Environmental Scan and Human Resource Management TESCO - Case Study Example

Environmental Scan and Human Resource: The Case of TESCO 2009 Environment Scan for TESCO TESCO is one of the four major supermarket chains that control 40 percent of the industry in the United Kingdom. In the UK, supermarkets are defined as stores above 600 sq m of which 300 sq m is devoted to sale of food and non-alcoholic beverages. Besides food and beverages, supermarkets also sell cleaning products, toiletries and other household products. A supermarket, or multiple grocer, chain is a company that owns 10 or more such stores. Besides TESCO, the major players in this segment are ASDA (which is a subsidiary of Wal Mart, the largest global supermarket chain), Safeway and Sainsbury (Competition Commission, 2000). While the other three players are mainly limited in the UK, TESCO has also been expanding abroad. However, of late, TESCO has also been facing competition from new players like Aldi and Morrison (Independent, 2008). Supermarkets have been the major sellers of food and beverages in the UK. As much as three-fourth of bread, milk, fruit and meat are sold in the country through supermarkets (Fox & Vorley, 2004). However, since the market for food and grocery is heterogeneous, it is not possible to calculate market shares of each player as there are a large number of independent grocers as well. Although the four major supermarket chains stock all types of food, grocery and household products in the typical large format out-of-town stores, the independents sell particular or a group of products. However, the distinctions are getting blurred over the years as the large chains like TESCO have been buying up niche players like T&S and increasingly stocking non-household products like electronics, apparels and ready-to-eat food services as well (Fox & Vorley, 2004). As a result of aggressive growth and channel-blurring, TESCO and the other three supermarket chains have developed oligopsony power, that is bargaining power with respect to suppliers. Hence, while a large retailer can contribute as much as 10-20 percent of sales of suppliers, each supplier may contribute only about 1-2 percent of the retailers’ sales (GPN Working Paper, 2004). Since the 1990s, competition among supermarket chains in the UK has grown tremendously, particularly with the entry of ASDA. Since there is not much product differentiation in the store collections, each player in the industry has had to evolve innovative methods of procurement and selling to reduce costs. This has been all the more crucial through the financial recession since the last two years as consumer spending has stagnated and even declined. TESCO has been aggressively increasing the number of stores and been procuring globally so that costs can be reduced. Besides, TESCO and other supermarket chains have also been aggressive in selling own-label products, which has drawn the criticism from the branded product industry. The pressures of cost reduction on the supermarket chains like TESCO has also brought it to conflict with the suppliers who are discouraged in product innovation and investment because of the low prices that they receive from the supermarkets (Fox and Vorley, 2004). As a result of the financial meltdown and its effect on consumer spending, retailers and especially the large supermarket chains have been facing reduced sales and higher competition. Besides, tough competition from players like ASDA resulted in TESCO posting the worst financial results in 17 years in 2008 (Independent, 2008). While sales for the entire retail sector in the UK grew by 5.9 percent in 2008, excluding fuel, consumer spending on retail products grew by only 2 percent. Aggressive cost reduction by competitive discount stores led TESCO to engage in launching of a host of private label products and branded products like Trattoria Verdi pasta and Packers Tea, which were the first big branded product launch by the company since 1993, as a knee-jerk reaction to falling food product sales (Independent, 2008). Bargain discounters like ASDA and Aldi had snatched away a major customer base from TESCO primarily because of the recession. Despite the recession and competition from discounters, however, TESCO has not changed its focus of providing customer-centric products and premium products. As the UK is gradually coming out of recession, the sale of premium retail products is once again on the rise, which has benefited TESCO as compared to its competitors. Sales of its upmarket products have risen once more and the company has also launched a restaurant collection, which adds to it read-to-eat products. Demand for ready-to-eat meal products and organic products are once more on the rise (Meat Trade Daily, 2008). Issues for Human Resource TESCO employs about 180,000 people in the United Kingdom and nearly 240,000 people globally. In the face of high degree of volatility in the industry as well as consumer spending, on which a retailer’s revenues critically depend, TESCO needs to address human resources from a customer centric attitude. In terms of the employment cycle, the Human Resource department of any company involves the intake of inputs – people – transform them into employees and take them along through their career with the organization till they leave. This typically involves the process of recruitment, orientation, performance management, training & development, transfers or promotions and finally termination or attrition or retirement and the exit interviews (Second, 2003). This employment cycle may need to be supported intensively by a customer focus for a servicing industry. The key role of the Human Resource department is to identify the points in the employment cycle that are likely to result in deviations or provide strategic strength of the company. For