Business performance - Essay Example

? Business of the Introduction Performance is the ability of an individual or an organization to perform in a particularsituation. This signifies that while performing some kind of proficiency needs to be displayed. Proficiency is defined as the ability to react in a proper way to certain incentives that are originating from the external and internal environment in which the organization operates. An organization showing high performance succeeds in creating competitive advantage for the company and makes the owner and other interested body happy by generating value for them. In today’s competitive environment it is not important which professional discipline utilises the obtained information. The thing which is important is the mutual interaction between the information obtained from financial accounting, human resource management, marketing and logistics. Kral (2010) developed the thought of interdisciplinary approach. All these disciplines have their own models, conceptions and terminology to conduct the performance evaluation of the organization. In order to control and mange the operations of an organization effectively, performance management is most crucial tool used by the mangers. Performance management is needed to conduct over various functional disciplines. Interdisciplinary approach is the most appropriate technique to explore the performance of the business as a coherent whole (Halir, 2012). This study focuses on conducting a performance evaluation on Tesco by following the interdisciplinary approach. Tesco is one of the leading retailers in the world with more than 530000 colleagues (Tesco PLC. 2013a). They conduct their business both through stores and online services. Every week they serve millions of customers. In this study the performance will be evaluated on the basis of finance, its operations and service provided to the customers and corporate governance. For every organization financial performance plays an important role since it helps in generation of value. Moreover, since Tesco is a retailer and directly deals with customer so customer satisfaction and corporate governance also becomes important. Development Operational Performance The business of Tesco follows a multi channel approach by leveraging the online expertise and existing network of stores so that the shopping trip of the customers are made easier. Tesco claims to be the first retailer who in 1997 initiated grocery home shopping and has grown to be the most profitable and largest online grocery retailer in the world, with sales of over ?2 billion. In order to fulfil the high demands of the customers the in-store picking model is balanced by few specialised dotcom stores. The “Click and Collect service” is the most popular and important part of the multichannel offering done by Tesco, which allows the customers to shop whenever they desire and wherever they are. For general merchandise the organization has 1500 Click & Collect service points and more than 150 grocery drives in UK (Tesco PLC, 2013a). “Finest, Everyday Value, Chokablok and Technika” (Tesco PLC, 2013a) are some of their own-label range that has gained substantial importance in strategic area. Everyday Value and Finest are the largest food brands, each of which contributes about ?1 billion to the sales of UK in each year (Tesco PLC, 2013a). Innovation takes a very important place in developing strategies to satisfy the customers. They are multichannel retailers and not just grocery stores. They deals in variety of services starting from Tesco mobile to Tesco bank to many more services like video on demand. The company has further plans of implementing larger formats inside the store so that the store becomes appealing to the customers and they get attracted to it. But this drive for innovation has lead to criticism against Tesco over how they store the email address and passwords of the customers. The software architect Troy Hunt has pointed out flaws in the website of Tesco regarding usage of poor quality practices that make it highly vulnerable to the hackers. Another expert Bruce Schneier has called the internet security of Tesco as lousy. On the other hand the company spokesperson in this respect has claimed that the internet security system of the company is robust and they are well aware of the fact that how important internet security is. In this context the Information Commissioner's Office who is responsible for enforcing the Data Protection Act will be initiating an investigation (The Telegraph, 2012). Apart from this the company is seen to suffer a lot in the international market. More particularly Tesco is facing problem in South Korea, which is considered to the biggest market in Asia. The problem that Tesco is facing is the restriction related to the opening hour of the store. The company claims that this is one of the major reasons for cutting down the profit. In South Korea the company has to close their outlets in two Sundays and remain open from 8 to