Managerial Accounting at Tesco - Case Study Example

Managerial Accounting

Introduction

Tesco Company is one of the biggest food retailers in the world. It operates numerous stores and employs a huge pool of employees. It is a leading grocer and a top grocer in the UK market. The company has maintained is position as a market leader as a result of its ability to provide quality products and meet the needs of customers. The company has continuously reengineered its processes of service and product development, facilitated superior management of the lifecycles of products and efficiently delivered a variety of products and services to its customers. The company’s innovative schemes of improving the shopping experience of customer have enabled it to build a strong brand reputation which acts as its core competitive advantage. This paper looks at how Tesco monitors and maintains its competitiveness through the use of balanced scorecard, proper management of value chain activities, quality management and excellent customer delivery value.

Tesco’s critical success factors

Tesco Company is highly successful in the food retailing sector due to branding and reputation. The organization possesses a sturdy brand image and is connected with superior quality and trustworthy products that symbolize outstanding value. The company’s service and product development processes have been considerably re-engineered so as to enhance excellent management of the product lifecycles as well as more effective delivery of a variety of products to the clients. Product activity is focused on improving core ranges along with introducing high quality products. The company’s innovative schemes of improving the shopping experience of the customers, along with its attempts to venture into insurance and finance have capitalized on strong brand repute (Palmer, 2011).

Additionally, the company is successful in regard to customer loyalty as a result of its loyalty card scheme and its universal approach to customization of services to the requirements of every client. This is evident on basis of the incredible growth of the online sales whereby the organization possesses a strong podium to additionally develop its income stream. After realizing the actuality that majority of individuals nowadays has limited time for shopping, the organization introduced online scheme and has now emerged as the greatest online supermarket (Palmer, 2011).

Another critical success factor for the company is IT integration. Modern day organizations operate within an increasingly complex and dynamic environment, making it challenging for companies to make forecasts and adapt to the consistent changes. Palmer (2011) notes that so as to be capable to remain competitive in this form of business environment, it is essential to innovate and to continuously improve products, processes and services. For Tesco Company, operations have been turned into necessities other than luxuries. Schemes that control stock, deliveries records and make analysis of business transactions viewed as the company’s lifelines. It is clear that IT has surpassed its conventional role of support and has assumed a core role in formulation of business strategy.

The extranet scheme employed by the organization enable it to utilize the internet to develop proprietary and personalized information flows amid the organization and its business associates. The scheme links business associates online behind virtual firewalls, resulting to more scalability, extensibility, integration and flexibility across distribution channels. In addition, extranet assists in the extension of major information on business associates all trough the supply chain and enhances collaborative associations with partners (Palmer, 2011).

Tesco Company in the context of the theory of constraints

According to Warren et al (2015) the theory of constraints is a management model that outlooks a manageable scheme as being restricted in accomplishing more of its objectives by a very minute number of constraints. It is a method of recognizing the most significant factor or the constraint that stands along the way of accomplishing an objective and then methodically improving this constraint until it ceases to be the restraining factor. Grundy and Brown (2012) argue that Tesco uses the theory of management in its project management sphere of price fixing so as to attain a competitive advantage to improve its core business and yield brilliant profits. The company has a highly vigorous planning of raising the flow via the constraint so as to raise the goal achievements rates, which are the fundamental models of focusing steps in the theory of constraints. Additionally, the company Tesco has a high profit margin compared to its competitors. This has made the company to be a threat for its competitors since they have a more improved competitive advantage within their areas of their project management specifically with regard to constraints theory (Grundy & Brown).

Tesco basically follows the five key focusing steps as a portion of its constraint strategy through identifying its constraint at the main stage (the company is normally conscious of price battles, which is both its weakness and strength). The second step entails overcoming its constraint through good price fixing. The third step involves subordinating other process to its decision through focusing less on other planning such downsizing of employees. The fourth step of constraint strategy is elevation of constraint whereby the company tries its best to see the success of its entire store. The last step is removal of constraint through maintenance of huge profit margins (Grundy & Brown, 2012).

The company follows a distinctive approach of production to meet the demand of its rising clients, which is an exceptional scheme of jumping over the obstacle of constraints. In the real sense, the product modeling of Tesco covers the utmost constraints threshold. In addition, well strategized distribution enhances the company to excellently excel in its project management through easily removing constraints. Also, efficient management of information permits the company to nullify constraints in accomplishing the scheduled projects. The company’s operations management entailing performance management, which entails appropriate planning and regular checking at all operational levels enables the company to timely expel constraints (Grundy & Brown, 2012).

How Tesco demonstrates evidence in its operations of results by use of the balanced scorecard.

Balanced scorecard is a management device that includes the fiscal measures of a company along with major non-fiscal measures that relate to customers, internal processes and growth needs and organizational learning. Balanced scorecard permits managers to view the business from customer perspective, learning and innovation perspective, financial perspective and internal perspective. Witcher and Chau (2013) note that the key objective of Tesco is to generate value for clients and get their loyalty. The success of the company is dependent on the people, both the customers and the employees. These values are demonstrated in the company’s every little helps philosophy. Tesco frequently asks its employees and customers what the company can do to make working and shopping with them better. This strategy is aimed at broadening the business scope to enhance it to have sustainable and strong long term growth.

