Tesco Plc as a Leading Grocery Retail Company in the UK - Case Study Example

TESCO’S CASE STUDY REPORT By of the of the School Executive summary Tescois the world’s leading food and grocery retailers. The essay aims at analyzing the company’s macro business environment and the extents to which these factors caused its problems, leadership and management approaches to be embraced to ensure that employees remain committed and motivated, strengths and weaknesses of the company’s current organizational structure and recommendations to help ensure that the company avoids similar problems in future. The strategic evaluation tools used include PESTEL and SWOT. Tesco Plc is among the greatest food retailers on the planet with returns in surplus of £70.894 billion in 2013/2014 and more than 590,000 workers. This British Multinational Company has its headquarter situated in Hertfordshire, UK. It works fundamentally in Asia, the USA and Europe. Today, The Company owns more than 6,700 stores worldwide and serves the tens of millions of individuals every week. Tesco Plc operates in 14 nations all over the world including India, America, China, Korea, Malaysia, Ireland and Slovakia. PESTEL Analysis analyses the vibrant and unpredictable environment in which the organization operates through classification of the forces that exhibit the highest impact on Tesco’s performance influences it has, to achieve strategic success. Introduction The analysis of the business environment of an organization includes both the internal factors and external factors. The external factors normally affect the internal functions of a firm and therefore should be critically analysed with the help of PESTEl so as to determine their effects on the company’s performance so that remedy actions can be taken to correct the negative effects (Boddy, 28). It also helps in recommending leadership and management approaches that should be used to ensure that employees remain committed and motivated. This report recommends transformational and participative approaches for their ability to motivate and direct employees thereby ensuring that they remain on course when carrying out day to day activities (DuBrin, 152). Tesco uses hierarchical organizational structure; this organizational structure has a number of weaknesses and strengths which are discussed below. The report then concludes by proposing recommendations to help ensure that the company avoids similar problems in the future. Internal environment and External environment PESTEL is a key driver containing interlinking tools that are used in analyzing macroeconomic environment of an organization. These factors include Political, Economical, Socio-cultural, Environmental and Legal Analysis of an organization (Griffin, 198). Tesco Plc has always watched political decisions because its retailing power is directly affected by trading policies of any given country. China is one of the global most profitable markets; worth more than £1.3 billion. China has now opened its doors for the world thus encouraging Western companies. In 2009, Tesco signed an agreement to set up joint ventures for the development of shopping malls in China, for instance, Fushun, Anshan and Qinhuangdao. Since then, the company has opened many hypermarkets in China. Further, immersion of 10 countries into the EU encouraged trade between Eastern and Western European countries. This has helped Tesco to enter new markets thereby increasing its market share across Europe (http://www.eu-27watch.org/). Secondly, economic factors are often of great concern to any organization since they impact directly on the company’s customers buying behaviour. During the economic recession of 2008, the UK government was successful in minimising the increases in unemployment by considerably reducing interest rates during 2009. This in turn increased the spending power of English people (www.euromonitor.com). Therefore, retailers like Tesco still benefited even though margins and sales value were affected because they supply basic goods. This was also coupled with their low price strategy that encourages its customers to shop from their stores and then cook and dine home instead of spending more on restaurants. Tesco’s revenue has been on the rise because it sells food items and customer spending on food cannot be affected by economic crisis. Thirdly, in line with socio-cultural factors, the analysis has proved that United Kingdom has the Baby Boom generation as well as low death rate due to the latest medical facility by NHS Trust (www.statistics.gov.uk). This implies that there is less spending power as more retired people eat less. Ageing is a factor that also affects retail industry. It discourages food retailers due to low consumption thus creating a great depression for Tesco. Older people are not expected to travel to supermarkets to shop. Even though online shopping would be and is the only convenient way of shopping for them but at the age of 65, their internet literacy levels have gone down. Tesco also accommodates the demand for organic food products that is due to change in food trend. Technical environment is very vital for the success of Tesco. The market development of Tesco shows a steady growth due to online grocery retailing as close to 60 percent of young people in the UK shops online (www.statistics.gov.uk). The company is able to maintain its supply chain management thus achieving competitive advantage. Tesco has made technical growth visual by introducing Tesco club card, which has also helped in customer retention. It has also digitized data by using Radio Frequency Identification (RFID). Another asset for the growth of Tesco is self-scanning technology. The organization has retained its customers through its loyalty programs which are a good example of successful application and wise use of information that is generated by using