midnight for other days. Sunday is the biggest trading days in Korea; in this area the company is suffering a lot. Apart from this the business of Tesco is also suffering in the market of China. In China the demand of the consumer was not seen to keep pace with the opening of new stores. The operations in Europe are hit by the euro zone austerity and weakening euro, which has resulted into the fall of sales (BBC News, 2012a). In the US market also Tesco is seen to suffer. The West Coast of US, which was supposed to be the greatest market, is seen to be rotten. The reason behind this is that the customers are having cheaper options for them (The Independent, 2012). It is not that Tesco is only suffering in the overseas market, but it is also facing crisis in the market of UK. The reduction in the sales has forced the company to look back and find what is going wrong. However, in order to make their position in UK come back to its original position, the company has launched strategies like refurbishing the food range of their own brand, investing in online business and convenience store, modernising the stores and focusing more on food products rather than non-food one (The Telegraph, 2013a). Financial Performance The financial performance of an organization is directly linked to the day to day operations that the business conducts. The analysis of the operational performance of the organization reveals that the customers whether in the international or in the local market that is UK, are not seen to be satisfied with the chain. Apart from this, there are many external factors responsible for this. If the financial performance for the year 2012 is analysed then it is seen that the sales of the group is ?72.4 billion, which signifies that the sale have increased by 1.3 percent when compared to the figures of 2011 (Tesco PLC, 2013b). The sales of the group are generated from its operation in Asia, UK, Europe and Tesco Bank. The revenue of UK and Asia are seen to increase by 1.8 percent and 0.6 percent respectively, whereas the revenue from the market of Europe is seen to decrease by 5.5 percent (Tesco PLC, 2013b). The marginal increase in the revenue of the organization from its operations in Asia is due to the problems that they are facing in South Korea. The significant fall in the revenue in Europe is because of the euro crisis which has affected the customers severely (Hiscott, 2013). The revenue of Tesco bank has been also seen to reduce by 2.2 percent (Tesco PLC, 2013b). Apart from this, the profit before tax of the organization is also seen to be at ?2.0 billion, which reveals that it has decreased by 14.5% (Tesco PLC, 2013b). Thus it can be seen that though the sales of the group has increased but the profit before tax has reduced by significant amount. This signifies that the expense of the group has increase as compared to sales. The expenses were seen to increase due to the investment made by the company towards the shopping trip of the customers. Apart from this in order to fix the business of UK the company has incurred a lots of cost by hiring about 8000 additional employees who will be responsible for providing better services to the customers (BBC News, 2012b). The statutory profit before tax also fell by 51.5 percent, which was again due to its in-depth review and substantial investment towards the business of UK, exiting from the market of US and impairment of goodwill from the business of Poland, Turkey and Czech Republic. Due to the reduction in the trading profit of the company the return on capital employed (ROCE) has also reduced (The Telegraph, 2013b). Previously the group has paid high dividends to its shareholder but now it has fallen. Corporate Governance Corporate governance is an important part of how the organization executes its operation. It ensures that the company is generating the values, which are expected from it, the operational and commercial risks are identified and managed, plans and strategies both are in place and helps in optimising the value of the shareholders and lastly proper systems have been planned and implemented that ensures that the company is running efficiently. The approach that the company used to follow in the previous year remained same for this year too. The company recognises their corporate governance policies as framework that provides support to the core value of the company and defined what is not acceptable and what is acceptable. It sets the method in which the organization wants to drive itself to reach the goals. Informed decisions and action that are taken by Tesco in relation to certain specific situation and that supports and fosters the culture and behaviour of the organization. In the year 2012 the company has designed and implemented the new corporate governance framework (Tesco PLC, 2013c). In order to manage the transition in size and balance the number of Non-Executive representative in the board was increase as in comparison to the Executive representatives. Steps were also taken in order