Tesco made a decision that so as to be able to deliver its business strategy, the company required to develop a framework of performance management that would delineate the goals of the organization. Dissimilar to the primary balanced scorecard, the organization developed its individual balanced scorecard known as steering wheel. The wheel possesses the four usual perspectives but has an additional perspective known as community perspective. Every view of the wheel possesses its individual objectives (Witcher, & Chau, 2013). The financial perspective encompasses the financial goals of Tesco and permits managers to trace monetary success as well as the value of shareholders. Witcher and Chau (2013) argue that the customer perspective encompasses the objectives of the customers such as market share goals, customer satisfaction and service and product attribute. The perspective of internal process is connected to interior operational goals as well as the major processes required to meet the objectives of customers.

Growth and learning perspective entail corporate culture attitudes and employee training. These five fragments of Tesco’s steering wheel ensure that there is balance amid resources and effort and ensure that they are operational to the requirements of every stakeholder. Performance all through the business is gauged against these wheel and numerous key performance indicators are utilized for every fragment of Tesco’s steering wheel to monitor and track the performance of the organization (Witcher & Chau, 2013).

Activities of the value chain that appear to be the most important to Tesco

Value chain refers to the links amid major value adding activities along with their interface with support activities. It is a strategic assessment tool utilized for differentiating the weaknesses and strengths in processes of value adding. The most important value chain activities of Tesco are inbound logistics, operations management, outbound logistics, marketing and sales and services (Audretsch, 2012).

Inbound logistics: The general cost leadership tactical management of the organization is demonstrated in its agile and lean inbound logistics function. The organization utilizes its leading economies scope and market position as a major bargaining powers in attaining low prices from suppliers. The continuous upgrading of Tesco’s ordering system, in-store processes and vendor’s lists helps in inducing efficiency and effectiveness into the organization’s inbound logistics functions (Audretsch, 2012).

Sales and marketing: loyalty programs such as Tesco club card have been introduced via advances in information technology which deters clients from moving to Tesco’s competitors. The company has introduced greener living system to advice customers on environmental matters, entailing the way of reducing food waste along with carbon print when making meals. Services: The Company has pursued twofold strategy of differentiation and cost leadership, which has raised the significance placed on client service (Audretsch, 2012). This dual plan is demonstrated via development of financial services, self service kiosks and focused promotions and marketing. Operations management: the company has effectively employed IT systems to facilitate the low cost leadership plan of the company. The company has heavily invested in rationalizing its operations via its Tesco digital program, which has enabled the company to increase its profits and minimize stock holdings in the organization (Audretsch, 2012).

Outbound logistics: The Company has a leadership position in offline and online food retail section, which is as a result of its effective and efficient outbound logistics. Tesco has created a variety of store types and formats that are strategically positions to attain maximum client exposure. These store formats entail express, metro, extra and superstores, which are sectioned in accordance to target populace (Audretsch, 2012).

The concept of customer delivered value

Superior service, which fulfills the needs of consumers and meets strategic goals of the company, is normally due to cautious design and delivery of the entire set of interconnected processes. Tesco deems that its clients are at the core of its business and therefore customers must be a priority. Tesco puts customer value into consideration when constituting its market strategy. The company believes that clients make decisions on whether to buy products or not to buy on basis of value they attained. The more products become undifferentiated or standardized, the lesser the switching price and thus more power is given to the customers (Witcher & Chau 2013).

Tesco’s club card is the most effective successful scheme of customer value delivery and retention. In meeting the needs of customers, customizing service, ensuring low prices and better choices and consistent flow of in store promotions enhances brands such as Tesco to regulate and retain its customer base. In the past years, a vital transformation in the food retailing has happened as a result of huge demand of consumers undertaking shopping in supermarkets that display a requirement for supermarkets to offer non-food products. Additionally, it has enabled Tesco with a novel strategic expansion into novel markets like insurance and banking ((Witcher & Chau 2013).

How Tesco incurs cost of controlling quality

Quality management is a way of seeking excellence in every function of business so as to avert possibilities of mistakes or errors and to generate optimal consumer satisfaction. Quality control strongly focuses on the outcomes of the interrelations amid external and internal customers and suppliers. The capability to meet the needs of customers is vital and Tesco ensures that the products its offers to the customers are safe and of high quality. The products also meet legal requirements like labeling and compositional standards. The company follows supply chain labor standards and aims to operate responsibly in its trading and commercial activities. The safety and welfare of suppliers and employees is crucial (Hammett & McMeikan, 2012)

The company continuously trains its technical managers to create awareness on ethical matters and welfare of employees within supply chain. Tesco has utilized the philosophy and concept of quality management to sustain its market position as the leading retailing store in the United Kingdom. The company strives to raise the quality of products and also maintains quality to ensure continuous customer satisfaction. The key focus of the company’s quality assurance is to offer customers with services and products that fulfill their needs along with offering services and products free of defects, errors and accidents (Hammett & McMeikan, 2012).

Conclusion

Tesco Company has been successful due to its strong brand reputation and efficient service delivery. The company strives to offer quality products and services that meet customer satisfaction. Tesco uses the theory of management in its project management sphere of price fixing so as to attain a competitive advantage to improve its core business and yield brilliant profits. The company uses a personalized balanced scorecard known as Tesco’s steering wheel to ensure that there is balance amid resources and effort and ensure that they are operational to the requirements of every stakeholder.