The Problems of an Organization and Identifying Avenues for Organizational Change - Tesco - Case Study Example

Organizational Change and number: submitted: Introduction The study aims at diagnosing the problems of an organization and identifying avenues for organizational change. It will outline a plan that will support the change. Distinctive strategies would be formed that will complement Kotter’s eight step approach in addressing the problems facing the organization. The organization that has been considered for the study is Tesco. It is a UK based retail company that is facing internal and external issues concerning its management, operations, governance, etc. The study is categorically divided in three key areas i.e. Overview of Tesco, identifying Tesco’s problem and following Kotter’s eight step approach suggesting turnaround strategies that will help transform the organization. Organizations need to continuously innovate to meet the competition; else it will be out of business very soon. Strategies should be implemented at all levels and organizations must ensure that its strategies should be well communicated and understood by its internal stakeholders. Organizations fail when their strategies fail, owing to governance issues, market related issues, issues relating to resource allocation, human capital, promotion, financial issues, legal, political, economic, technology, environment, etc. Either of the above factors can create devastating effect on an organization’s long term sustainability, thus a restructuring is required to turnaround the prospects of the organization (Simpson, 2001). Company Overview Tesco was started in 1919 by Jack Cohen. It is a UK based multinational retail company that sells grocery and merchandise. It has operations in more than 12 countries across the globe. It mainly includes Asia and Europe. It is the market leader in retailing groceries in UK, Malaysia, Hungary and Ireland. It accounts for more than 28% grocery market share in UK. It ranks third and second in the group of largest retailers in the world by profits and revenue. It has evolved over the years. This has led to diversification of its resources into various strategic business units like electronics, furniture, toys, books, internet services, etc. It launched its first petrol pump station in 1974 and went on to become the largest petrol retailer in UK. In the year 2000 it opened its online portal which caters to selling merchandise, financial products, etc. It ventured in the broadband market in the year 2004. Tesco has successfully expanded its operations from 3751 stores in 2008 to more than 7000 stores in 2014. Its group revenue rose from £5750.2 million in 2010 to £6414 in 2014. Its profit reduced from £2336 million in 2010 to £970 million in 2014. Diagnosis The UK retail giant witnessed major slumps in its profits and market value owing to ineffective and poor management practices. It underperformed compared to the forecasts made by analysts and its own projections. Tesco’s profits fell below £1.4 billion compared to its projected profit of £3.3 billion. The company was a victim of an accounting fraud where financial information was rigged to invite investments and to hold back investors. The accounting scandal amounted to £263 million. It exposed the lack of integrity in accounting and management practices that led Tesco to such lows. The leadership roles for the managers and the board are critical to the success of any organization and in case of Tesco it was not different. Tesco received many profit warnings which was ignored by the top management. They were optimistic about their current situation. Its profits plummeted owing to three key reasons. The first reason was a rebase of its relationship with the suppliers. The second reason was due to heavy investments in cutting their cost of operations that led to declining profits (Ketchen and Hult, 2007). Investing heavily in promotional activities and customer programmes also witnessed a slump in its profit level. The third reason was linked to artificially inflating the financial figures. This impacted its quality and services that shrinked its customer base and hurt its business. The company’s board of directors were involved in inappropriate accounting practices. It incorrectly recognised its income for a series of years that led to an over estimation of its profit by £263 million. Tesco has halted many of its super market projects considering its profit warnings. It has halted nearly 100 super market projects. This shook the investors’ confidence in Tesco and they pulled their money out of the company’s stock. It lost more than £2 billion which accounts for 15% of its market value. The last fiscal witnessed the suspension of eight senior executives owing to the accounting fraud. The chief executive left the company. It was characterised by intense price wars that led to customers switching brands. Tesco’s customers were driven by low price competitors like Aldi and Lidl. Tesco’s new CEO Dave Lewis was brought in to make a revival of the grave situation facing the company. Employees at the company complained about unpaid overtime. They were hired people to work for 37 hours per week as per the terms of the contract, but it ended in 65 hours per week. They were not provided any benefits in kind or in cash for their overtime work. This led to low morale of its employees and high level of dissatisfaction. Though they refused to leave Tesco but wanted better compensation packages under the new regime of Dave Lewis. Tesco is the largest non government employer in UK and the largest private employer in Europe. Owing to its falling profits, it plans to lay off its workforce as a strategy to cut down its cost. This will lead to more overtime as there will be less number of people in stores who will have to do more work to compensate for the cut down workforce. Kotters 8-Step Approach Tesco was one regarded as a giant in the UK retail marked similar to the position of Wal-Mart in USA. In the nineties Tesco’s success was built on the fact that it offered the customers everyday low prices and its slogan “Every little helps was focused on the fact”. Tesco on its path to growth emphasized a retailer that did everything right starting from fixing of the trolleys to lowering of the prices. In fact it was said that any player in the UK retail can start a price war but given the fact that the size of Tesco is nearly twice of its next rival it is