example, for a retailing company like TESCO, it is essential to recruit the right kind of people, orient them towards the company’s mission and vision, train and develop their capabilities towards the strategic objectives and prevent attrition of the key people. In TESCO, a large number of senior managers come up from the ranks so that they know the operations of the company through the entire process of the value chain. The senior managers also have in-depth knowledge of its large base of employees, their key strengths and weaknesses. The company has an elaborate mechanism to interview all employees so that the senior managers know the needs and requirements of the workforce (Nursing Management, 2003). In a service industry like retailing, customer service provides the crucial differentiation. High level of servicing not only leads to cost reduction but also higher profitability and market shares (Park, Robertson and Wu, 2006). Higher customer satisfaction leads to higher purchase intention for the future as well as word-of-mouth communication that reduces the requirement for marketing expenditure for the company (Reichheld, 1990, cited in Park, Robertson and Wu, 2006). To improve service quality, it is first needed for TESCO to quantify service quality. Service quality has been defined as “the relationship between what customers desire from a service and what they perceive that they receive” (Mackay and Crompton, 1990, cited in Prabaharan, n.d). Although manufacturing industries typically engage in quality management, service industries have paid relatively less attention towards this. Besides, it is not as easy to quantify quality levels in service industries as it is the manufacturing industry, where it can be measured in terms of defects (Crosby, 1979, cited in Prabaharan, n.d). However, several attempts have been made to quantify service quality by explaining the ways that service organization and the relationship between service providers and the company can impact service quality (Carson et al, 1997). The SERVQUAL model with 22 parameters based on five dimensions – reliability, tangibles, responsiveness, assurances and empathy – have been used by numerous models (Carman, 1990, Cronin & Taylor, 1992, cited in Prabaharan, n.d). Alternatively, service quality has been analyzed in a hierarchical model in three phases – 1) perception of service quality, 2) five dimensions including physical aspect, reliability, personal interaction, problem solving, and policy and 3) derivative of the second dimension (Dabholkar et al, 1996 cited in Prabaharan, n.d). Colier and Bienstock (2006) expanded the service quality model to include e-commerce and web interaction (Prabaharan, n.d). The Human Resource department of TESCO needs to quantify service quality by gauging the service quality in terms of customer perception related to TESCO’s product quality, the reliability of its customer service and the personal interaction. The key to TESCO’s success has been on account of its customer focus. Not only does TESCO aim to provide customer value by offering low cost products procured globally but has also aimed to sustain employment generation even at the time of recession (Microsoft, 2009). TESCO has also moved into retail banking since its customer centric attitude has been proven. Works Cited Competition Commission, Supermarkets: A report on the supply of groceries from multiple stores in the United Kingdom, 2000, retrieved from http://www.competition-commission.org.uk/rep_pub/reports/2000/446super.htm Fox, Tom and Bill Vorley, Stakeholder Accountability in the UK Supermarket Sector, Final Report of the ‘Race to the Top’ Project, November 2004, retrieved from http://www.racetothetop.org/documents/reports/Fearne_et_al_EAAE-Paris.pdf Global Production Network (GPN), Global Production Networks in Retailing: Supply Chain Implications for East Asia and East Europe, Working Paper 9, August 2004, retrieved from http://www.sed.manchester.ac.uk/geography/research/gpn/gpnwp9.pdf Estate Gazette, Supermarkets and Other Grocery (except Convenience) Stores, 28 March, 2009 Independent, Recession slows the Tesco juggernaut, December 3, 2008, http://www.independent.co.uk/news/business/analysis-and-features/recession-slows-the-tesco-juggernaut-1048858.html Daily Mail, Recession hits Tesco: Grocery giant's sales fall to lowest figure in 16 years as shoppers turn to budget rivals, December 3, 2008, http://www.dailymail.co.uk/news/article-1091079/Recession-hits-Tesco-Grocery-giants-sales-fall-lowest-figure-16-years-shoppers-turn-budget-supermarkets.html Meat Trade Daily, United Kingdom - Tesco beat the recession, 25 October, 2009, http://www.meattradenewsdaily.co.uk/news/251009/united_kingdom___tesco_beat_the_recession.aspx Nursing Management, Former RCN adviser Alan Parrish takes a stroll down the supermarket aisles to see what is on offer for healthcare managers, March 2003, http://web.ebscohost.com/ehost/pdf?vid=8&hid=106&sid=c3377ba8-d5ff-4a45-b9e9-318ebbb0f49b%40sessionmgr104 Second, Hugh, Implementing Best Practices in Human Resource Management, CCH Canadian Limited, 2003 Carson, P.P, et al, Balance Theory Applied to Service Quality: A Focus on the Organization, Provider, and Consumer Triad, Journal of Business Psychology, Vol 12, No 2, 1997 Park, Jin-Woo, Robertson, Rodger and Wu, Cheng-Lung, The effects of individual dimensions of airline service quality: findings from Australian domestic air passengers, Journal of Hospitality and Tourism Management, August 1, 2006 Prabaharan, B et al, Service Quality on Tourism: Application of Structural Equation Modeling, http://dspace.iimk.ac.in/bitstream/2259/550/1/143-150+prabhaharan.pdf Microsoft, Customer service the “key for TESCO”, April 24, 2009, http://www.microsoft.com/uk/business/news/retail/Customer-service-'the-key-for-Tesco'-19137963.mspx Read More