The Measures that Can Be Used for Reviewing the Performance of Tesco - Case Study Example

Report Table of Contents Introduction 3 Performance Analysis 3 Financial and Resource Performance Measures 3 Satisfaction Indicators 5 5 Innovation and Market Development Measures 7 Conclusion 9 References 10 Introduction Performance measures often examine and determine the financial as well as the operational performances of a company. With reference to one of the retail companies i.e. Tesco PLC, it can be affirmed that the financial and business performances of Tesco can be evaluated with the assistance of different measures that include financial as well as resource performance measures, customer satisfaction index and innovation along with market development (Ammons, 2007). It is a UK based multinational retaining company operating on a global context. The company comprises nearly 530,000 employees, entrusted with the responsibility of serving customers in an effective manner (Tesco, 2014). With this concern, the report intends to examine the measures that can be used for reviewing the performance of Tesco. In this regard, various performance measures relating to finance along with resource, customer satisfaction indicators and innovation along with market development will be discussed. Performance Analysis Financial and Resource Performance Measures Gross along with net profit margin and market share acts as effective financial along with resource based performance measures, through which the overall performance of the companies such as Tesco can be determined. Theoretically, the net profit margin depicts the ability of the management to control and meet the needs of indirect costs. It also reveals the suitability of businesses to perform effectively in future. In this regard, the net profit margin should be higher in order to depict a better future profitability and performance index (Needham & Dransfield, 2000). For instance, the financial performance of Tesco can be determined or measured with the assistance of certain financial statements that prepare by the company on an annual basis. It has been apparently noted that the company prepares different financial statements in order to measure the performance of the Group in a suitable manner (Tesco PLC, 2013). In this regard, it can be apparently observed that the net margin of the company decreased substantially in the year 2013 as compared to the year 2012. This can be justified with the help of the following table. Source: (Tesco PLC, 2013). On the other hand, gross margin depicts the amount of revenue, which is generated after deducting payments associated with ‘cost of goods sold’ or ‘cost of sales’ (Ycharts, 2014). Source: (Tesco PLC, 2013). As per the above table, it can be clearly understood that the gross margin of Tesco declined in the year 2012 as compared to the year 2013 due to excessive costs incurred by the company while selling it various products or services to the worldwide customers. It is worth mentioning that the financial as well as the resource performance of the company can also be evaluated based on market share. It is obvious that a company controlling greater portion of market share is generally considered to be quite bigger and most significantly more competitive in comparison with others. The market share ratio will certainly aid the company in acquiring a better understanding about the profit potentialities and turnover from different business market segments. In this regard, market share signifies the rate of concentration in different market segments (Crown, 2006; Needham & Dransfield, 2000). In this similar context, the market share of Tesco in the year 2013 can be apparently observed as 29.8% and the same in the year 2012 can be observed as slight greater i.e. 30.5% (Guardian News and Media Limited, 2014). It can be affirmed that the company remained much competitive in the year 2012 as compared to the previous year i.e. 2013, which might be owing to the reason of adopting along with executing effective strategies such as offering quality products at affordable prices. Market share also assists companies in attracting customers and retaining them for future. Additionally, managers usually take into concern “market share indicator” for determining satisfaction level of the customers and also the competitive position of the organisations. Respectively, higher market share represents greater profitability margin (Armstrong & Green, 2007). Customer Satisfaction Indicators The customer satisfaction indicators are fundamentally regarded as important measures specifically for the retail industry, which aids in comprehending the satisfaction level of the customers. Additionally, the indicators assist in acquiring a comprehensive understanding about the needs along with the preferences of the customers while offering services to them by the retail companies. The indicators provide an immense knowledge about the operational performance of the companies in the worldwide business market segments that include both business-to-business (B2B) and business-to-consumer (B2C) markets wherein they operates (Anderson & et. al., 1997). In this regard, certain major indicators relating to customer satisfaction can be apparently observed as customer complaints along with returns and out-of-stock ranges among others. Theoretically, the indicator of out-of-stock range is a measure used by companies with the aim of understanding stock level. The measure is used to ensure that products are available in accordance with customers’ demand (Gruen & Corsten, 2007). With reference to Tesco, the company has stocked different product ranges in all its outlets for meeting the demands along with the expectations of the customers. In this manner, the company ensures to provide customers with effective value product ranges. It can be affirmed that the above discussed out-of-stock range measure will assist the retail stores of the company in obtaining better information relating to stock level, so that demand and sale of products are balanced in an appropriate manner. Contextually, the company should adopt this measure with the intention of ensuring better customer satisfaction and retention (Poulter, 2012). In this regard, Tesco has introduced ‘loyalty card program ClubCard’ with the intention of recognising the sales made in different