Contemporary Issues in Management - Tesco - Case Study Example

Contemporary Issues in Management Contents Introduction 3 Critical Discussion 4 Case Study 8 Conclusion 12 References 14 Introduction This study is cantered towards identifying the role of stakeholders in CSR approach of an organization. CSR activities encompasses wide array of elements such as internal and external activities. The management of a firm decides on the set of activities to be performed so as to convey a positive brand image. In this study stakeholder management has been used a theoretical framework to analyze the importance of stakeholders in CSR. Stakeholders basically refer to those individuals who have some form of stake in an organization. Employees, suppliers, distributors, shareholders and even customers are indicated as stakeholders. On the other hand, CSR approach framed by a firm is dependent on its core beliefs and values. A modern world organization Tesco has been chosen for conducting a proper analysis. Tesco’s has its operations spread across the globe and in order to sustain its operations the firm takes active measures to safeguard society. Rising environmental damage has enforced many companies to adopt eco-friendly practices. Tesco works along with its stakeholders to decide as to whether a CSR activity will be beneficial for a mass or not. These stakeholders range from suppliers to shareholders to customers. The company has recently taken measures towards carbon zero footprints. On the basis of this approach Tesco is trying to reduce the carbon content discharged into atmosphere by their business operations. It works along with suppliers, distributors and employees in this particular context. Critical discussion on this topic will reveal the areas where stakeholder management concept is lacking. The responsibilities performed by Tesco towards environment, society, etc., would also be evaluated on the basis of Caroll’s framework. In overall context this study shall not only identify effectiveness of CSR activities in real world but even link the contribution of individual stakeholder with such corporate policy. Critical Discussion Corporate social responsibility comprises of different activities such as internal activity, external activity, reporting, image building and responsiveness towards the society. This concept was developed in 1950 but still today the proper framework for CSR is debatable. Business people are usually held responsible for their wide set of activities which is much beyond the profit and loss statement. However the main criticism lies in the relationship between business and society. CSR activities play a major role in enhancing overall brand image. Organizations in current scenario are much concerned about these activities as it has a direct impact on its revenue margins. Reputation that is build through CSR activities is held responsible for employee and customer satisfaction. The major objective of these CSR activities varies from one country to another. For instance in one country, CSR approach indicates donations or charity, whereas in another region it might indicate achieving environmental or societal sustainability. Corporate social responsibility is often undertaken as a profit making medium. It has been observed in certain real time cases that companies utilize any form of societal problem as a means of making high profit margins. Caroll’s pyramid of CSR describes this approach to compose of certain set of responsibilities. These responsibilities majorly are philanthropic, economic, ethical and legal responsibilities as stated in figure1. Figure 1: Corporate Social Responsibility (Source: Crane and Matten, 2007) According to figure1, philanthropic responsibilities are about being a good corporate citizen. Ethical responsibility is about judging between right and wrong. Legal responsibilities as highlighted in figure1 is about obeying law or following the rules of business operations. On the contrary, economic responsibility refers to being profitable in the industry. However in practical scenario it has been witnessed that firms adopt a mixture of more than two responsibilities in order to show their concern towards society or environment. Stakeholders are an important aspect of a firm and their decisions affects the position of a company. In this study CSR activity of a real time organization will be related to its stakeholder management. Stakeholder management is a theoretical framework used to determine key responsibilities and duties of stakeholders. It is a scientific method as well as an ideology that is used to reflect upon contractual relationships existing between parties (Hawkins, 2006). This approach is usually debated since there is no such scientific rigour present within the concept. Economic activity can be regarded as an essential factor in the social structure. The neoclassical theory basically describes the responsibilities possessed by actors of a firm. It is often assumed that firm’s duty towards external parties is only in financial terms. However there is wide range of responsibilities that should be fulfilled by an organization in order to sustain their operations in the market place. Freeman’s