information technology. Since the year 2000, climate change and environmental safety have always been a key agenda for the company. For instance, Tesco has Greener Living Scheme that advises its customers on how to lower food wastage, as well as other environmental issues, so as to reduce carbon footprint. Also, the company has always encouraged reusing and recycling bags as well as other products (www.tesco.com). Finally, legislative actions influence Tesco to a great extent. The company’s revenue will be greatly affected should the government raise taxes to 20 percent by next year as it is rumoured. The company is also likely to suffer a reduction in revenue due to change in percentage of sales tax or income tax because it will change the buying behaviour of consumers in the retail industry as a whole. The company’s employee development will also be affected by labour shortage. Tesco will be forced to revise its labour budget due to the rise of UK’s minimum wage rate to 15.5% (www.lowpay.gov.uk). Leadership and management approaches An organization should aim at motivating its employees to ensure that they are committed towards its goals (Summers, 259). In ensuring that employees remain committed and motivated, I would use transformational leadership approach. I would use my personal charisma to set out the vision for the organization and then inspiring other employees to achieve that vision (Fernie & Sparks, 111). This kind of approach is defined as “process whereby a person engages with others and creates a connection that raises the level of motivation and morality in both the leader and the follower.” (Lewis & Trevitt, 51) This kind of leadership encourages accountability and transparency on the part of the leader as well as the follower. The employees will then be motivated to perform their duties and responsibilities with a high degree of integrity. It uses intellectual stimulation, charismatic and inspirational leadership and individualized consideration to ensure that employees remained motivated and committed (Armstrong & Stephens, 189). I would also use a participative approach to ensure that individual employee’s skills and knowledge are used in building a consensus for what direction the company should move in. This helps in emphasizing teamwork and improves morale and communications thereby ensuring that employees remain committed and motivated so as the top achieve the goals they set themselves (Derr, 98). Weaknesses and strengths of Tesco’s’ current organizational structure Being a very big company, Tesco use a hierarchical structure since it has a number of layers and many people who report into more than an individual before the information gets to the boss. Strengths Hierarchical structure ensures close control of workers. Tesco workers know exactly what they need to do and do not wait around until they are told. Employees are motivated and encouraged to perform well due to opportunities for promotion (Plunkett, 250). This structure promotes development of employees as specialists because employees narrow their field of focus thus become experts in those fields. Finally, employees are often very loyal to their departments and work for the best interest of their areas (Lewis, 321). Weaknesses Firstly, there is slow communication and inflexibility because communications and tasks approved each time they pass up and down the hierarchy thereby causing delays and confusion (Montana & Charnov, 189). Secondly, there is a lack of autonomy as people with direct contact with clients problems have the least authority to solve them because hierarchy rules requires that decisions are approved by higher-ups. This hinders the speed to change because increased time is needed to respond to clients (Williams, 158). Additionally, there is interdepartmental rivalry as each department only makes decisions that benefit their own interests instead of the organization as a whole. Finally, there I dependency on strong leaders and hence the organization may not operate effectively should a near top leader fall weak (Ferrell et al 14). Recommendations Accounting scandals normally has a significant impact on a company’s market share, internal management and expected profits. The following are the ways to avoid future accounting scandal. Firstly, the company needs to carry out surprise checks using external auditors so as to detect the malfeasance (Spiceland et al 36). The organization should at time brake isolated information flow lines that are established to keep a check on fraudsters. This surprise checks will go a long way in improving Tesco’s effectiveness. Secondly, the company needs to segregate duties so as to reduce incentives of fraud (Jones, 258). The opportunity to commit fraud is reduced or eliminated when accounting functions are separated (Neelan, 113). This is done by involving many people in the preparation process of financial statements. Finally, the company should hire an independent third party audit so as to identify frauds that are committed at the management level (Dinh et al 288). Conclusion Tesco Plc is a leading grocery retail company in the UK, a position it has achieved by pursuing both differentiation and cost leadership strategies. It has also made use of lean and agile supply chain management that has made it achieve competitive advantage over its rivals. Tesco Plc also uses information technology strategically and wisely. Tesco’s’ core competencies have been aligned with its business environment, hence highlighting a future outlook that is positive and favourable. References Armstrong, M., & Stephens, T. 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(1990). Hierarchical structures and social value: the creation of Black and Irish identities in the United States. Cambridge, Cambridge University Press. Journals www.lowpay.gov.uk www.statistics.gov.uk www.euromonitor.com Read More