Respond to the UK's 2009 Economic Recession - Essay Example

Acting as a management consultant you have been requested,in dyads or triads,to identify the need to respond to the UKs 2009 economic recession. Outline the external environment, identify the organisations competitive advantage,state the changes that might need to be made,the process of change and then evaluate the possible outcome of the change programme in an organanisation of your choice. Support the report with reference to a range of a management theory.Strategy, change management and organisational culture, may also be addressed. Identify and evaluate how knowledge of strategy can improve an organisations efficiency and effectiveness. April, 2009 Table of Contents 1.0Introduction 1.1Overview of Tesco 2.0 External Environment of Tesco 2.1 Tesco and Porter’s Competitive advantage 2.2Implementing Change in the activities of Tesco 3.0Possible Outcome of Tesco Change Management Program 3.1 Conclusion and Recommendation 1.0Introduction Today’s business environment is increasingly becoming more turbulent, chaotic and challenging than ever before and to survive, it is vital that a firm can do something better than its competitors ( Wonglimpiyarat 2004:1). Globalisation has not only altered the nature and the intensity of competition but has had to dictate and shape organisations in terms of what consumers wants, how and when they want it and what they are prepared to pay for it (Hagan 1996:1). Kanter (1995:71) on his work of “Mastering Change” argues that success in the present day business is not for those companies that re-engineer the way they do things, or for those fixing the past. According to Kanter (1995) such an action will not constitute an adequate response. This is so because success is based on an organisation’s ability to create, rather than predict the future by developing those products that will literally transform the way the world thinks and view it self and the needs (Kanter 1995:71). This paper focuses on Tesco and using certain analytical techniques such as the PESTLE framework and Porter’s competitive advantage to diagnose the activities of the company in the phase of the global financial crisis. The last part of the paper uses the cultural and the organisational paradigm to challenge the taken for granted assumption and consequently design a way forward change program for Tesco. 1.1Overview of Tesco Tesco PLC is an international retailer. According to the company web page, the principal activity of the Company is food retailing with over 2,000 stores in the United Kingdom, the Republic of Ireland, Hungary, Poland, the Czech Republic, Slovakia, Turkey, Thailand, South Korea, Taiwan, Malaysia, Japan and China. On September 30, 2005, the Company entered into an agreement to dispose of its operation in Taiwan to Carrefour as part of a transaction to acquire Carrefours businesses in the Czech Republic and Slovakia (Company 2007 Report). The company is in simple insurance, telecoms, personal finance and recycling. The Tesco Plc website states “shareholders. Today the Group operates in 12 markets outside the UK, in Europe, Asia and North America. Over 160,000 employees work in our international businesses, serving over 28 million customers and generating £13.8 billion sales and over £700 million profit.”Tesco denotes its success to an aggressive global strategy of geographic diversification (Tesco Review 2008). 2.0 External Environment of Tesco Johnson et al (2006) states that the PESTEL framework is a framework that can be used to categorise the factors that influence the business environment of an organisation into six main types including: Political Influences, Economic influences, Technological influences, Social Influences, Environmental influences, and Legal influences. Figure 1 below presents a layout of the PESTEL framework according to Johnson et al (2006). Figure 1 Layout of the PESTLE model adapted from Johnson et al (2007). The PESTEL framework can only be used to look at the future impact of environmental factors and that this impact might be different from the past. Thus an understanding of how the factors in the above framework may drive change is only a starting point (Johnson et al 2007). There is a need for an understanding of the key change drivers and this will be explained in sections that follow. The following factors will be considered under this section. We will consider the global economy as a whole, the domestic macro economy, demand and supply shocks, government policy and business cycles. Having said this, the study will now consider each of these factors more closely Political Factors The PESTLE framework outline in figure 1 stipulates that a company is indifferent to the political environment. Though, the political situation of the UK is a stable and unique one, it over dependence through support of the US egoistic policies under the pretext of democracy, the war on terror, the teeth for tat with Iran makes the country looks unstable; with the present republican government in the US loosing popularity because of the war in Iraq, current faith of world politics depends on the US and the United Kingdom (UK) with the two countries likely to be targets of terrorism attack. This institute a great fear especially in the minds of retail sector investors. Economic Factors Bodie et al (2002) states that the international economic environment might affect a firm’s export prospects, the price competition it faces from competitors, or the profits it makes on investments abroad. Although economies are linked to each other in a global macro economy, there exist considerable differences in the economic performance across countries. (Bodie et al, 2002). For example, high unemployment rate, high inflation rates, low GNP trends and slumps in the business cycle will imply low disposable income, more dependence by the citizens on credit facilities, borrowed funds and thus alternative sources of finance. The US dollars is currently falling at an increasing rate, this will mean an increase in the currency exposure for UK retail firms operating in the US market. Although ones ability to forecast the macroeconomy environment can lead to speculative investment performance, it is not enough to forecast the