stakeholder management theory states that economic issues need to be taken into consideration by a firm. On the contrary, ethical issues are more essential in comparison to financial issues. This theory is inadequate since its process explanation is inappropriate, incomplete linkage of external and internal variables, insufficient attention towards business system, and inappropriate environmental assessment. Stakeholder theory is not able to present an appropriate behaviour of a firm within external environment. Hence it is not suitable in terms of understanding contribution of stakeholders towards CSR activities. It is often argued that stakeholders mainly shareholders and employees play a major role in performing these activities. On a broader context, suppliers and customers is often not taken into consideration as they are the target audience. More than stakeholder’s contribution in business operations, a positive image of firm benefits stakeholder’s more in return. Relationship between both the parties cannot be justified on the basis of profitability ratio only as stated in theoretical frameworks. There are wide array of components that denote the relationship building between both the parties. The role of stakeholders within the CSR approach is two-fold, like they work with management to develop socially responsible strategies and even get positively influenced by brand image of a firm. In overall context there is no specific duties assigned to each of the stakeholders so as to achieve CSR objectives. They work in collaboration in order to deliver desirable results to the society and the external environment. A theoretical framework cannot be fully implemented by a company to identify the role of stakeholders within the CSR policy. Stakeholder management describes the behaviour and the process which gives an impact on the relationship of the stakeholders with the firm. This affects the process of achieving the goal. Stakeholder influences the company’s financial performance. The firm takes different approaches to handle the relationship with the stakeholders which changes with time. Some changes can be dynamic for maintaining distance (Smith, 2010) often the relation with the stakeholders influences the company to involve with them actively for satisfying their needs. This can lead to the degradation of the CSR of the company as the stakeholders will only focus on their own interests. The corporate social responsibility of the company improves its competency (Carroll and Buchholtz, 2014). Stakeholder of the company often takes decisions regarding these activities. To evaluate the future investment of the company regarding many business activities are also considered by them. Evaluating the relationship of the stakeholders the company can measure the value CSR. This process focuses on the group of stakeholders. The shareholders value concept is implemented for evaluating the value of the company from shareholders point of view. The single focus on the shareholder group this process is not enough to examine CSR. This is because CSR is also used as way to tackle several stakeholder groups’ expectation. Stakeholder value added concept permits to evaluate the relations of all the stakeholders with the company. According to the relation of the stakeholder with the company there are some indirect methods of evaluation. The methods are like the stakeholders benefits are evaluated by the profit and loss account and by subtracting the equity cost from the profit earned before. The Return of stakeholder (RoSt) is measured on benefit cash value and dividing it by stakeholder cost cash value. The value spread in average RoSt and RoSt is obtained by subtracting the average RoSt from the specific RoSt of the company. The stakeholder cost is multiplied by the value spread for determining the stakeholder value added. The value added of the stakeholder evaluates the relationships of the stakeholders from the perspective of an actor. The CSR activities are aligned on definite CSR issues. These issues are very specific in nature so it’s difficult to benchmark them. Therefore stakeholder value added concept is not applicable on CRS evaluation. In most of the companies the stakeholders are playing their role effectively which results corporate reforms. The efficiency of them is differing from case to case. Overall the performance of the stakeholders in good corporate governance is not good. In the present world of corporate village stockholders are always important components for implementing CSR activities. The person who are involved in the corporate world in a bigger sense are directly or indirectly a stakeholder of some company. The non cooperative approaches of the stakeholder are hampering the implementation of the CSR activities of the firms. It is very important to initiate meaningful conversation among all the stakeholders to maximize the benefits of CSR activities in the world this is because now days the behaviour of the customer in all over the world is gradually focusing on CSR sensitivity rather than cost quality sensitivity. Therefore the stakeholders have to give a major focus on the company’s CSR activities (Mullerat, 2010). Case Study