The aim of every existing and potential business firm is to maximize profit and wealth. Business firms are setting their wealth maximisation strategy upon the life cycle of their business. A successful retail supermarket Tesco started their operation in United Kingdom in 1919, now going into international market with a view to become a global retailer. So far they are very successful in UK retail industry; furthermore they are entering into new business portfolio like insurance, finance etc.
As a part of their wealth maximisation they are expanding their business to overseas. They are also doing business portfolio. So Tesco is going to plan and implement very good business strategy to become successful company in the corporate battle field.
This assignment has as objectives to understand the organisational theories and also analysis how TESCO implemented different models to change, improve and achieve such a successes until now in The United Kingdom and Overseas.
COMPANY OVERVIEW
Tesco is the biggest private sector employer in the UK with over 260,000 employees and over 1800 stores. It was founded by Jack Cohen in 1919 when he began to sell surplus groceries from a stall in the East End of London from which he earned a profit of £1 from sales of £4 on his first day. After 10 years, in 1929, Jack Cohen opened his first Tesco Store in Burnt Oak, Edgware, North London. Throughout the years until now Tesco Stores:
Became a private limited company
entered overseas market such as South Korea, Taiwan, Thailand, Poland, Slovakia & recently US
launched a variety of services to customers such as on-line bookstore, on-line banking with Tesco Personal Finance, Tesco Broadband, Tesco Mobile Phone & Home Phone
Also launched Club card Deals, 24 hr trading, 'Every Little Helps" Computer for Schools &'Would I Buy It' initiative to ensure highest quality for customers.
The core purpose of Tesco is to create value for customers to earn their lifetime loyalty. Tesco's core values are 'no-one tries harder for customers' & 'treat people how we like to be treated'. These core values characterise Tesco's approach to Corporate Responsibility in terms of Economy, Society, Environment, Charities & fundraising.
In other words, Tesco's Corporate Responsibility is to use their strengths to deliver unbeatable value, play their part in local communities through its charitable giving and community-based education programmes, work with their customers to help the environment by making efficient use of resources, reducing energy, water and testing renewable and Support good causes by aiming at giving 1% of their pre-tax profits to charity and raising £2million to provide care, life-saving equipment and skills for people in the UK.
ACADEMIC LITERETURE REVIEW
Organizations must challenge with all factors that involve their organizations. There are internal and external environmental factors that can persuade organizational changes. The external environment is affected the factors such as political, social, technological, and economic stimuli outside of the business that cause changes. On the others hand, the internal environment is affected by the factors such as the organization's management policies and styles, systems, and procedures, as well as employee attitudes.
It was talked about the Managing organization change book that changes efforts should leave organization in the better place- not wounded and in disarray because of poor planning, Be short of insight, and disregard for the human factor. Social entrepreneurs who are expert in change management are very useful to organization that is harnessing the forces of change. (Gregory Dees J. et al, 2002)
Mohan distinct Planed Organizational Change as "a planned movement occurring from one organizational state to another that has a commitment to producing a specified outcome" the change might be divided in to three types Incremental Change: change that aims to improve the accessible systems, policies and procedures. Strategic Change: Change that aims to establish new systems, policies or procedures. Transformational Change: which the transfiguration from one state to another that is essentially different. (Mohan U., 2009)
(Armstrong 2006) claims that theoretically the change process begins with an alertness of the need to change. An analysis of the situation and the factors that have shaped it leads to a analysis of their distinctive description and an indication of the direction in which achievement needs to be taken. Possible causes of achievement can then be identified and evaluated and a selection made of the preferred achievement.
what time planning change there is a propensity for people to think that it will be a totally logical and linear procedure of going from A to B. As described by (Pettigrew & Whipp 1991), the performance of change is an 'iterative, cumulative and reformulation-in-use process'.
To be able to manage change it is first necessary to understand the types of change and why people oppose change. It's important to tolerate in mind that while those wanting change wish to be constant about ends; they have to be flexible about the means. This requires them to come to an accepting of the mixture of change models that have been developed.
There are a lot of theories about how a company can be effective, the word effective is synonym of successful of management, change, innovation and the concept of learning organisation, therefore, is really important a continual review as an integral part of the process of organisational development, for a better understanding of Organizational Development. According to Laurie J Mullins, Eight Edition, Management and Organisational behaviour, (Pg. 734), "Organizational Development Is a generic term embracing a wide range of intervention strategies into the social processes of an Organisation, Organizational Development is concerned with attempts to improve the overall performance and effectiveness of an Organisation"
Organizations are a total system formed by individuals and groups therefore the focus has to be on the System but given importance to the people, it is important to distinguish some characteristics of organizations to be focus. First at all, on Culture and processes with encouragement of collaboration between leaders and members, with emphasis on the human and social side of the organization, the importance of teams, participation and involvement in problem - Solving, decision -making. Secondly, focus on the total system change with organization as complex social system. Finally, focus on facilitators and collaborators to make client able to solve problem on their own and have satisfaction.
