentralization) and hierarchical structure to run the organization effectively.

Decentralization structure is mainly used when the organization is big in size and is geographical separated from different parts of the organizations. Decentralization is integrated with empowerment and delegation which brings about autonomy in the organizations.

Source – http://www.learnmanagement2.com/flat%20structure.htm

Hierarchical structure has a various levels within the organization; each level is one above the other. Each level in the hierarchy structure has different levels of power, management and authority.

A hierarchy structure defines roles of each employee within the organizations and their relationship with other employees.

Source – http://www.referenceforbusiness.com/management/Tr-Z/Virtual-Organizations.html

Tesco have two organizational structures; one for the company as a whole, which is hierarchical structure, with just six levels between chief executives and the check out staffs. The other structure is flat (decentralization) structure used in each of their stores.

The store structured used by Tesco is very easy to understand as it clearly shows control of each level and because of its simplicity it allows employees to see who is in charge of each department or who their department or line managers are.

Impacts of the structured used by Tesco

Regardless of what form of structure is adopted, whether hierarchical, flat or matrix, it has an impact on the organizational effectiveness. There is no one best structure to use but rather it depends on the organization size and situation that meets the need of the organization in order to achieve its goals and objectives.

A clear organizational design and the establishment of a strong organizational structure can increase or maximize a company’s effectiveness.

Impacts of the hierarchical structure on Tesco

In the hierarchical structure it is easy to implement a common policy in the organizations, as a whole and it provides a consistent strategy throughout the organization. This structure helps to improve economies of scale and reduce management cost.

Hierarchical structure encourages greater use of specialization and improved decision making as the instructions comes from the top authority.

According to McGregor (1960), Theory of X, where workers are seen as rational economic individuals, people are naturally lazy and have an inherent dislike of work. The average person avoids responsibility, prefers to be directed. Therefore, most people must be controlled, directed, coerced and threatened with punishment in order to enable organization to achieve its goals.

On the other hand, the hierarchical organizational structure can have adverse effect on the organization’s effectiveness.

Organizations can be bureaucratic and respond slowly to changing customer needs and the market within which the organization operates. The decision making will be slow which will affect the organization.

The hierarchical structure restricts personal growth and self- realization which will lead to failure, frustration and conflicts.

Communication across various sections can be poor especially horizontal communication.

The hierarchical structure also leads to low motivation and morale. This is because there is not enough delegation. Lack of clarity and relevant, timely information to the right people and inadequate procedures for revaluation of past decision can lead to late and inappropriate decision.

Impacts of decentralized structure of TESCO;

Decentralized organization structure makes manager feel more comfortable at his position and will be able to take decisions with ease. Staffs will have more responsibilities which will empower them in decision making and in turn will motivate employees and increase productivity.

It creates improved communication between staff and management. It also enables the staff to judge the situation within their working environment thereby expanding their knowledge and experience.

In this structure top bottom chain of command is short but on the other hand Span of control is much wider than others which will improve the efficiency of organization.

Decentralization structure can limit the business growth. When there is any change which needs to be implemented, employees will not fully accept it and will take a long time before it will be fully embraced by the whole organization.

At times employees have more than one manager, this often obstruct the performance of an organization because managers want to apply different methods according to their own finding or ideas, so it becomes a barrier in a way of proper communication among the staff and their superiors.

The internal and external environment in which the organization is operating

INTERNAL FACTORS

EXTERNAL FACTORS OF TESCO

PESTEL stands for Political, Economic, Sociological, Technological, Environmental and Legal factors.

Its purpose is to assess the industry in which an organization operates.

Examples of each factor are:

Political – Tax policies, Trade restrictions, Tariffs.

Economic – Economic growth, Interest rates, Inflation rates.

Sociological – Culture, Health consciousness, Age distribution.

Technological – Ecological aspects, Research and development, rate of technological change.

Legal – Health and safety laws, Consumer laws and regulations.

Environmental – Recycling policies, pollution.

Due to the nature of the Tesco’s organization with particular reference to how it has branded and marketed itself, and the current economic climate, the assessment of external factors by a PESTEL analysis has been crucial in Tesco’s success. This is because Tesco has taken into account the implications for consumers, employees, stakeholders, associated organizations and the company’s mission statement.

Political factor:

Politically, the credit crunch may lead to higher numbers of unemployment. As one of the largest and fastest growing retailers more jobs will be available with Tesco therefore helping to reduce the levels of unemployment. As Tesco is an international organization having stores in several countries, thus Tesco will be influenced by the political and legislative conditions of those countries, including European Union.

