Human Resource Management at Tesco plc - Case Study Example

Human Resource Management at Tesco plc This paper is an analysis and evaluation of the Human Resource Management (HRM) policies and practices at Tesco plc, a retail business giant based in the U.K. with operations in twelve countries worldwide, 2,705 stores, and 364,358 employees as of the end of 2006 (Tesco, 2006). Its annual sales of 43.1 billion and profits of 2.235 billion make it the 59th largest corporation in the world, the biggest retailer in the U.K., and the best performing retailer in Europe (Fortune, 2006). This three-part paper analyses the extent to which Tesco's success can be attributed to a unique HRM system that supports its corporate strategies and combines the systematic discipline and execution characteristic of an 83-year old business with the entrepreneurial and liberal practices typical of a start-up business. Part One, an overview of Tesco, provides a rationale for selecting the organisation, identifies specific features of the context within which it operates and key features of its business strategy, shows how it responds to the wider business environment, and explains the implications of the business strategy adopted for the management of people. Part Two evaluates Tesco's approach to managing people and analyses whether its HRM policies and practices reflect specific theoretical models or frameworks, citing available research evidence. Part Three diagnoses and critically evaluates the key elements of Tesco's HR strategy and the nature and scope of HR practice, with particular attention to the degree by which HR practice supports the organisation's business strategy and the extent to which different aspects of HR strategy are horizontally integrated. Tesco as a Business Tesco plc, founded in 1924, laid down in 1997 a four-part strategy that has become the foundation of its recent success: Grow its core U.K. business, Be as strong in non-food as in food, Develop retailing services, and Become a successful international retailer By 2005, its new growth businesses in non-food, retailing, and international stores had contributed as much profit as the entire business was making when the strategy was formulated (Tesco, 2006). Tesco's business strategy focuses on improving its service to customers. They have developed the following success factors to measure this: Make their customers' shopping trip as easy as possible, Constantly seek to reduce prices to help customers spend less, Offer the convenience of either large or small stores, and Bring simplicity and value to complicated markets. As a company that depends for its success on the quality of direct employee contact with customers through a unique and special shopping experience, Tesco like other similar companies claim that its people are its most important asset. What makes Tesco different is that they are seen to be successful in delivering on that promise. Guided by a key core value of looking after its people so they can look after their customers, Tesco provides market-leading working conditions for its staff. However, it doesn't stop there. It also encourages suppliers to do the same: offer attractive benefits and wages, flexible work hours and leave, profit-sharing, subsidised meals, childcare vouchers, and an award-winning pension scheme, amongst other benchmarks. Achieving its business objectives would have been difficult without trust and dependence on the skills and commitment of employees who are encouraged at all levels to make their fullest possible contribution to business success. Guided by the slogan "Every little helps", Tesco delivers a unique shopping experience for customers, an objective that demands ongoing training to ensure that employees understand the right customer service objectives and strive to achieve them. Tesco was chosen for this paper because the quality of its people is recognised as a key factor for its profitability and stellar business performance, despite the bad press it gets from time to time due to the fact that despite their best efforts, it could never satisfy every employee and millions of customers, but not because it is not trying. Rather, the extent of its reach, its workforce and customer diversity, and the complexity of its business present a real HR challenge. Tesco's HRM system enables its business success by attracting highly competent people and motivating each one to give their best to satisfy, surprise, and keep customers coming back. HRM at Tesco Tesco combines management discipline and entrepreneurial spirit through an HRM system that leverages the talents of over 360,000 workers, keeping them focused on attaining its strategy of meeting customers' needs. Although 73% of its people are U.K.