A Contextual Model of Strategic Decision Making in Tesco - Case Study Example

To what extent have management moves since 2000 generated additional profits for Tesco? I. Management decisions - Literature review In order to evaluate the management moves in Tesco for a given time period we should primarily describe the structure and the reasoning of the management thought as can be observed in the corporate governance in general. The comparison of the particular elements of the management decisions as referred to all firms in modern markets with the ones made in case of Tesco could effectively justify the specific decisions and explain the firms growth for the given period of time (Zucker, 1987). In this context, it should be stated that one of the most important sector of management decisions when referring to a firms governance is the management of resources. Moreover, the term resource management is used in order to present a net of business initiatives which could be summarized to the following ones: a) the management of the people working in the business either in the lower levels - standard employees – or to the higher positions, like the executives (see also Lajara et al., 2002). From the connection of these two ‘human resources categories’, human resource management can be linked with the leadership management (which refers specifically to decisions involved the highest levels of corporate governance), b) the evaluation and the use of ‘time’ in the daily business activities, c) the management of the materials given as well as of the services offered (or the products sold) in a way that the quality in every of the above occasions is secured (Markides, 1992). The issue of quality is of a major importance particularly because it can have a significant consequence to other peoples’ lives (those of customers but also the employees of a business) (Lebrasseur et al., 2002), d) the resolution of every problem which may arise during the business activities in an effective and cost-saving manner. In many firms the conflict management has been delegated to an autonomous department offering quick and appropriate answers to the issues that are brought in front of the authorized corporate team for evaluation. Conflict management is directly connected with the resource management as almost every decision made regarding the use and the development of a specific ‘business resource’ is usually the reason for disputes between the business and its clients but also the people that consist the ‘body’ of the corporation (employees and team of leaders/ strategic planners) (Taylor, 1975, Murray, 1989). We should also refer to marketing as a fundamental element of any business plan. Marketing refers to the promotion of the firms products or services to the market using a series of specific techniques that will present and explain the advantages of these products/ services to the public (Boatwright, K.J., Forrest, L., 2000). On the other hand, Lewis K. (2000, 128) recognized that ‘human and organizational factors are commonly identified as causes and contributors to failures and difficulties in implementing planned changes’. In order to examine the validity and the extension of her assumption Lewis examined (2000, 128) ‘the implementation of quality programs in four organizations’. The main purpose of her study was ‘to provide empirical evidence of key communication problems common to planned change implementation’. For the above reason she examined the following factors: ‘a) creating and communicating vision, b) sensemaking and feedback, c) establishing legitimacy and d) communicating goal achievements’. From her research she came to the following conclusions (2000, 40): ‘a) the method that the implementers and the lower-level employees use to create a vision during a planned change is crucial for understanding how change programs come to have a purpose in organizations and gain the commitment of important players, b) questions related to the importance of informal communication about change programs and its impact on the formally communicated information would be insightful. c) The degree to which communication successes or failures play a role in determining the fate of change programs will be important for practitioners to know. According to some evidence in these cases communication, even if done well, does not guarantee continued good results’. According to Lewis, ‘communication failure is merely a correlate of poor planning and ill-conceived change programs’. It should be noticed that the role of internal environment in the success of every business plan seems to be significant. Lebrasseur, R., Whisell R. and Ojha A. (2002, 152) examined the interaction between the leadership, the quality management and the organizational learning. Their research was referred to certain Canadian Hospitals. According to the results of their study, ‘while the external regulatory and political context of the organization applies pressure for Continuous Quality Improvement (CQI) implementation, it is the internal context that either facilitates or hinders this change agenda’. The research of Khrishna et al. (1998) in the area of upper echelons (top management team) leadership has revealed that there is a strong relationship between top management team characteristics and organizational strategies and outcomes (see also Murray, 1989, Johnson et al., 1993). II. Tesco management initiatives since 2000 - presentation and analysis The most characteristic management decisions of Tescos strategic management team after 2000 