Government encourages retailers to provide a mixture of job opportunities from flexible, lower-paid and locally-based jobs to highly-skilled, higher-paid and centrally-located jobs under employment legislations. Tesco employs large numbers of, students, disabled and elderly workers, often paying them lower rates. In an industry with a typically high staff turnover, these workers offer a higher level of loyalty and therefore represent desirable employees.

Economical Factors:

Economic factors are of concern to Tesco, because they are likely to affect demand, costs, prices and profits. On the economy side one of the most influential factor is the unemployment rate, which reduces the effective demand for many goods, adversely affecting the demand for such goods to be produced.

These factors are largely beyond the control of the company, but its performance and marketing mix is profound. Although Tesco’s international business is still growing, but still it is highly depended on the UK market.

Tesco controlled 30.8% of the UK grocery market as of May 2009 and 9% of the UK non-food retail market. The majority of its sales and profits are generated in its 2,282 UK stores, which are segmented into the following formats:

Tesco Express – neighbourhood convenience store that focuses on fresh products, 961 stores

Tesco Metro – city centre convenience store,174 stores

Tesco Superstore – conventional supermarket, 448 stores

Tesco Extra – hypermarket that serves an entire community, 177 stores

Tesco Home plus and One-Stop account for its remaining stores

The company also sells general merchandise through Tesco Direct; it’s online and catalogue businesses. Tesco’s strategy of following the shopper remains more relevant now than ever, and this has helped the business to move into 2010 on the front foot, following strong trading over the key Christmas period. Having increased UK sales by £3.6bn last year, Tesco remains heavily focused on delivering growth, offering significant scale opportunities across its estate.

And with Tesco now seeing signs of wider economic recovery coming through, the retailer is targeting significant growth ahead. Club card is attracting new shoppers to Tesco stores, while the proposition is being reinforced in-store as new range initiatives are developed. Add to this an ambitious expansion plan for the UK and a growing international opportunity for suppliers, and the attraction of Tesco as a retailer account grows further.

Tesco’s has reported a pre -tax profit of £1.6m in half year and sales were boosted by strong Asian sales. Sales growth is UK has increased by 5% in contrast to Asia in the past three months. Overall Tesco’s sales grew by 8.3% to £32.9bn. (http://www.bbc.co.uk/news/business-11474282)

Tesco has also announced to hire 16,000 new staffs this year, out of which 9,000 will be hired in UK.

Sociological factors:

The Sociological aspect of the PESTEL analysis for Tesco involves considerations such as the increase in immigration of Eastern Europeans or increase in young professionals. Change in customers taste and preferences have to be considered when carrying out strategic analysis. Current trends show that customers have begun to move to ‘one-stop’ and ‘bulk’ shopping, which is due to changes in society. Naturally there is always a demand for new product, hence Tesco have to offer a range of products for their customers to choose from.

Due to demographic changes such as the aging population, an increase in female workers and a decline in home cooking means that UK retailers need to also focus on value – added products and services.

As the awareness of organic product grows customers are now buying more organic foods, TESCO has the largest share of organic product sales, selling over 1200 organic product lines.

Technological factors:

Technological factors which have perhaps had the most impact on Tesco have been the growth in the use of the internet. When new technologies are introduced in the business, it benefits both the customers and the company thus increasing customer satisfaction because commodities are readily available. The TESCO website, www.tesco.com is the largest online supermarket in the world.

Tesco stores uses following technologies:

Wireless devices

Radio Frequency Identification

Self check-out machine

Intelligent Scale

Electronic shelf labelling

The use of Electronic Point of Sale (Epos), Electronic Funds Transfer Systems (EFTPoS) and electronic scanners have greatly improved the efficiency of distribution and stocking activities, with needs being communicated almost in real time to the supplier. Finch, (2004).

They have capitalized on the use of online shopping and provide a delivery service through their website at www.tesco.com. Customers can now shop without physically going to the stores; hence they are able to retain this cliché of customers who have little time to go in stores.

Through the use of extranet system Tesco’s communication flow between the company and its business partners is very effective and hence facilitates collaborative relationship.

Tesco’s investment into technology like wireless devices, intelligent scale, and electronic shelf labelling, self check-out machine and radio frequency identification (RFID) systems helps support smooth daily operations of the business.