-based, the company's four-part strategy provides an HR challenge, for as the company develops and strengthens the skills for its new businesses and growth areas, it also has to develop people both in the U.K. and overseas where the cultures are different. When Tesco opened its first store in Thailand in 1998, it learned that it should open at precisely 9:09 a.m., because customers and employees believe these numbers signify luck and prosperity. This is one detail of how the company puts importance to people, what they think and believe in, even if these beliefs are seemingly illogical. Tesco's HRM and business strategy are so intertwined that it has realised that every employee - whether British, Thai, or Slovakian - consider four basic factors as very important: A manager who helps them, Opportunities to grow and learn, An interesting job, and To be treated with respect. Tesco's HR strategy is focused on how to improve in delivering these four factors better. It has developed a five-year people strategy that is continually developed and updated depending on the culture and what these four things mean within each of those cultures. With such an HR strategy, Tesco signals that it is not a conventional company and is managed differently to create a unique shopping experience for customers by doing little things better. Its long-term success depends on the quality of its workers, creative and exceptional people eager to accept challenges and work hard. Tesco's organisation is built around the ability to attract and leverage the talents of its workers, rewarding and treating them well. Second, Tesco uses this strategy to attract talent by providing a good working environment, good superiors, and generous benefits to improve worker health and productivity. It provides employee ownership to attract and keep that talent. Its corporate governance structure provides the stability needed to sustain long-term profitable performance. And third, Tesco is evolving its own unique combination of organisational structure, business strategy, and human resource management policies to ensure that every employee, anywhere in the world, will have a shared wholesome experience they are willing to share with customers. Each employee is sincerely convinced that the work they do is exciting and helps change the world and make it a better place. In the highly competitive retail industry where the quality of and trust for its products need to be consistently high, the quality of people determines the ability of a company such as Tesco to sustain its business success. Traditionally, business success is measured in terms of turnover growth, profitability, worker productivity, and operating efficiencies. How Tesco fares compared to its peers gives us an indication of their success. Table 1: Comparison of Retailing Sector Companies (2005 data) Tesco Carrefour Metro Sainsbury Wal-Mart Employees worldwide 273,024 440,479 204,076 96,200 1,800,000 Sales (, billions) 40.4 53.7 41.4 16.3 178.9 Return on Assets 7.0% 3.0% 2.0% 1.0% 8.0% Revenue Growth 13.9% 4.5% 3.8% 0.8% 9.6% Profit Margins 4.0% 2.0% 1.0% 0.4% 4.0% Sales/Employee () 147,972 121,913 202,866 169,439 99,389 Sources: Lustgarten (2006) As shown in Table 1, Tesco outperforms its peers on Return on Assets, Revenue Growth, and Profit Margins. Although sales per employee are lower, its revenue growth rate assures it would surpass Metro and Sainsbury over time because of its expanding workforce whilst its turnover continues to grow. Tesco's HRM performance success can also be measured by evaluating its HRM system using industry-accepted frameworks and by analysing its ability to attract, retain, and leverage talented workers. Foster and Kaplan (2001, p. 75) argued that a company's HRM processes, staffing, and evaluation procedures are determined within the context of its corporate strategies as to enable execution to be effective. Does Tesco's HRM reflect that of a successful company in a highly dynamic industry, where similar competitors are vying to attract and retain talented workers Is it in line with suggestions proposed by Becker and Gerhart (1996) of what HRM systems are most appropriate in today's globalising, rapidly-changing world At Tesco, HR principles are integrated into the over-all organisational plan, its people strategy and business strategy closely intertwined. Business success, Tesco claims, is the result of people success, and if the business succeeds, the people also benefit from that success. Tesco uses a "steering wheel" system to measure its business success (Figure 1). Fig. 1: Tesco's steering wheel. [Source: Matthewman and Matignon, 2005, p. 70] This system is based on the Balanced Scorecard Method of Kaplan and Norton (1992). People measures are part of customer, finance, operations, and the community plan, an important part of the strategy Terry P. Leahy implemented when he became CEO in 1997. The strategy's primary aim was to transform Tesco from a financially-driven business into a mission-driven organisation whilst generating above average profits. To assure HRM's integration in the organisational structure, Tesco created governance groups presiding over distinct business functions. Realising that people are involved in every decision they make, the Balanced Scorecard helps the company design HR programmes and interventions that enable right corporate decisions to be made. These findings show Tesco's HRM processes conform to that found in multinational corporations (Beardwell, Holden, and Claydon, 2004) and business best practices using