quite obvious that Tesco is the one which will win. However on it s path to growth there are several things that Tesco did wrong. These wrong things or decisions are the one that has come back to haunt the company. As the current market scenario and tide has turned against the big retailers in the market the aggressive growth of Tesco as a company that made it so big has come back to bite the company. There are several things that the company needs to do in order revive its position in the market. First of all the company needs to identify its value proposition. The company was once known for being the retailer which provided goods at the cheapest prices however the customers started getting confused when the company started advertising its finest range of products. The company also needs to revive its club card loyalty scheme which was once the trump card for the company to understand the pulse of the customers. Another thing that the company needs to do is to drive the message to the investors that the problems of accounting scandal that once plagued the company is now under the control of the management. The company also needs to change the marketing and advertisement strategy so that they become once again relevant and apply to the sentiment of the masses (Calder, and Malthouse, 2005). The other strategies that the company needs to do are to close the unprofitable stores of the company and to focus more energy on the online space. In comprehensive terms what is needed by the company is overall change in the company’s philosophy or an all round change in the way business is done at the company. In order to achieve this Kotter’s 8 step model of change can be applied to the company. Figure 1: Kotter’s 8 Step Model of organizational change Step 1 - According to the first step of the model it is required to create a sense of urgency or an opportunity where people feel that the organization needs to change. In case of Tesco it is not required to create this opportunity or this sense of urgency. The crisis is already at hand with accounting scandal, falling sales, losing confidence of the customers, and losing market share. These factors together provide the right opportunity for the leadership to take charge of the matters and initiate change at TESCO (Nwagbara, 2010). Step 2 – It is also required that a group should be chosen that should be charged with guiding the coalition and leading the company towards change these are the people who will be accountable for the change process and will be response to guide the change successfully. This will include the Ceo of the company along with some other members of the top management at TESCO. Step 3 – In order to initiate the change it is required that the company creates a strategic vision that guides the change process. The strategic vision should tell about where the company aims to reach through the change process. In order to reach the vision or rather achieve the vision the company needs to follow certain strategic initiatives. Step 4 – It is required that the company creates a list of voluntary workers who will help the company in achieving the strategic objective of the company. These people are the one who are most in favour of change and will help Tesco in achieving the change (Palmer, Croston, Garvey and Mead, 2006). Step 5 – The next step is to remove the barriers that are impediment to the success of the change strategy at the company. The TESCO has to remove obstacles that serve as the barriers to the change process. The barrier that has to removed depends on the mindset of the people and the organization structure. Step 6- It is required that Tesco produces small degrees or volumes of accomplishments like short term winning elements are required to keep people motivated. This small wins in this case can be in the regards to the fact that Tesco could set a target to achieve a certain sales figure an incremental increase and when that is achieved it rewards the people for achieving that. Step 7 – Tesco must focus on the process of accelerating the change process in order to sustain the rhythm of change. Tesco can make use of policies to align with the vision of the change. Step 8 – The final step in the change process and it is where the change reaches the culmination. Tesco must make the change institutional and ensure that the change is sustained with the organization culture and spirit of the organization. It may involve a change in the leadership of the TESCO or planning for the succession of the leadership to prepare for the next leader to take control of the organization. Conclusion From the above analysis it is found that the TESCO which was once upon a time the largest retailer in UK is facing a lot of things that is not going in favour of the company. It is required that in order to turn things around at TESCO the company has to do several things and perhaps aim at bringing in overall change at the company. The company can bring in the change by following the Kotter’s 8 step model of change to bring in a revival of the company. The change should be able to transform the company and usher in a new phase of growth for the company. It should not only consider strategies that will impact the confidence of the internal stakeholders, but should also consider the potential impact of its decisions on the external stakeholders. Organizational integrity should be of utmost importance if Tesco has to restructure its organization. It should setup effective monitoring system that will reduce such internal frauds which has cost the company its market value and goodwill. References Calder, B. J. and Malthouse, E. C. (2005). Managing media and advertising change with integrated marketing. Journal of Advertising Research, 45(4). 356-361. Ketchen, J.D. and Hult, G.T.M. (2007). Bridging organization theory and supply chain management: The case of best value supply chains. Journal of Operations Management, 25(2), 573–580. Nwagbara, U. (2010). Managing organizational change: leadership, Tesco, and Leah’s resignation. E-journal of organizational learning and leadership, 8(2). 30-52. Palmer, R., Croston, D., Garvey and Mead, S. (2006). Marketing of beef and lamb in England: the role of EBLEX. British Food Journal, 108(10). 808-823. Simpson, S., (2001). Unwritten ground rules: transforming organization culture to achieve key business objectives and outstanding customer service. Leadership & organization development journal, 22(8), 394 – 401. Read More