Analysis of Management Practices at Tesco Plc.- UK - Essay Example

Running Header: Management Practices at Tesco Plc. Analysis of Management Practices at Tesco Plc. – UK Collage Analysis ofManagement Practices at Tesco Plc.- UK INTRODUCTION Founded in 1924, Tesco is the largest retailer in the UK market as well as the largest UK based international supermarket chain with 1,780 stores in the UK and 586 outlets internationally. With over 1780 stores spread across UK and a strong presence in a host of other countries, with its 586 international outlets, Tesco employes 367,000 employees in its global operations with 250,000 of them based in the UK. With annual sales revenue of more than £37bn, and a pre-tax profit report of £2bn, the Tesco is the market leader accounting for 30% of the total UK retail market (Paton 2005). In a massive scale business operation as Tesco, the management of human resource becomes a very challenging task. The leadership and management of the company plays a key role in its success and Tesco is known for its strong organisational culture, which has lent to its high performance. Managing workforce moral in service organisations of the scale of Tesco is a huge challenge, which needs innovative management and reward practices. This report assesses the leadership and management role within Tesco; the company culture which impacts upon its operations and the workforce motivation issues within the company. ROLE OF LEADERSHIP & MANAGEMENT Leadership is defined as “the ability to influence individuals and groups to work toward attaining organizational objectives” (Weiss 2001). Leadership defined by Mescrn, Albert and Khedourn as “the ability to influence individuals and groups to work toward attaining organizational objectives” directly addresses the role of leadership in the context of organisational management. Leadership and management bears critical impact on the performance of an organisation as it is the leadership that can provide direction and vision to the rest of the organisation. In assessing the role of leadership and management at Tesco, the leadership style and contributions by Sir Terry Leahy should be addressed. Sir Terry Leahy, the dynamic 50-year old CEO of Tesco joined Tesco as a marketing executive in 1979 and progressed in career to be appointed to the board in 1992. Becoming the CEO in 1997, he has dramatically reshaped and driven the supermarket chain to be the leader in UK supermarket industry with impressive growth in not only local but also international markets. Being chosen as Britain’s “Business Leader of the Year 2003”; Fortune magazines’ “ European Businessman of the Year 2003” as well Britain’s “Most Admired Business Leader 2005” are few accolades in recognitions of his leadership role at Tesco (Madslien 2004). While leadership in general remains essentially an influencing process, the styles of leadership varies greatly and to suit the different situations and follower profiles. Assessing the leadership style of Tesco’s CEO Sir Terry Leahy, a transformational leadership style can be noted. Burns (1977) argued that it was possible to distinguish between transactional and transforming leaders where the former, “approach their followers with an eye to trading one thing for another while the latter are visionary leaders who seek to appeal to their followers ‘better nature and move them toward higher and more universal needs and purposes’ (Bolman and Deal 1992). In other words, the leader is seen as a change agent. It is clearly evident that Sir Terry believes himself in being a change agent and has actually implemented change within Tesco to drive the company to its success. In his speech to the Work Foundation, he reiterate on the need for transforming through change stating, “Today I want to talk to you about change – recognising it, understanding it, and harnessing it. And I want to talk about the role of leadership in rising to the challenge of change.” (Leahy 2006) The leadership and management of a company also play a key role in setting the long-term direction for organisational progress and establishing clarity of purpose. It is the leader and top management who will be visionary in seeing the “bigger picture” for the organisation and make crucial decisions for expansion, diversification and growth in diverse markets. Buckingham (2006) presenting a paper for Warton Leadership conference stated, “Clarity of purpose has been a driving factor in the success of Tesco, the British food giant... When Terry Leahy took over as CEO in 1997, he decreed the companys focus would be, from that point forward, to serve the housewives of the world” (Buckingham 2006). Leahy’s focus on the strategic intent of the company is reflected in operational changes such as addition of more checkout lines in all the stores even at a significantly higher labor costs and offering many essential products under below costs under “value brands” scheme. The Tesco Loyalty card program, which was the first of its type in retail industry, rewarded frequent and loyal customers by allowing to accumulate and redeem points based on purchase values (Leahys Lead; Tesco 2001). Another key role of leadership and management of an organisation lies in crafting, implementing and sustaining organisational strategy (Thomson & Strickland 2003) and Leahy and his team of management has managed to perform this function effectively over the past decade. As per Leahy, “Six years ago we first talked