The Performance of the Business of Tesco Plc - Case Study Example

Finance cw2 Aum Contents Contents 2 Executive Summary 3 Introduction 3 Vision and strategy 4 Balance Scorecard 5 Balance of balanced score card 10 Strategy map for Tesco 12 Recommendation to the board 13 Evaluation 13 Conclusion 14 References 15 Executive Summary The report is prepared with an aim to explain and evaluate the strategies and performance of Tesco Plc. This is done by analysing the key performance indicators of the business used with respect to financial and non-financial measures. The introduction is given to provide a background for the study with respect to the company and the implication of balanced scorecard and strategy map in deciding the future of a business. The vision and the strategies of Tesco Plc. are discussed to measure the performance on the basis of the attainment of these objectives in the business. The balanced scorecard is designed to measure the performance of the company in the aspects of financial metrics, internal business processes, customer management and learning and growth. The strategy map is drawn from the balanced scorecard to interlink the different perspectives and Key Performance Indicators which act as significant drivers of the profitability and sustainability of the business. The metrics used in the balanced scorecard and the strategy map are used to decide on the future strategies suitable for Tesco Plc. to achieve their short term and long term objectives. The report is concluded by evaluating the performance of the business and the balanced scorecard and by providing suitable recommendations for the board of directors to implement in the business. Introduction Tesco Plc. is a giant retail company which was established in 1919 in the United Kingdom. Today, Tesco is the largest food retailing company in the United Kingdom. Despite operating in a highly competitive environment in the UK retail market, Tesco has been able to maintain its leadership position by implementing effective strategies and evaluating and adapting the business to the future demands of the market. The organizational tool of strategic planning implemented in Tesco has been the main driver of its high performance. The balanced scorecard in the company involving the systematic planning and management is termed as the Steering Wheel in Tesco Plc. The Steering Wheel concept implements all the four sectors of the Balanced Scorecard as devised by Kaplan and Norton. But it has been customized to add a fifth perspective which is the community. The Steering Wheel Tool implementation has resulted in the continuous achievement of the strategic objectives and vision by Tesco Plc. enabling the business to deliver its main purposes. Vision and strategy The vision of a business is set to navigate the business in a clear direction and influence the relevant decision taking processes in the business. Tesco Plc. has clearly set vision and strategies for the business. Since its inception, Tesco has operated as a business centred on the employees, customers and business partners, the vision of the business has also been developed on these aspects. The vision of Tesco includes tapping in the opportunities for global growth and creating a valued retail business by serving the customers and communities, maintaining healthy relations with the business partners and shareholders. The vision of Tesco can be segregated in five major objectives. These are as follows: Growing the business- A part of the vision of Tesco includes capturing the multiple opportunities evolving in the global world with respect to different categories of retail including general merchandise, digital entertainment, food items, books, banking etc. Innovation is identified as the key aspect of growing the business (Ittner and Larcker, 1998, pp.205-206). Making the business necessary across the globe- Tesco aims at developing the business in such a way that it would be the most preferred choice for the customers as well as the employees. Also, it aims to be a business wanted by the communities and invested in by the potential investors. Ensuring creativity and innovation- The focus of the business is on understanding the demands and changing preferences of the customers and responding quickly and adequately to these changing needs. Delivering high value to the customers is an important part of the vision of Tesco. Building trust- The Company wants to build the trust of the consumers as well as the employees of the business. Global skills: Tesco aims at implementing their skills and expertise earned from the business in the home market to mew locations but with suitable modifications and adaptations in the retail strategies. The strategies of Tesco are the reflections of the principles and priorities incorporated within the business. These strategies evolve with the changing needs of the market and with the increasing scale and operations of the business. The strategies are aimed at ensuring competitiveness as well as the sustainability of the business in the coming years. Balance Scorecard 1.1 Financial Perspective Goal KPI Target Performance Measure Action Plan Increase sales in UK market and global market. Revenue, Profit, Return on Capital employed Increase revenue generation by 12-15% from 2103 to 2015. Building a Better Tesco Plan to improve the value creation for customers. Better return on investment (ROI) Return on Investment Increase Return on Investment by at least 15% by 2014-15. Boost the sales level and deduce the time to market. Lowering the capital expenditures Expenses versus income Decrease the capital expenditure by at least 4-5% from 2013 to 2015 Concentrate on business segments which are not majorly capital intensive but ensure high returns. Increase project revenue Revenue, profit margin 15-18% revenue growth in specific projects. Focusing on new projects in potential markets The financial perspective of the balanced scorecard used in Tesco Plc. indicates much financial strength of the business. The business is focusing on increasing the revenues and market share in the UK market and the global markets. Tesco is already a leading retail business in the UK. Improving the business share in the UK market would create more profits for the business. This would be comparatively easier for the business as Tesco already has an experience in ruling the retail industry in UK. The company aims to decrease the capital investments and instead focus on projects and business segments that require less investments and promise better return on investments. Improving the Return on Investment from the business as well as from new projects is another main goal established in the financial perspective of the balanced scorecard of Tesco. 