Environmental Factors

As Tesco continues to expand its Corporate social responsibility is of a great paramount in order to meet its obligation to its stakeholders through specified regulations and corporate governance.

Tesco uses fossil fuel in its transport network and also encourage its customers to make low carbon choices.

In 2008, Compassion in World Farming (CIWF) awarded TESCO, the Rotten Egg Award for

failing to make any commitment to end sale of eggs from caged hens.

In 2004 Graiser and Scott stated that, the government had plans to launch a new strategy of reducing production waste and consumption resource in order to minimise environmental damage.

Legal factors:

In the current economic situation, many small businesses are not able to enter the market. Under the EU law, if there is an organization with a largest market share dominates. With this problem the quality of products and services will be compromised and thus demanding high prices.

The government’s policies for monopoly controls and reduction of buyers’ power can limit entry to this sector with such controls as license requirements and limits on access to raw materials -Mintel Report (2004), Myers (2004). In order to implement politically correct pricing policies, Tesco offers consumers a price reduction on fuel purchases based on the amount spent on groceries at its stores. While prices are lowered on promoted goods, prices elsewhere in the store are raised to compensate.

Factors affecting employee productivity

Ways of motivating key workers – need to define motivation , talk about extrinsic and intrinsic motivation = total rewards

Motivation is one of the earliest concerns of organizational behaviour. It is internal and external forces and influences that drive an individual to achieve certain specific goals. People are motivated when they expect that a course of action is likely to lead to the attainment of a goal – a valued reward that satisfies their particular needs.

Well motivated people are those with clearly defined goals who take action that they expect will achieve those goals. According to La Motta (1995), motivation is simply the reason individuals have for doing the things they do. In day-to-day society many different things motivate people, and that which motivates one person may not necessarily motivate another. In other words, a motivated person is always aware of the fact that a specific goal must be achieved, and would direct their effort at attaining that goal. Nel et al (2001).

According to Locke (1997), motivation is determined by goal directedness, human volition or free will, and perceived needs and desires, sustaining the actions of individuals in relation to themselves and to their environment.

THE ELEMENTS OF A TOTAL REWARDS PROGRAMME

Armstrong and Mullin (1991) suggest four main areas that should be addressed in a reward management system. These are:

Pay structures, which by combining the results of market surveys and job evaluation, define the levels of pay in the organisation;

Employee benefits that satisfy the needs of employees for personal security and provide remuneration in forms other than pay which include pensions, insurance cover, sick pay and a number of other perks.

Non-financial rewards which satisfy employees’ needs for variety, challenge, responsibility, influence in decision-making, recognition, training, career development opportunities and high quality leadership.

Performance management that provides the basis for continuing as well as formal reviews of performance against targets and standards. A performance management system usually leads to the development of training and development programmes that meet the need for growth and achievement.

It also leads to the design of performance-related pay systems that has an impact on bonus and incentive payments. Performance management is a strategic and integrated process that delivers sustained success to organizations by improving the performance of the people who work in them and by developing the capabilities of individuals’ contributors and teams (Michael Armstrong pp391).

If a person’s skills are not utilized up to the full, they will they will be demotivated. Tesco recently received an award from National Business awards “Employer of the year” when the judges declared that “Tesco was voted employer of the year because its solutions were seen to be more holistic”.

Tesco recognizes that motivated staffs are committed to their work and hence company’s performance will increase. http://www.trainanddevelop.co.uk/view_article.php?ArticleID=78

Tesco has many ways in which they motivate their workers. This has gone a long way to help them improve on their quality of services and their profits for the past years.

Tesco motivates its employees through the following way:

Staff Training

Tesco gives training to staff, to make sure that they are competent and ready for the job. They ensure that their customers have the best services through the staff and management team.

This does not only make the employee to be ready to work, it also makes them to be confident and motivated to work. So in being confident and sure of giving out the best to the customers, employees will put in their best in order to satisfy the needs of the customers.

Discount for staff purchases:

Employees of Tesco are given the opportunity to buy good from their super market at a discount of ten percent. This is an advantage to Tesco’s employees. This is done so that employees will feel recognized and been treated fairly at the work place. When employees feel that they are being treated fairly and they are happy, they turn to do their work more effectively and efficiently thus achieving the set objectives and goals of the company.

Communication:

Communication between staff, customers and management has to be good. This is so because it makes the employees to feel happy that their problems and opinion in the organization are important.