frameworks such as the Harvard, Warwick, Storey, Guest, and Fombrun-Tichy-Devanna models (Bratton and Gold, 2003; Arnold et al., 2005; Armstrong, 2006). Its human capital management and reporting practice likewise reflect the model of Scarbrough and Elias (2002) that emphasised the importance of the process and how the organisation uses the information gathered to drive improvements. At Tesco, anything that can be measured can be managed, following a central tenet of the Balanced Scorecard Method (Kaplan and Norton, 1996b, p. 129). With work sites in Europe and Asia, Tesco has a unified culture in different continents where it attracts and keeps a diversified workforce from different backgrounds, cultures, and standards. However, the specific model to be used to evaluate Tesco's HRM practices is that of High-Performance Work Practices (HPW) outlined by Robinson (2006, p. 61). As will be seen, each aspect of the 13-point HPW framework is analysed to see if Tesco's successful combination of business and HRM strategies can be sustained. Is Tesco's HRM HPW What do the research evidence show regarding Tesco's HRM Is it appropriate for the HPW nature of its work environment Is Tesco successful because its HRM practices support its business strategies [1] Appropriate selection and recruitment processes Tesco's diversity council headed by HR managers and a board director assures it is open to anyone who agrees with Tesco's core purpose of creating value for customers and earning their lifetime loyalty. Its selection, training, development and promotion policies ensure equal opportunities for all regardless of gender, marital status, creed, colour, race, age, sexual orientation and preference, ethnic origin, religion or belief, or disability. The diversity council has a work programme, "Everyone Welcome at Tesco", which ensures inclusivity in everything from recruitment, training and development to policy. However, not everyone can be good with customers, so Tesco continues to lose hundreds of disgruntled workers each month. It is criticised because every time it enters new areas, it drives smaller shops out of business resulting in lay-offs and unemployment. [2] Comprehensive induction programmes Every employee at Tesco receives close to 60 hours of training during their first half year of employment, allowing the company to ingrain each new hire with the organisational culture, the four-part strategy, and its core purpose and values. Whilst diversity makes for good public relations, the company has to ensure each employee loves to serve customers and is willing to do every little bit to help. What keeps the company on its toes is the desire to meet the needs of satisfying over 15 million customers, each of whom wants more, raising the bar higher for Tesco employees. This dedication to service sounds mushy at times, leading critics to denounce its techniques as a form of brainwashing. [3] Sophisticated and wide coverage of training At Tesco, everyone learns from each other by working together, whether serving a single customer or looking for new products to sell. Every employee learns new skills in a work environment where most employees are on the front lines. The company hires locals for its stores, with top performers from other parts of the group acting as benchmarks sharing their experiences and insights through programmes or the internal newsletter distributed to all. This, however, can be seen as a form of getting more out of its workers for roughly the same wage, abusive to workers despite the fact that most Tesco workers love what they do. [4] Coherent performance management systems Tesco's performance management system is clear to insiders, employees and managers who monitor their collective and individual results closely. Because it believes that what gets measured can be managed, Tesco developed a deep understanding of the different ways to channel the strengths of its people to generate customer value and contribute to business performance. This is the purpose of what it calls its Insight Unit within its marketing team that measures people issues across business functions. This obsession with measurement, if left uncontrolled, may lead to a mechanisation of people management, a dehumanisation of labour. Tesco has to devise ways to avoid getting to this extreme. [5] Flexibility of workforce skills. [6] Job variety and responsibility Tesco's workforce diversity is a constant management concern. It is one of eighty companies that are a part of the U.K. government's "Exemplar Employee" initiative to help women returning to work with job share and flexible working patterns. With its new markets and locations, the pressure to find and develop enough great people to move through its business is becoming harder. Although 80% of movements in Tesco, from shop floor to board-level roles, are internal, it recruits externally at times for specific functions to gain expertise, which many insiders resist. On the other, some Tesco managers leave to work with its competitors, which is not a good sign. Whilst new markets require fresh skills sets, people management and leadership roles are consistent. It