refer to the following areas: a) extension of existed number of stores in UK - It should be noticed here that Tescos operate under four store formats: Express (now over 500 in country), Metro, Superstore and Extra, b) improvement of labelling on over 4,500 products - This management decision could help the customers to choose the product of their choice, to be better informed and to obtain an increased trust towards the firms products (through the provision of analytical information on products contents), c) Increase in the number of products that belong to the First range and those which belong to the Value range - the income generated from both these categories represent a significant percentage of the firms profits. The first category includes products of high quality (which are preferred from 70% of customers) whereas the second one includes products at a very low price (which are also preferred from a high percentage of customers), d) extension of Clubcards existed network. Tescos Clubcard has been proved a very succesful management decision; the extension of products included in the Clubcards bonus scheme has increased the firms profits on an ongoing basis [1]. Besides the above management moves that refer to the food sector of the corporation and specifically the UK market, Tescos management team has proceeded on a series of significant decisions mainly the last 5 years (see Appendix B). More specifically, on 2000 the firms website was introduced whereas on 2001 the company moved to the retailing sector by launching Florence and Fred clothing. The same year the company reduce its prices to a level of £1 billion. Other important management decisions of that year (2001) are the extended provision of organic products by the firm (which led to its nomination as the leading organic retailer in the UK) as well as the cooperation with Safeway Inc, an American supermarket corporation aiming to extend the Tesco.com home shopping model in USA. Other important business decisions of 2001 are the firms entrance in the Malaysian market and the launch of Customer Champions in many stores around the country. During 2002 Tesco moved on a partnership with Airmiles, a cooperation that would join Clubcard and Airmiles offering to the customers significant benefits. In the same context, the company proceeded during the same year to an offer of Free-From products which were designed with customers with special dietary needs. The launch of clothing brand Cherokee is another feature of 2002s strategic management. As for 2003, this was characterized by the entrance in two foreign markets, Japan and Turkey as well as the launch of phone services (referring to both the home and the mobile sector). During the year that followed (2004) Tesco managed to launch its own-brand Fairtrade range and obtain the recognition of its local market by becoming the first supermarket to introduce Glycaemic index (Gi) labelling on its products and entering the music download market. The company also launched Tesco Broadband and achieved a very strategic target, i.e. to enter the Chinese market. On 2005, the company announced the appointment of a Code Compliance Officer who will supervise the firms total operation. For this reason, the firm urged its suppliers to provide anonymous feedback on working with Tesco. 2005 was also characterized by two significant facts, the non-food store trial and the announcement of companys financial performance which reached the impressive level of £2 billion. III. Tesco - consequences of management decisions in firms financial performance since 2000 The above presented management decisions had a significant influence on the firms perfomance in all its particular departments. The effective strategy-designing process as combined with the rapid and appropriate application of each specific decision in practice has led to the constant business growth throughout the years (Wiersema et al., 1992). The role of management team to the firms growth can be considered in this context as crucial (Davidson, 1995). More specifically, the management team succeeded on using the existed resources effectively (Stevens, 1978) keeping the quality of products/ services offered to high levels. Moreover, in order to estimate the companys profits regarding its management teams decisions, we have to present the figures referred to the corporate activity. Tescos core UK business is significant within the group, with over 250,000 employees and 1,779 stores. Nearly 80% of group sales and profits come from the UK business [1]. Moreover, the number of firms stores around the country has met an impressive growth reaching the 1,252 stores (see Appendix A). The firms growth is proved furthermore by the financial results of 2005 (compared to those of 2004, see Appendix C). In this context, the groups sales on 2005 reached the 37,070 (£m) whereas in 2004 the sales were 33,557. Moreover, the profits for 2005 were 2,029 (£m) instead of 1,708 of 2004. The firms positive performance is also supported by the figure related with earnings per share which was 17.50 for 2005 and 14.93 for 2004. In the same context the return on capital employed reached in 2005 the 11.5% while in 2004 it was 10.4%. IV. Conclusion The above presented data regarding the firms financial performance for the years 2004 and 2005 show that the company managed to achieve a significant level of growth within just one year (this growth can also be observed through past years financial statements), a fact that proves that the firms management decisions have