Tesco Plc is a general merchandise and multinational grocery that located in England, United Kingdom. The company deals in wide range of products and has been able to deliver quality to end customers. Tesco takes into consideration environmental as well as societal issues. The broad scale of activities of the firm gives them an opportunity to create positive difference across the globe and resolve big challenges facing the world. It is a large firm and its wide set of activities greatly affects people living in the society. Tesco hold themselves accountable for all those people who are affected in some way or other by their business operations. The management of the company feels that they create value to society for gaining long term prosperity. Tesco not only trade responsibly but even maintains strong relationship with suppliers (Lober, 2011). Each of the stakeholders are essential for Tesco may that be customers or suppliers. They adopt the best practices to deliver quality products to customers. On the other hand, they even support their supplier base in terms of incorporating advanced technology within the system. The factors which greatly matters to Tesco is trading responsibly, being the best employers, giving importance to customers or employees, reducing any harmful impact been caused on the environment, doing the right thing and supporting all local communities. Tesco has been able to achieve high standards in CSR approach since it works together with all its stakeholders. Tesco’s managerial body believes that if they fail to achieve any set performance standard then it is a loss towards society and even a risk for business. There has been significant changes undertaken by the company and core value of these actions is Tesco’s principle of providing greater value products (Christian, 2005). In the present scenario the firm possesses a large base of customers, thousands of suppliers and distributors, and half million employees. Value creation in this firm begins with creating jobs for more than million people and eradicating unemployment to a great extent, feeding tens of millions people across the globe safely and working collaboratively with around 70 suppliers. Its major CSR approach is reducing environmental hazards and this has been greatly observed in its zero carbon approach. To be more precise all its employees, suppliers, distributors and other partners has adopted such an approach which creates least impact on the society. According to Caroll’s pyramid of CSR, ethical responsibility can be greatly associated with the activities undertaken by the firm. These responsibilities are aligned with identifying what is right and what is wrong. Ethical responsibility of Tesco is highlighted through its partnerships with NGOs in order to promote education in rural areas. It even takes effective measures so as to provide healthier environment to backward communities. Many companies have put across their opinions regarding carbon content reduction from the environment but innovation procedure has been adopted by Tesco. To a great extent this firm has been successful in this mission with the help of its stakeholders. Along with employees even shareholders actively participate in framing CSR policies. For the particular case study the company chosen is TESCO. For the CSR activity TESCO engages a lot with its stakeholders (Randall, & Seth, 2011). There is a theory that Firm’s association with their stake holder’s is not uniform but is dynamic and changes considerably over time. While it is widely accepted by researchers that the relation between the firm and the stake holders needs to be evaluated in dynamic terms, most researchers have treated the matter of stakeholder management in constant term. However it can be intuitively stated that the firm-stake holder relationship evolves over time and approaches taken by firm to manage stake holder relationship varies significantly from time to time (Cramer & Berman, 2005). Sometimes the change in firm and stake holder relationship can be sudden and dramatic while at other times the relationship between the stakeholders and the firm evolves and changes slowly over time. However irrespective of the fact whether the rate of changes in relationship of the stakeholders with the company is fast or slow, the changes have profound effect on the firm’s long term viability. The traditional view on the subject was that only the shareholders of the company are important and their rights need to be taken care of by the management. In fact there exist a principal agent relationship between share holders and company management. But Edward freeman first suggested that not only shareholders but all the parties involved with the company i.e. employees, customers, suppliers, govt. bodies, political parties, etc. are also important (Phillips, 2011). As a company Tesco subscribes to this theory and maintains relationship with not only the investors but also customers, colleagues, Industry, local community, suppliers and other groups. The problem that lies with stakeholder management is that although the overall views on the subject are clear like: a. there is stakeholders present in each and every firm; b. Different