1.2 Customer Perspective Goal KPI Target Performance Measure Action Plan Ensure quality and innovation Proper sourcing, maintaining quality checks Reduce the number of quality issues below 2% by 2015. Maintain a robust supplier and distributor network and a dedicated quality control department Implement better customer service Feedback system, customer ratings, resolution of complaints Improve the ratings of the business to a 10/10 score Focus on individual customers, provide customized services and augmented services Implement attractive pricing Competitive pricing, everyday low pricing Improve the pricing capabilities by 40% from 2104-2015 Introducing pricing schemes, discounts and offers for customers on a regular basis. Improve customer retention and acquisition Creating high value, better services, brand awareness through CRM Improving the performance of customer relationship management systems by at least 30%. Implementing good CRM software to maintain a database of the existing and potential customers. In the background of the increasing dominance of the say of the customers in the global retail industry, Tesco aims to improve its customer relationship management. The company plans to achieve a higher level of customer loyalty through delivering better value and services to the customers and also through attracting new potential customers existing in the UK market as well as other international markets. Introducing competitive pricing in the stores and providing specialized discounts and offers to the customers are identified as the main action plans to increase customer base and customer loyalty for the business. The implementation of robust CRM software is another strategy devised with the objective of improving customer satisfaction and acquiring new customers. A customer feedback system is also planned to be used so that the issues and experiences of the customers can be recorded and the problems can be solved by the customer service department. 1.3 Internal Business Perspective Goal KPI Target Performance Measure Action Plan Innovation New product and services developments Implementing new strategies in online selling to increase the sales by 40% Focusing on inputs from employees, expert departments focused on innovation Operations management Supply chain, stocks Developing the supply chain to make it perform 35% better by 2015. Maintaining a strong network of efficient suppliers Improving sustainability Revenue, growth Increasing the sale of in house products by 10% Focusing on new business opportunities and emerging markets. Community development Corporate Socially responsible activities. Reduce carbon dioxide emission by at least 5% from 2013-2015 Design the business processes to make them environmentally safe. The internal business processes are aimed at improving the operations management of Tesco, fostering innovation and creativity, implementing Corporate Social Responsibility Activities (CSR) and improve the overall sustainability of the business in the future. Tesco Plc. is expected to focus more on the internal business aspects in 2014-2015 to strengthen the core practices of the business and capitalize on the basic competencies inherent to the company. Due to the shifting focus of the customers and international business regulatory authorities towards the environmental sustainability of a business, Tesco will focus on more activities aimed to give back to the society and community in which it operates. 1.4 Learning and Growth Perspective Goal KPI Target Performance Measure Action Plan Strengthen the business model Market share Increase the market share by at least 5% in 2015. Improving the business model, competitiveness Improve the skills of the employees Individual performance, appraisals Conduct training sessions monthly for batches of employees Impart training and development facilities Retain more employees Attrition rate Lower the attrition rate from 20% to 10% in 2015 Improve the loyalty of the employees by providing them with service benefits. Improve organizational culture Motivation, overall performance of the business Boosting cultural diversity and creating 50% more motivated employees in the business. Unbiased treatment for the employees, supportive management structure. The learning and growth aspect of the balanced scorecard designed for Tesco include the goals of improving the business model, retaining more skilled employees, developing the skills of the employees and establishing an impressive organizational culture. These goals can be met by plans to improve the loyalty and dedication of the employees by establishing a positive work culture and a supportive management structure. Balance of balanced score card Perspective Number of metrics Weightage Financial 4 25% Customer 4 25% Internal Business 4 25% Learning and growth 3 25% Total 16 100% Tesco was earlier criticised for having focused more on customers and collaboration with partners than on the internal control systems and development of the employees. But in the present scenario, Tesco is focused on maintaining a stringent