trains current and future leaders at off-site venues, and the whole business is mobilised to support them so they succeed and be ready for greater responsibilities. Tesco applies the same principles training people at every level of the hierarchy. [7] Teamworking Tesco claims all employee decisions are based on merit. Its employees are globally linked through internal communication channels to keep them well-informed. Even its internal newsletter, a staff magazine called "One Team", supports the view that the company's success is the fruit of everyone's labours and their ability to work with each other in groups. Managing a 360,000-strong work force is never simple and some dissatisfaction is expected, which its HR department needs to minimise. [8] Frequent and comprehensive communication to employees The performance of its managers is measured in terms of how well they communicate with employees. Listening and responding to staff is logistically demanding. An annual Viewpoints Survey covers all stores in every country, eliciting a very high response rate. Tesco also has temperature checks every six months to check on how changes are being implemented and accepted. It also has focus groups, where HR managers sit down with twenty or so staff to talk through what's on their minds over a cup of coffee, whether it is to talk about mistakes or what employees can do for new customers. This sounds a bit like Big Brother, but its workers like it. [9] Use of quality improvement teams Whilst every employee is expected to deliver the best quality work, it has in place a method of transferring experiences and lessons learned to other locations, whether in the U.K. or abroad. Some suppliers, however, detest Tesco's buying power as a form of coercion to adopt Tesco's values and see as hypocrisy Tesco's efforts to tolerate diversity amongst staff but not amongst suppliers. [10] Harmonised terms and conditions; [11] Rewards related to individual and/or group performance Tesco hires people and encourages them to make their dreams of service real in an atmosphere of work that comes about when great people from diverse backgrounds work together. It encourages workers to be shareholders and avail of profits generated through their work. It also encourages them to participate in the pension scheme that is tied down to business success. This means some employees are more equal than others, certainly a potential source of conflict. Another danger of generous benefits is that workers can get spoiled and complacent, endangering their health and work performance, a real serious possibility that can damage the company. [12] Market-competitive pay Tesco pays average wages to its employees and managers but is generous with benefits. Nevertheless, it loses experienced people to its competitors, notably Sainsbury's which is using every trick to lure good performers at Tesco. Staff members with over a year's service receive 10% discounts on their shopping at Tesco. Almost a third of shareholders are Tesco workers who share in the company's success. Its defined benefit pension scheme covers nearly 60% of its workers and helps attract and retain the best people, encouraging all eligible staff to join the scheme as soon as they join Tesco. [13] Policies to achieve an appropriate work-life balance A large proportion of the workforce consists of part-time workers, and the demand for more flexible working options is increasing. It has a shift-swap scheme that allows employees to call on short notice and get co-workers to take their place, a scheme popular with students and parents and that support a healthy work-life balance. Working and shopping at Tesco can be so enjoyable its employees become insulated to the needs of the wider market place. Tesco's attempts at community work are a means to neutralise the negative effects of an organisational culture that, at times, sounds too good to be true. Will it last Tesco's success can be attributed to HRM policies and practices supporting its long-term business strategy. It attracts excellent workers, empowers them to work hard, and rewards them for their work. Its ability to balance the practice of management discipline and an entrepreneurial working culture has allowed Tesco to develop a unique corporate culture that values and rewards innovation and sustain its momentum and performance. However, as the company continues to grow and the competitive pressure for its trained people is expected to increase, Tesco has to find innovative ways to keep its workers motivated. Bibliography Armstrong, M. (2006) A handbook of human resource management practice (10th Ed.). London: Kogan Page. Arnold, J., Silvester, J., Patterson, F., Robertson, I., Cooper, C. and Burns, B. (2005). Work psychology: Understanding human behaviour in the workplace (3rd Ed.). London: FT Pitman. Beardwell I., Holden, L. and Claydon, T. (2004). Human resource management. A contemporary approach (4th Ed.). London: FT Prentice Hall. Becker, B. and Gerhart, B. (1996). The impact of human resource management on organizational performance: Progress and prospects. 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