firms manage relationships with the stakeholder’s differently, c. a firm which manages its relationship better than other firms performs better; the question that largely remains unanswered is what actually is actually meant by the saying ‘well managing relationship with stakeholders’? Researchers in this field advice the firm with respect to engaging in dialogues with the stakeholders and trying to ensure their participation in decision making and identifying what do these groups actually want from the firm. To manage stakeholders in a better way Tesco engages a lot with different group of stakeholders in handles. The different ways in which it interacts with its different stakeholders are as follows. Customers: Tesco engages with its customers and seeks their feedback through focus group interviews, surveys, brand scorecard, twitter, home visits etc. Colleagues: appraisals, Anonymous annual surveys, web based career discussion sites, Social networking sites etc. Investor: Consultation with a special community in this field and a team dedicated to maintaining investor relationship. Suppliers: To engage with the suppliers the managers and technical team interact with the suppliers on a regular basis through various channels and forums and by conducting anonymous surveys to access their feedback. Local community: To engage the local community they participate in regular discussion with committee members’ ion every new store that it operates. Similarly Tesco engages with these groups and all other stake holders to form a better relationship with them. TESCO’s engagement with its stake holders with respect to CSR activity have increased over time. For example in 2013 they increased their engagement program to engage with over 50 different groups of stakeholders (Tesco PLC, 2013). The stakeholder of Tesco believed that the firm had not been pretty open to the stakeholders over the years and did not engage with them well. So the firm has decided to step up their engagement with different stakeholders. They have also determined to include the service of an external consultancy that would help them in setting a strategic direction of their CSR activities. Conclusion In this study, CSR approach has been closely associated with stakeholder’s activities in an organization. Stakeholders as per Freeman’s theory of stakeholder management are the vital component of an organization. There is wide range of activities performed by stakeholders and they possess a long term relationship with firm. However in most theoretical frameworks it has been stated that financial relationship usually exist between stakeholder and a firm. This concept does not hold much significance in context of corporate social responsibility. Economic activity is often considered to be a major part of any CSR activity but in certain real time cases it is all about delivering value to end customers. Caroll’s pyramid of corporate social responsibility states that there are different responsibilities which are formed by a firm. These responsibilities are described as philanthropic, economic, legal or ethical. The theoretical frameworks used in this study have been critically analyzed to identify its pros and cons. They are then applied on a real time organization – Tesco. Tesco over the years have been participating in wide range of corporate social responsibility activities. This firm is highly concerned about creating value for customers and society. In order to do so they maintain high quality standards in their product line and attempts to eliminate major challenges being faced by modern world. Stakeholders play an important role in these activities and they work together to achieve desirable objectives. References Carroll, A. and Buchholtz, A., 2014. Business and society: Ethics, sustainability, and stakeholder management. Stamford: Cengage Learning. Christian, A., 2005. Behind the mask: the real face of corporate social responsibility. London: Christian Aid. Cramer, M.J. and Berman, S., 2005. A dynamic model of stakeholder management. Available at: www.scu.edu/business/...06.../wp06-13-berman-stakeholder-mgmt.pdf [Accessed 21 November 2014]. Crane, A. and Matten, D., 2007. Business ethics. Oxford: Oxford University. Hawkins, D.E., 2006. Corporate social responsibility: Balancing tomorrows sustainability and todays profitability. London: Palgrave Macmillan. Löber, H., 2011. Corporate social responsibility and customer integration: An empirical investigation of different csr-activities and their effects on customers. Hamburg: Diplomarbeiten Agentur. Mullerat, R., 2010. International corporate social responsibility: The role of corporations in the economic order of the 21st century. Netherlands: Kluwer Law International. Phillips, R.A., 2011. Stakeholder theory. Massachusetts: Edward Elgar Publishing. Randall, G. and Seth, A., 2011. The grocers: The rise and rise of supermarket chains. London: Kogan Page Publishers. Smith, C. 2010. Global challenges in responsible business. New York: Cambridge University Press. Tesco PLC. 2013. Tesco and society report 2013. Available at: www.tescoplc.com/files/pdf/reports/tesco_and_society_2013_ipad.pdf [Accessed 21 November 2014]. Read More