balance between all the necessary aspects for the success and reputation of the brand. The metrics of measurement of the performances are equally distributed and the weightage is balanced indicating a more robust approach of the company implemented through the Steering Wheel concept (Norreklit, 2000, pp.65-66). Strategy map for Tesco A strategy map is used to understand the interconnectivity of the different perspectives used in the balanced scorecard and how each factor is related to and affects other factors (Kaplan and Norton, 1996, pp.53-79). A strategy map for Tesco Plc. is drawn from the preceding balanced scorecard or the Steering Wheel as used in the business. The strategy map clearly indicates the importance of value creation for customers on the financial performance of the business. The relevance of internal business perspectives on the financial viability and sustainability of the business can be clearly established (Atkinson, 2006, pp.1441-1460). For example, reducing the environmental impacts would create a better reputation of the business and would ensure customer loyalty and customer acquisition in the long term. The long term sustainability of the business is also likely to be affected by the socially responsible activities of Tesco Plc. Recommendation to the board The board of Tesco can be recommended to pay critical attention to three major areas including customer service, environmental sustainability and the development of the employees. The changing global landscape for retail businesses has established the customers as the most significant power in deciding the strategies and direction of a business. Tesco should demonstrate a high level of flexibility and respond quickly and suitably to the emerging demands in the domestics as well as the international markets of its operation. Tesco should also give more attention to reduce the harmful impacts of the business processes on the environment. The aim should be to build a business that is environmentally sustainable. Also, Tesco Plc. should concentrate on other Corporate Social Responsibility (CSR) activities to increase the reputation and goodwill of the brand. These may include the plans of Tesco to reduce the carbon footprints to 0% by 2050, supporting the local society and community in which it operates, developing the employees and contributing in the development of the local living standards in the regions in which the business operates. Tesco should also invest in developing and supporting the employees to decrease the attrition rate which is high in the retail industry. This will also help in creating dedicated and motivated employees who will be inspired to meet the KPIs and improve the overall performance of the organization. Evaluation Though Tesco is the number one retailing company in UK, yet like any other business evaluated in the practical scenario, it has its share of positive and negative aspects in its strategies and objectives. The balanced scorecard and the strategy map are designed to measure the performance of the business as mapped against it set strategies and objectives (Kaplan and Norton, 2000, pp.41-43). Tesco is a global retail brand which is financially and operationally strong. The KPIs clearly indicate the financial viability and the internal business perspectives of the company to be properly established. The internal businesses perspectives highlight the importance of maintain robust supplier relationships to add up to the performance of Tesco. Tesco being a retail business is highly dependent on the suppliers and the whole supply chain management cycle. The customer perspective indicates that Tesco has been focusing and will continue to focus on its customers in the future. The provision of support to the employees for the development and enhancement of their skills as well as for supporting their well-being indicates the responsibility taken by Tesco to support its employees. The Steering Wheel concept has been a major driver in enabling Tesco to implement its strategies and achieve its objectives. Conclusion The balanced scorecard helps a business to identify the potential issues in the practical implementation of different goals and strategies for the business. The Steering Wheel concept in Tesco is a customized form of the traditional balanced scorecard. The Steering Wheel has helped Tesco Plc. to accomplish many major goals set in the business by dividing the bigger goals into small achievable objectives. The balanced scorecard and strategy map of Tesco clearly indicate the need for focused attention on the customer perspective and the learning and growth perspectives of the balanced scorecard. The strategy map indicates that the environmental viability and the innovativeness in the business are major factors which will decide the continued success of the business. The strategy map also established the links between customer satisfaction and customer retention on the improved profitability and financial viability of the business in the changing global scenario. The concept of vale creation for the business is much focused on, as is the need for innovation, felicity and diversity in the organizational culture. References Atkinson, H. 2006. Strategy implementation: a role for the balanced scorecard? Management Decision. Vol. 44(10), pp. 1441- 1460. Ittner, C. D. & Larcker, D. F.1998. Innovations in performance measurement: trends and research implications. Journal of Management Accounting Research. Vol. 10(1), pp.205–206. Kaplan, R. S. & Norton, D. P. 1996. Linking the balanced scorecard to strategy. California Management Review. Vol. 14(1), pp.53–79. Kaplan, R. S. & Norton, D. P. 2000. The strategy-focused organisation. Strategy and Leadership. Vol. 18(2), pp.41–43. Norreklit, H. 2000.The balance on the balanced scorecard – a critical analysis of some of its assumptions. Management Accounting Research. Vol. 11(1), pp.65–66. Read More