to oversee and evaluate the business initiatives taken by the organization. The company claims that the changes that has been made in the corporate governance framework are as per the requirement of the company and no further changes will be required in near future. The board now comprises of ten directors, seven of them are non-executive. The change that the organization has made will help then in bringing significant focus on long-term and strategic issues. This step will also help the company in eradicating the blame of breaking governance standard that was raised in 2008 (Wilson, 2008). Conclusion The performance measurement of an organization is of great interest to the decision makers. By evaluating the performance of the company they can plan for their future strategies and can implement them accordingly. Identifying, understanding, elaborating and forecasting the determinants of the performance over different levels of the organization and time horizon are continuous and important concern for the management. The assessment of the performance is based on criteria like offering of products, satisfaction and retention of the customers, growth in market share, return on capital employed, growth in earning and growth in sales and environmental friendliness (Malhotra, 2004). Apart from this, it should be also judged that the business is running in compliance with the law. In this case Tesco has its largest operations in United Kingdom (UK). More than 65% of the profit and sales of the group is seen to come from the market of UK, where they are the market leader (Tesco PLC. 2013a). The performance evaluation reveals that the organization is facing trouble in its business operations whether it is in UK or any other international market. This is also impacting the financial performance of the company. However, the corporate governance framework is seen to be in a good position. In this regards the organization needs to work a lot firstly to strengthen its home market and then try to recover its international market. Variation in product, renovating the stores, providing quality service is important. Apart from this, the company should ensure that the customer’s information is well protected. Thus, they need to work on the technology section. For the international market they can adopt the strategy of thinking global but acting local. The organization should look at the choice and preferences of the customers and then incorporate those. The prices should be also set after considering the competitors. This will help in stopping the customers to go to other retailers who are offering at a cheaper rate. References BBC News. 2012a. Tesco reports fall in half-year profits. Retrieved from http://www.bbc.co.uk/news/business-19810916. BBC News. 2012b. Tesco’s intimations of mortality. Retrieved from http://www.bbc.co.uk/news/business-19811819. Halir, Z. 2012. Different perspectives on business performance and impact on performance system design. European Financial and Accounting Journal, 7(2), 56-81. Hiscott, G. 2013. New Tesco boss sets about sharpening up retail giant's act: Chief executive Philip Clarke will need to adapt business to the changing landscape of UK retail. Mirror. Retrieved from http://www.mirror.co.uk/money/city-news/tesco-boss-philip-clarke-needs-1837433. Kral, B. 2010. Jak na interdisciplinaritu? (in English: How to deal with interdisciplinary approach?) In: Manazerska etika. (in English: Managerial ethics.). Zlin: Univerzita Tomase Bati. Malhotra, N.K. 2004. Review of marketing research. New York: M.E. Sharpe. Tesco PLC. 2013a. Tesco UK. Retrieved from http://www.tescoplc.com/index.asp?pageid=282. Tesco PLC. 2013b. Working to make what matters better, together. Retrieved from http://www.tescoplc.com/files/pdf/reports/tesco_annual_review_2013.pdf. Tesco PLC. 2013c. Governance. Retrieved from http://www.tescoplc.com/index.asp?pageid=57. The Independent. 2012. James Moore: Tesco certainly has issues, but critics must be mad to say it's in a real crisis. Retrieved from http://www.independent.co.uk/news/business/comment/james-moore-tesco-certainly-has-issues-but-critics-must-be-mad-to-say-its-in-a-real-crisis-7658120.html. The Telegraph. 2012. Tesco face enquiry over 'lousy' website security. Retrieved from http://www.telegraph.co.uk/technology/news/9490081/Tesco-face-enquiry-over-lousy-website-security.html. The Telegraph. 2013a. Philip Clarke’s added problem is Tesco’s struggling empire overseas. Retrieved from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10101985/Philip-Clarkes-added-problem-is-Tescos-struggling-empire-overseas.html. The Telegraph. 2013b. Tesco shares fall as sales slump sparks doubts about strategy. Retrieved from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10099909/Tesco-shares-fall-as-sales-slump-sparks-doubts-about-strategy.html. Wilson, A. 2008. Tesco breaks governance standard. The Telegraph. Retrieved from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/3116790/Tesco-breaks-governance-standard.html. Read More