been effective and appropriate regarding the specific market in which the firm operates. On the other hand the entrance of the firm in the foreign markets through gradual and careful moves proves that the positive performance of the firm is not a product of temporary favourable market conditions but it has been resulted through the design and the application of an integrate corporate plan which is monitored constantly in order to be criticized and improved as of its structure and performance. References Boatwright, K.J., Forrest, L. 2000. ‘Leadership Preferences: The Influence of Gender and Needs for Connection on Worker’s Ideal Preferences for Leadership Behaviors’, Journal of Leadership Studies, 7(2): 18-32 Davidson, J. 1995. ‘Six myths of time management’, ABA Banking Journal, 87(3): 80-81 Hambrick, D.E., & Snow, C. 1977. A contextual model of strategic decision making in organizations. Academy of Management Best Papers Proceedings, 109-112 Johnson, R.A., Hoskisson, R.E., & Hitt, M.A. 1993. Board of directors involvement in restructuring: The effects of board versus managerial controls and characteristics. Strategic Management Journal, 14: 33-50 Krishnan, H. A., Park, D. 1998. The Influence of Top Management Team Leadership on Corporate Refocusing: A Theoretical Framework. Journal of Leadership Studies. 5(2): 50 Khurana, R. 2003. Invisible Management: The Social Construction of Leadership. Administrative Science Quarterly. 48(1): 152 Lajara, B.M., Lillo, F.G., Sempere, V.S. 2002. ‘The role of human resource management in the cooperative strategy process’, Human Resource Planning, 25(2): 34-46 LeBrasseur, R., Whissell, R., Ojha, A. 2002. ‘Organisational Learning, Transformational Leadership and Implementation of Continuous Quality Improvement in Canadian Hospitals’, Australian Journal of Management, 27(2): 141-159 Lewis, L.K. (2000) ‘Communicating Change: Four Cases of Quality Programs’, The Journal of Business Communication, 37(2): 128-145 Markides, C.C. 1992. Consequences of corporate refocusing: Ex ante evidence. Academy of Management Journal, 35(2): 398-412 Murray, A. 1989. Top management group heterogeneity and firm performance. Strategic Management Journal, 10: 125-141 Stevens, J., Beyer, J., & Trice, H. 1978. Assessing personal, rate and organizational predictors of managerial commitment. Academy of Management Journal, 21: 380-396 Taylor, R. 1975. Age and experience as determinants of managerial information processing and decision-making performance. Academy of Management Journal, 18: 74-81 Vroom, V., & Pahl, B. 1971. Relationship between age and risk taking among managers. Journal of Applied Psychology, 55: 399-405 Wiersema, M.F., and Bantel, K.A. 1992. Top management team demography and corporate strategic change. Academy of Management Journal, 35, 1, 91-121 Zucker, L.G. 1987. Institutional theories of organizations. Annual Review of Sociology, 13: 443-464. Palo Alto. CA: Annual Reviews www.tescocorporate.com [1] Appendix A Tesco - UK at a glance [1] Number of Sales area % of UK stores (million sq ft) space Extra 100 6.6 27.2% Superstore 446 13.9 57.4% Metro 160 1.9 7.8% Express 546 1.1 4.5% Total Tesco 1,252* 23.5 96.9% (correct to end of 04/05 financial year (UK & ROI: 26 Feb 2005)) Appendix B Tescos management moves - 2000 to present [1] 2005 – Tesco announces non-food store trial 2005 - Tesco announces annual profits of £2 billion 2005 - Tesco announces it will be appointing a Code Compliance Officer and invites its UK suppliers to provide anonymous feedback on working with Tesco 2004 – Tesco enters China (RNS News Release) 2004 – Tesco launches own-brand Fairtrade range 2004 – Tesco becomes the first supermarket to introduce Glycaemic index (Gi) labelling 2004 – Tesco Broadband is launched 2004 - Tesco.com becomes first major British supermarket to enter music download market 2003 – Tesco mobile phone is launched 2003 – Tesco enters Turkey 2003 - Tesco enters Japan (RNS News Release) 2003 - Tesco Home Phone is launched 2002 – Tesco launches its exclusive clothing brand ‘Cherokee’ into many of its UK stores 2002 - Tesco offers ‘Free-From’ products, designed for customers with special dietary needs 2002 – Tesco announces a partnership between Clubcard and AIRMILES 2001/02 – Tesco launches ‘Customer Champions’ in many stores and implements a new labour scheduler to further improve service for customers 2001 – Tesco enters Malaysia (RNS News Release) 2001 – Tesco becomes the leading organic retailer in the UK 2001 – Tesco announces a new strategic relationship with American supermarket Safeway Inc, to take the Tesco.com home shopping model to the US 2001 – Tesco reaches £1 billion price cuts in total 2001 – Florence + Fred clothing range is launched 2000 – Tesco.com is launched Appendix C Group Financial highlights for years 2004-2005 [1] 2005 52 weeks 2004 53 weeks 2004 52 weeks pro forma Group sales (£m) (including value added tax) 37,070 33,557 32,989 Underlying Group profits before tax† (£m) 2,029 1,708 1,684 Group profit before tax (£m) 1,962 1,600 1,576 Underlying diluted earnings per share† (p) 18.30 16.31 Diluted earnings per share (p) 17.50 14.93 Dividend per share (p) 7.56 6.84 Group enterprise value (£m) (market capitalisation plus net debt) 27,853 23,866 Return on capital employed# 11.5% 10.4% † Excluding net profit/(loss) on disposal of fixed assets, integration costs and goodwill amortisation. # 2004 – restated as a result of changes in accounting standards, UITF 38 and UITF 17 (revised) previously 10.5%. 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