The Relationship between Organizational Development and change is really important, for a company to experience growth has to be ready to adaptation to the change, when some part of the company change all the company will be affected by small changes, that means that management have to be ready to take control of each area of the company to the new level and growth together, According to Trist (1981), Social technical Model, " A company is formed by tasks, technology ,people, structure, when just one of those change the others will be affected"
According to Hamlin, Keep and Ash, (2006) " For organization that do manage change effectively, change itself becomes the driving force that perpetuates future success and Growth, In these organizations, every change becomes welcomed as an opportunity for increasing efficiency and building new organizational success."
TOTAL QUALITY MANAGEMENT SYSTEM
"Total quality management (TQM) is an approach to improving the competitiveness, effectiveness and flexibility of whole organization. It is essentially a way of planning organizing and understanding each activity, and depends on each individual at each level. (Oakland, 2000, pg 19)
Basically, TQM is defined as a strategic and integrated management system for achieving customer satisfaction. It is a comprehensive and customer focused system that many organizations are adopting to improve the quality of their products and services.
TQM recognises that all businesses require "processes" that enable customer requirements to be met. TQM focuses on the ways in which these processes can be managed - with two key objectives"
100% customer satisfaction
Zero defect
CUSTOMER SATISFECTION
The customer and supplier relationship is very important for quality chains. The most successful TQM programs begin by defining quality from the customer's perspective. Customer satisfaction, not increasing profits, must be the primary goal of the organization. It's more the most important consideration, because satisfied customer will lead to increased profits. (Besterfield et.al, 2003)
ZERO DEFECTS AND STRENGTH
According to Summers (2000, p,37), performance standard against which any system must be judged is zero defects. Zero defects, refers to making products correctly the first time with no imperfections. Traditional quality control centred on final
ORGANIZATIONAL ANALYSIS
SWOT ANALYSIS
Strengths
TESCO has ensured its base in the global market as it won the 'World Retail Awards'. It can use this as an advantage for global marketing campaign for future growth and sustainability.
In an environment where global retail sales are showing decline or level performance on a like for like basis TESCO Group have published sales gain of 13% for UK markets and 26% growth in international markets.
As a business looking for continued expansion TESCO have reserve funds of credit coupled with income derived from property portfolio development funds.
Weaknesses
TESCO Finance profit levels were impacted through bad debt, credit card arrears and household insurance claims.
TESCO s position as a price leader in UK markets can lead to reduced profit margins in order to retain the key price points on must have commercial items.
Grocer outlets are not set up to operate as specialist retailers in specific areas of product which can be capitalised on by other smaller bespoke retailers.
Whilst current economic conditions suggest TESCOs key value message will succeed there is a weakness in non-essential, mid to high ticket price items which will suffer from the rising cost of living and lower disposable incomes.
Opportunities
Statistics suggest TESCO is the third largest global grocer which indicates a level of buying power to ensure mainstream economies of scale.
The acquisition of However provides the opportunity to develop the brand through Asia, specifically South Korea and further grow International markets for the group.
The development of Tesco Direct through online and catalogue shopping will grow the use of technology, providing the launch pad for larger non food based products with moderate to high margin returns and less focus on sales and margin per foot return to space.
TESCO mobile have grown ΒΌ million customers in 2008 and moved into profitable status suggesting further growth and development within this technological area can be developed.
Threats
UK and American markets have been affected by economic concerns through the "credit crunch". Lower available income will impact and strategic focus may need to change to lower priced basic products with less focus on higher priced brands suggesting a switch in price architecture.
Rising raw material costs from both food and non food will impact profit margins overall.
Sourcing changes to Far East locations with regards exporting restrictions on some non food product areas will reduce margin rates on products with already low margins.
Changes to consumer buying behaviours require further analysis - as technology develops consumer buying patterns change which will result in product areas requiring evaluation.
For TESCO there is a persistent threat of takeover from the market leader Wal-Mart who has both means and motive to pursue such action.
STRETEGIC MANAGEMENT
THE CONCEPT OF STRATEGY
"Strategy is the direction and scope of an organisation over the long-term which achieves advantage for the organisation through its configuration of resources within a challenging environment to meet the needs of market and to fulfil stakeholder expectations". (Johnson and Scholes, 2006, page 43).