about our four part strategy for growth. It is clear, visible, and simple and is delivering strong results. In this time we have grown group sales by 91 per cent and underlying profits by 87 per cent. Six years on our strategy remains the same. It is no longer the same Tesco. We have faster growth accessing more areas of opportunity and we look forward to growing the business further in a challenging climate” (Tesco goes from strength to strength 2003). From the above discussed influences which the Tesco CEO and his management team had had on the effectiveness of the retail giant, it can be noted that the function of management and leadership within a company is not only diverse but should also be dynamic to suit the changing business environments. The leaders and managers are expected to be visionary and transformational in being change agents who can guide the company through dynamic business environment. ORGANISATIONAL CULTURE Organisational culture of a company plays a crucial role in determining its cause of actions and binds people with shared core concept, values, beliefs, attitudes norms and expectations. “Every organization has its own unique culture even though they may not have consciously tried to create it. Rather it will have been probably created unconsciously, based on the values of the top management or the founders or core people who build and/or direct that organization” (Weiss 2001). Culture of an organization influences the style in which employees behave, decisions are made and risks and crisis situations are handled. Organisational culture can be identified at three levels. These includes, artifacts which are the visible organisational structures and processes; Espoused Values which represents a company’s strategies goals and philosophies and Basic Underlying Assumptions which are the unconscious, taken for granted beliefs, perceptions and attitudes shared by the members (Schein 2004). IN terms of visible organisational structures and processes, the company’s logo, which is well established, the trade mark front façade of the outlets, the language of Tesco, which includes terms such as “community” and “Tesco family” reflects the close and warm work environment which the company aims to build in to its culture. The second layer of company’s espoused values can be identified in the Tesco’s strategies and philosophies such as the “No-one tries harder for customers” and “Treat people as we like to be treated” (Our Core Purpose 2006). The company bases its strategy on the philosophy of “ Every Little Helps” and divert this philosophy in to three key areas. The “Shopping trip” which continuously aims to make Tesco a better place to shop, at home and abroad for customers; “A great place to work” which aims to make Tesco a better place for work; and “ The way we work” concept where the company processes are kept simple and directed to make Tesco a better place to shop and work. The underlying assumptions and beliefs which forms the third layer of the organisational culture is strongly reflected in Tesco’s core purpose of “creating value for customers to earn their lifetime loyalty” (Tesco.com 2006). Another embedded belief within the Tesco corporate culture is the need to “listen” to the people whom they cater to and with whom they work with. This is the foundation upon which the company crafts its strategy so that the company’s actions are in line with the needs voiced by the customers, suppliers as well as the employees. While organisational cultures differ from one another markedly, some common characteristics shared by them allows for categorizing cultures in to various groups. As per Jeffrey Sonnenfield’s organisational culture model, organisation cultures fall largely in to four types. These include Academy culture, Baseball Team culture, Club Culture and Fortress culture. Assessing Tesco’s organisational culture within the above framework, it can be categorised as an Academy culture, which is characterised by highly skilled employees who tend to stay in the organisation, while working their way up the ranks. The organisation provides a stable environment in which employees can development and exercise their skills (McNamara 2006). A clear example is the Tesco CEO himself who has started out his career at Tesco as a marketing executive 27 years back and risen in ranks to become the company’s leading personality today. MOTIVATION WITHIN THE ORGANISATION Motivation level of the wok force is one of the key drivers of an organisation’s success and many factors are associated with the level of motivation within an organisation. Today it is well recognised that it is not only the monetary rewards that motivate the employees but a host of other factors within the job environment. Providing a workplace environment, that promotes learning opportunities through innovation, creativity, participation and autonomy are also important in meeting motivational needs of the employees. Motivational theories as Maslow’s Hierarchy of needs as well as Alderfer’s ERG Theory both identify people’s desire for growth and self actualization in addition to the need for monetary rewards (Weiss 2001). At Tesco, all employees are considered important and channels for employee feedback and comments as well as suggestions for improvements are welcome and encouraged through its “Listen to Our People” philosophy (Tesco.com 2006). Measures which the company takes in improving and maintaining work force motivation is