Tesco makes sure that they have new and more open lines of communication between managers and staff, to avoid conflict and lack of flow of information. Directors and senior managers spend a week on shop floor listening to ideas and suggestions from customers and staff. This makes the employees feel better and secured at the work place. They feel happy that their ideas have got a place in management decision making, and that keeps them highly motivated.

Free uniforms:

Tesco gives out their uniforms to their workers for free in order for them not to think that they are being exploited or being used.

Free or reduced rate health insurance:

Tesco provides health insurance for free or at a much reduced rate for its employees. This makes the employees happy and confident in their employer. It indicates that their employer is concerned about their well-being and not just the work. So this makes employees to be happy and it increases efficiency in the work place.

Holidays:

Tesco recognizes that their employees are human beings and that they need rest as well. They respect the holidays of their employees and make sure that they are

Open opportunities:

Tesco gives their employees equal opportunities to be promoted when they work hard. So employees are being promoted in the organization when they put in more efforts. This makes them to work hard and feel motivated to work, because they know that after hard work comes promotion and power. By doing this productivity and efficiency and turn over increases.

Bonus:

Employees are given bonuses when the work hard besides their others discount they having for working at Tesco. When efficiency and productivity increases, turnover increases too. So when this happens, employees are motivated through bonuses.

Competitive salaries:

Company share options:

This is another option that Tesco feels it motivates their key workers most especially their top management employees. The top management employees are given options to become shareholders after long years of services and hard work at Tesco. When employees of top management has reached a certain level of the hierarchical pyramid of the organization in Tesco, the board of directors gives that employee an opportunity to acquire a share and become one of them.

Flexibility at work:

Discount gym membership:

Tesco uses this point as a form of motivation for its employees. When employees work hard, in order to motivate them, they are given a discount so that they can become members at their gym. So this makes them happy and has a sense of belongingness and they feel accepted and recognized by their employer.

Appraisal systems and organizational record keeping

Appraisal systems

Balance scorecard:

It is a method which Tesco uses to appraise its employees. It is applied to performance management system and it points out and breakthrough defects in single applications of financial indicators which measures performances of employees. The value of performance management appraisal system based on the introduction of the customers, internal business, processes, employees learning and growth and financial factors.

It also controls the management system mechanism, the strategy of application, application limitations and outlook on the future of the business.

Leadership:

Employees are also appraised through their way of leadership in Tesco. This is done through the nineteen leadership competencies which were identified through their in-depth job analysis of leadership. Any employees regardless of their years of experience in a particular position may be put into the development phase at any time upon their request or when the supervisor suggests.

Working in this particular phase, the employees focuses their energy and attention on specific leadership competencies which will help them achieve their objectives and increase turn over.

Strategic evaluation:

Tesco’s evaluation systems are performed through effective decomposition of the business strategy. This is so that each employee will clearly establish themselves in the organization under the strategy and their responsibilities; it should be more of how to take actions to ensure the achievements of objectives. So this performance evaluation system is to connect the strategic

Organizational Record Keeping:

Website resources record keeping:

The company keeps most of their information on their website. This website is updated on a daily basis, and information is usually not removed once it is posted there. So it is one of the very safe places where records of the organization are kept for as long as possible.

Document storage:

Records are also kept in the form of documents that is in hard and soft copies. This documents are considered as important to the organization, then they now keep them for future reference.

Document location system:

There is a particular system created for storage of document, so that in case this document is needed, they do not have to go through all other documents before getting what they want. They just need to get into the system, then they will get it at once. So this is less time consuming and accurate.

Conclusion

References

Armstrong and Mullin (1991)

Child (1988), J. Organization: a Guide to Problems and Practice, 2nd edition, Paul Chapman (1988), p.531

Drucker, P.F. the practice of management, Heinemann Professional (1989), p.223

Finch, (2004)

La Motta (1995)

Locke (1997)

Nel et al (2001)

Mannud.L, (1999)

Michael Armstrong pp391

Mintel Report (2004),

Myers (2004)

Websites

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www.tescoplc/ourvalues

http://www.tesco.com/recruitment/html/careers/compInfo/values.htm – accessed on 02/10/2010

http://www.thetimes100.co.uk/case-study–recruitment-selection–132-323-2.php

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http://www.learnmanagement2.com/flat%20structure.htm

http://www.referenceforbusiness.com/management/Tr-Z/Virtual-Organizations.html

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