stores (Christie, 2013; Worthington & Fear, 2009). The customers using ClubCard during shopping are provided with certain points based on which they are provided with voucher on a quarterly period to have shopping with discounts (dooyoo GmbH, 2014). Tesco, in order to excel in its operations in worldwide business market segments, has adopted the technology of ‘dunnhumby’. The application has assisted the company in analysing as well as understanding the shopping experiences of the customers. The application is provided to retailers along with brands on a global context, so that the perceptions of the customers about product ranges, services offered and shopping experiences are evaluated. Accordingly, the application aids the company in making decisions and obtaining customers’ loyalty (Tesco, 2014). However, the customers are seemed to be reluctant in providing adequate personal information due to security reasons. In this respect, the retail companies such as Tesco should use different applications and technologies with the aim of securing valuable information of the customers (Worthington & Fear, 2009). Customer compliant and return is a procedure used by companies with the intention of identifying issues along with the needs of the customers. It generally assists companies in developing effective customers’ relationship along with trust. It also aids in understanding consumer behaviour effectively (Faed, 2013). In relation to retail companies such as Tesco, it can be apparently observed that these companies conduct exit interviews with the customers visiting the stores. In accordance with the customer rating reports, the companies are able to obtain information in relation to shopping experiences and returns on quarterly basis. Respectively, on the basis of the customers rating, the companies usually rate the shopping experiences of the customers based on three specific categories that include reasonable, good and excellent (Tesco, 2014). In this respect, the companies might not be able to interview all the customers visiting the store due to minimum interest and requirement of direct contact. Additionally, the responses obtained from the customers may be misleading due to lack of expertise knowledge of the interviewer i.e. the staff members (Hall, n.d.). In this regard, the companies should develop a normal procedure i.e. ‘customer complaints and returns’ according to which the customers will lodge their complaints about services and/or products offered without the requirement of adequate personal information. The measure will certainly aid in assisting the companies towards attaining greater satisfaction level of the customers (Grigoroudis & Siskos, 2009). Innovation and Market Development Measures In order to determine the performance of retail companies based on innovation along with market development aspect, the example of Tesco has been taken into concern for discussion. In this regard, it can be affirmed that Tesco has used an effective business model in accordance with which business operations of the company are conducted in a well-structured manner. The developed business model includes three basic elements that comprise ‘core activities’, ‘the virtuous volume circle’ and ‘enablers’. ‘Core activities’ of the company include providing products and/or services in an effective manner. The ‘virtuous volume circle’ is based on the strategies of improving the business operations of the company. ‘Enablers’ comprise certain strategies with the assistance of which the company is able to ensure that its core purposes are accomplished successfully (Tesco, 2012). Thus, the company with the assistance of the business model determines the strategies that are to be formulated and implemented in relation to demanded products and changing market scenario. In relation to the measure of new product development, the performance of Tesco can be duly determined in terms of mitigating cost reduction related pressures and lessening the operational costs among others. In this regard, the company laid utmost focus upon complying with the requirements of the local market and the cost pressures while developing new products in the market. This eventually supports the company to attain superior competitive position as compared to chief business market competitors (Marr, 2009). Most vitally, in order to react towards the changes speedily in the demands at micro as well as macro level, Tesco’s ‘corporate steering wheel’ play a decisive role. This ‘corporate steering wheel’ of Tesco mainly demonstrates the activities perform by the company with respect to micro along with macro level (Marr, 2009). It can be affirmed that the activities with respect to the ‘corporate steering wheel’ of Tesco eventually assists the company to enhance its overall performance at large. A pictorial illustration has been provided below for better comprehension of the above discussed subject matter. Tesco’s Corporate Steering Wheel Source: (Marr, 2009). Conclusion As per the above analysis and discussion, it can be comprehended that performance measures play an imperative role in examining and determining the overall position of companies in modern day business context. One of the renowned retail companies i.e. Tesco has been taken into concern for discussing the aforesaid aspect. Tesco is a renowned retailing company operating in a global context. The company is required to develop appropriate performance measures in order to ensure that business operations are performed in accordance with desired organisational aims. It has been apparently observed that the overall performance of Tesco seems to be quite satisfactory in terms of fully complying with the indicators relating to customer satisfaction and development of new products among others in comparison with that of finance along with resource based aspects. Thus, based on this notion, it can be affirmed that the company with the assistance of these performance measures will be able to ensure that customers’ expectations and shareholders’ value are met effectively at large. References Ammons, D. N., 2007. Performance Measurement: A Tool for Accountability and Performance Improvement. Article 16. [Online] Available at: http://www.sogpubs.unc.edu/cmg/cmg16.pdf [Accessed March 2, 2014]. Anderson, E. W. & et. al., 1997. 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