encapsulated in their corporate responsibility statement under the philosophy of “Treat people how we like to be treated” under the concept of one Tesco Team (Corporate Social Responsibility 2005). Ensuring equity and fairness in reward systems is also another key aspect and should be linked to an effective Performance appraisal system to ensure employees are aware of how reward systems are linked to performance. At Tesco, the appraisals are done on MBO basis and staff has an annual performance review where they work towards a personal development plan, with objectives set at the beginning of the year. Career discussion with line managers facilitates development and promotional decisions. Tesco’s Talent Spotting process facilitates the development of staff and providing growth opportunities to staff (Paton 2005). Reward system of an organisation involves financial and non-financial benefits, which an organisation is able to and willing to offer to its employees in exchange of for employee contribution (Cascio 1998). Tesco’s reward practices include a wide variety of financial and non financial options such as salary, various share option schemes, pension scheme, Life Insurance cover and various other discount schemes. Tesco’s share option schemes are a successful reward tools and more than 75% of employees have chosen to retain their shares. Save As Your Earn (SAYE) plan makes annual profit of up to £3,929 – 7,000 per each employee. The latest round of payoffs will allow employees to benefit from their share of the £106m latest round of payouts from the share option scheme (Thomas 2005). However widely criticised gaps can be identified in Tesco’s executive remuneration practices, overly benefiting the top executives with over £26 million each in bonus payouts from the £ 2 billion annual profits while the supermarket staff are paid barely above the legal minimum wages for their hard and physically draining work (Blythman 2004). Such reward discrepancies can undermine the company’s motivational levels significantly. CONCLUSION In conclusion it can be noted that while many factors contribute to organisational success, role of leadership and management in shaping the future of a company and giving direction is one of the most crucial success factors. Culture of an organisation also contributes to organisational effectiveness by influencing the attitudes of the employees and by aligning the strategies and work processes of the comma to its core values and beliefs. Lastly the influencing factors on workforce moral within an organisation were considered. Effective and equitable reward systems which are linked to performance; employee involvement; room for autonomy and self development are few factors which can contribute to employee motivation in significant manner and successful companies such as Tesco has realized the impact which can be imparted by well motivated employees on its performance and has taken various measures in addressing motivational needs of its employees. REFERENCES Madslien, J. (2004) “Profile: Tesco Chief Sir Terry Leahy. BBC News Online. Tuesday, 20 April. Retrieved January 13 2007 from http://news.bbc.co.uk/2/hi/business/3624645.stm Buckingham M, (2005) “Good Managers Focus On Employees Strengths and not Weaknesses.” Warton Leadership Conference. Retrieved January 12 2007 from http://knowledge.wharton.upenn.edu/article.cfm?articleid=1223&CFID=3675120&CFTOKEN=15417406 Leahy, T. (2006) “Tesco In The Community” Sir Terry Leahy Speech To The Work Foundation. Retrieved January 13 2007 from http://www.Tescocorporate.Com/Page.Aspx?Pointerid=65AB8D49E95F4996ADBC0326A8ED2B7C “Tesco Goes from Strength to Strength.” (2003). Food Navigator .com. Retrieved January 13 2007 from http://www.foodnavigator.com/news/ng.asp?n=17327-tesco-goes-from “Our Core purpose.” (2006) Tesco Plc.com. Retrieved January 13 2007 from http://www.tescocorporate.com/ourcorepurpose.htm “Corporate Social Responsibility.” (2005) Tesco Ireland.com. Retrieved January 13 2007 from http://www.tesco.ie/csr/index.html Weiss, J.W. (2001) Organisational Behavior & Change, 2nd ed., Ohio: South-Western Collage Publishing. Cascio, W. F. (1998) Managing Human Resources: Productivity, Quality of Work Life, Profits, 5th ed. New York: McGraw-Hill Companies. Thomas, D. (2005) “Tesco staff to take their cut of £106m shares scheme.” Personneltoday.com. Retrieved January 13 2007 from http://www.personneltoday.com/Articles/2005/02/22/28129/Tesco+staff+to+take+their+cut+of+%C2%A3106m+shares+scheme.htm. [29.11.2005] Blythman, J. (2004) “The Great Supermarket Rip Off”, Socialist Worker Online, Oct 9. Retrieved January 13 2007 from http://www.socialistworker.co.uk/article.php?article_id=2728 Paton, N. (2005) “Supermarket sweep:Tesco.” Personnel Today July. Retrieved January 13 2007 from : http://www.personneltoday.com/Articles/2005/07/05/30654/Supermarket+sweep+Tesco.htm#ArticleBody Bolman, L. G., & Deal, T. E.  (1992).  “Leading and Managing: Effects of Context, Culture, and Gender.” Educational Administration Quarterly, 28, 314-329. Thomson, A. A. Jr. & Strickland, A. J. (2003). Strategic Management Concepts and Cases. 13th ed. New York: McGraw-Hill Publishing Company Ltd. McNamara, C. (2006) “Organisational Culture.” Free Management Library. Retrieved January 13 2007 from http://www.managementhelp.org/org_thry/culture/culture.htm Schein, E.H. (2004) Organisational Culture and Leadership. 3rd ed. San Francisco: Jossey-Bass Publishers. Read More