Over the past thirty years the structure of the UK food retailing industry has been transformed. This has been brought about partly by a change in shopping habits - the shift from the High Street to edge-of-town or out-of-town superstores - and partly by the emergence of a few, large companies as dominant players in an increasingly concentrated industry. The three biggest supermarket groups, Tesco, Sainsbury and Asda, now account for nearly 40 per cent of the market (Table 1). Of these three firms, the outstanding success story in the past decade has been Tesco. It dislodged Sainsbury from the No 1 slot in the mid-1990s, and has since extended its lead, both in sales and in stock market value. (Wrigley and Low 2002, p-85)
Taylor Nelson Sofres has released its latest snap-shot of Great Britain grocery shares, publishing figures for the 12 week period ending 5th November 2006.
Retailer
% Share
Tesco
31.1
Asda
16.7
Sainsbury's
15.9
Morrisons
11.2
Somerfield
4.5
Waitrose
3.9
Iceland
1.6
Lidl
2.1
Aldi
2.5
Total Coops
4.5
(Source: Taylor Nelson Sofres
The Tesco strategy up to this time was encapsulated by the title of Cohen's autobiography, 'Pile it high and sell it cheap', but the increasing affluence of customers and the changing needs meant that Tesco altered its approach and moved into opening out of town stores with more attractive interiors. (Seth and Randal, 1999, P-199)
STRETEGY OF TESCO
Tesco continued to make strong progress with all four parts of their strategy:
A strong UK core business
Non-food
Retailing services
International
By keeping their focus on trying to improve what they do for customers:
making their shopping trip as easy as possible
constantly seeking to reduce our prices to help them spend less
offering the convenience of either large or small stores
bringing simplicity and value to complicated markets"
(Tesco preliminary Results, 2006)
CORE UK
Tesco's core UK business is significant within the group, with over 260,000 employees and over 1,800 stores. Nearly 80% of group sales and profits come from the UK business.
Growth in the UK business comes from new space, extensions to existing stores and a multi-format approach. Sales of non-food, which are growing significantly faster than the rate of food, also contribute to the overall growth picture.
NON FOOD
Tesco strategy aims to be as strong in non-food as in food. This means offering the same great quality, range, price and service for their customers as they do in food business.
In September 2006, Tesco announced that 20% of its sales now came from non-food goods, and that some of its stores were becoming a destination for non-food, such as its Tesco Extra hypermarket in Newcastle, where half of the store's £100m annual turnover is non-food.30
(Barnes, Rachel, Feb 25, 2006)
RETAILING SERVICE
Ranges and Value:
With Extra and new Home plus formats Tesco stores can bring down prices and offer customers the convenience of shopping for great value non-food along with their food and household goods. Tesco and Finest own-brand products are available across non-food offer. They offer over 2,000 Value lines. (BBC, 7 Dec, 2007)
Clothing
esco clothing has something for everyone and one in seven of customers have bought something from one of the clothing ranges.
Tesco Personal Finance (TPF)
Customers have a choice of 22 products and services from banking to instant car and travel insurance. Around-two thirds of all TPF business comes from the stores, which play a vital role in building trust and provide the convenience that customers want. Money can be deposited at any Tesco store, and many TPF transactions are made when banks are closed.
Tesco.com
Tesco.com was launched in 1999, giving customers the choice of having their shopping delivered to their doorstep at a time convenient to them.
To make things simpler for customers Tesco have also placed online non-food ranges like electrical, books, wine, music and movies under one virtual roof - Tesco Extra.
Tesco Telecom
They launched Tesco Mobile in 2003 through a 50/50 joint venture with 02, and the network now has 1.4 million customers, taking almost 30% market share of new customers in 2006.
INTERNATIONAL
The full emergence of international retailing is not something that will happen overnight - it requires a long term approach.
Over more than ten years of experience overseas, Tesco has evolved a strategy based on six elements:
Be flexible
Act local
Maintain focus on a few countries
Use multi-formats
Develop capability
Build brands
(www.Tescocorporate.com)
"By 2002 Tesco was operating 174 stores in Eastern Europe and Asia, most of them hypermarkets; they represented 42 per cent of the group's total selling space. The UK remained by far the most important source of Tesco's profits, and the aim was to keep ahead through innovation: "unique differentiation is a prize that can only be won by continually being first".
Tesco has followed its customers into the growing world of retailing services. Their aim is to bring simplicity and value to complex markets. (www.tescofinance.com)
STRETEGIC MODEL
Tesco focus cost leadership strategy. Tesco basically follow slogan "pile it high, sell it cheap". According to this slogan they targeted the market segment. Tesco offers their products at very competitive prices and reasonable quality, in other words, a value for money strategy.
One American management professor which name is Michael Porter of Harvard University, who developed a well-known approach to the competitive strategy of firms. Michael Porter told that all the companies should achieve a higher rate of profit (or at least their potential profit) in one of two following ways:
The company can either provide a product or service that is identical to that provided by rival companies, but at a lower cost than rival firms, or
They can provide a product or service that is differentiated from that of rival firms such that customers would be prepared to pay more for their product than for a rival firm's product. (www.easy-strategy.com/michael-porter.html)
Justification of Strategic Model
Lower cost than competitors
The prices of Tesco products are always low because they don't rip off their customers. Tesco brings most of the products from the same distributors as other retailers bring and Tesco own distributors as well. But only Tesco is able to offer good value and good quality because of low mark-ups and big volumes
Different strategy than competitors
Tesco has got strongest successful competitors; they are ASDA, M&S and Sainsbury's. However, although all are in the 'value' segment and therefore have similar market positioning, Tesco has different strategy. ASDA sells heavily-discounted low price products and Sainsbury's has created its own value, Where as Tesco focuses much more on buying, logistics and investing, supply chain management rather than low price.
Cut-down Price
Tesco always offer "Cut-down price" or "Buy one get one Free". It also helps to attract the new customers and keep the existing customers. And this is very important for cost-leadership.
TQM at TESCO
Store Manager
Line Manager
Team Leader
Customer Service Assistant
Constant process and product development as well as learning the customer in better than the present time are the regular practice in Tesco. Thus Tesco has successfully ensured a Total Quality Management. Furthermore dealing with the supplier to ensure the delivery on time their store level management hierarchy is illustrated in the following diagram:
According to that diagram lower level subordinates are accountable to their superiors. Also superiors have very close supervision on their subordinates. So their productivity in every level is very high. Though they have got management hierarchy but they have got a concept of working as "ONE TEAM". Everybody is working under same umbrella which motivate everybody to give better service to the customers. Because Customer are the key factor for Tesco. If the customers are satisfied then the satisfied customer will lead to increased profits.
TECHNOLOGICAL CHANGE MANAGEMENT
THE TRIGGERED THE CHANGES
As Tesco has been affected by the environment and the misplaced of some staffs, it wants to change and build up the way its operating, and the computer has come to restore the workforce. The factors have triggered the change in operating, could be classified into two types of changes in the following section.
Internal trigger for changes
New ideas about how to deliver services to customers
The organization realized that the lack of staff could convey the service to the lower level, so unfulfilled positions could be fulfilled by technology and effectiveness performance, Tesco has recognized that changing is essential to every project in the Information Age, the association should use the advantage from the technology and the new ideas on how to provide customers better service to outperform its competitors.
External trigger for changes
Developments in technology
During the last 20 years, our world has been changing because of the development of technology. Computer is no longer a luxurious service and not affordable. Nowadays everyone can use the computer. Also, Advance in technology maybe the most important trigger for Tesco's to change. For the duration of the last 15 years, information technology has been developing rapidly. Computer has changed consumer performance dramatically. More and more applications are introduced every day. Electronic devices including PCs and Point of sale systems are getting cheaper and cheaper. Advance in invention also enables possessing a laptop or Point of sale systems becoming easy. Now a lot of people have learned to use these equipments.
Self checkout system:
"Self checkout machinery be automatic alternatives to the traditional cashier-staffed checkout at retailers. They have been applied often in stores like those which sell groceries, and other large scale stores." (www.encyclopedia.com)
It has advantage to the customer is in the reduced the time of checking out because stores are often capable to efficiently run five to ten self checkout units anywhere it normally would have had one cashier. Therefore many customers appreciate the facility to not have to deal with anyone.
On the other hand, there some advantage to the organization too, such as providing self checkout machines is in reduced staffing requirements since one attendant is all that is required to run 3 to 5 checkout lanes at one time. So customers could be saved time and enjoyed the capability. That's why customers are very happy to Tesco.
BENEFITS TO TESCO
TESCO has been an icon in relation to Costumer Services in the retail Industry with the best position in the market.
TESCO has the biggest and diverse portfolio in the UK covering a big number of Costumer needs different from retail industry products.
TESCO has growth really quickly in comparison to competitors because of It's focus in customer service.
TESCO has expanded in different countries keeping the same focus in Costumer loyalty, expanding at the same time it's good reputation.
TESCO has became the biggest employer in UK making a huge diferncse to tha national Economy
CONCLUSIONS AND RECOMMENDATIONS
As a retail giant apparently Tesco was very much successful compare to its rivals. This is because of their in time decision making and implementation in term of change adoption. In this highly competitive market all the companies go through a constant change. Change is a constant factor which is considered by every other company in every industry. Still in the retail industry Tesco become successful compare to the rivals as they were able to make the difference while adopting the change and bringing change in the customer experience. Again Tesco did not follow any specific model to manage the change. Their main focus was to provide a better customer experience, and to do that they followed all the change models depending on the situation. By providing better customer experience they were able to gain the customer satisfaction which in turn helped them to increase the volume of their loyal customer.