macroeconomy well. (Bodie et al, 2002). It is important to forecast the environment better that competitors in order to make abnormal returns. (Bodie et al, 2002). Socio-Cultural Factors Under the social factors for example, population demographics have a great impact on the future of it activities in the US and the UK. An increase in social crimes, immigration and emigration will affect the activities of the company. A social welfare policy of the government is also another important consideration. The population of the United Kingdom has been increasing in the past years as a result of an influx of population from other countries in search for better life. London and other major towns in the UK are quite congested pushing the local government to spend more on social amenities Technological Factors Technology is the order of the day in the current state of things supermarkets and other retail outlets must operate with the latest technology. For example, Today, companies must dance to the tune of changing technology. The Tesco Metro stores in China are a good example. Under technological factors, I consider government spending on research and development, Government spending on research and technological focus efforts, new discoveries and developments, speed of technological transfer as having an impact on the activities of TESCO not leaving out Rates of technological obsolescence. The UK provides fertile grounds for technological development due to huge government spending on research and development. Legal Factors Under legal factors, companies are affected by all the country and environmental laws. Laws pertaining to waste disposal minimum wages, competition law, health and safety not leaving out product laws relating to quality and products certification. Operators of supermarkets must comply at anyone time to these laws or face government penalty. In addition, retail participants in the UK retail industry must comply with industry standards and norms as the UK population is an informed one. Complying with industry standard means becoming more socially responsible. For example, of late TESCO open its first energy efficient and environmental friendly store, they offer recycling facilities. Other major participants such as Morrison supermarket and Mark and Spencer have started community tailored programs. (See their 2008 Company’s Review Report). Environmental Factors Today with increasing call and consumer’s preference for green marketing, companies must develop environmental friendly products, products that are environmentally certified. Facilities and provision to collect old electronics, recycling facilities must be put in place to scrap off these items. In the absence of these options, companies will be considered socially irresponsible. Under environmental factors I consider waste disposal, energy consumption and environmental protection laws in the UK to have a great impact on the retail industry. Today, it is popular to hear words like “I am not a plastic bag”, Tesco opening its first energy efficient store. This factor is pushing major players in the industry to be more environmentally friendly in their activities, respect industry standards and norms as failure to comply will be interpreted as irresponsibility. 2.1 Tesco and Porter’s Competitive advantage Competitive advantage can be referred to as a situation whereby a firm is able to provide a particular service in an industry better than its competitors thereby increasing its market share and profit potential (Blocher et al. 2005). Competitive advantage is determined by the core competencies of the firm, which are unique skills and techniques as well as staff and suppliers achieved by the firm otherwise not available to other firms in the industry (Blocher et al 2005; Mintzberg 2003,Ross et al 1999). In discussing Tesco competitive advantage, I have analyzed it with respect to Porters competitive advantage framework. Considering the strategic capabilities of Tesco, Tesco competitive advantage will be analysed with respect to its strength. This is based upon Porters argument that, a firms position itself by leveraging it strength. Lower Cost Differentiation Cost leadership Low product system Low life cycle cost for Tesco product High reliability of Tesco product and non intrusive serviceability for Tesco electronics. Tesco unique resources, trademarks, proprietary know-how, uninstalled and installed customer base Differentiation Adequate advanced functionality Aesthetic product features Integration capabilities and upgradeability, convenient product availability in terms of quantity, location acquisition and installation. Confidence in the product Equity of Tesco brand Cost focus Differentiation focus Looking at the overall strategy of Tesco, one will not hesitate to conclude that Tesco has a broad target. Here Tesco is able to bring its product faster to the market than some of the competitors. Thanks to its huge investment on technology, it existing relationship with suppliers that facilitate the smooth flow of resources. Thus the company is focused on cost leadership and differentiation. 2.2Implementing Change in the activities of Tesco In the present stage of the global financial crisis, we begin to write and state how Changes can also be structural, that is dealing with the physical alteration of an organization like its buildings and equipment or even employees. (Bennett & Durkin, 2000). On the other hand, it may be a change in process, that is, the way the related group of tasks are combined to create value for a target customer. (Cao et al, 2000, p188). A change can as well be in functions, that is, the decision system or policy and resource allocation duties of a particular element of an organization. There can also be changes in values, beliefs and human behavior in terms of social rules and relationships and so on. (Cao et al, 2000, p187). Lastly, there can be changes in the distribution of power and level of influence with an organization. Tesco is known as a low cost provision store, and in the phase of different pressure coming from different stakeholders its needs to start changing the way of doing things through the challenge of the taken for granted. Organisational paradigm according to Johnson & Scholes (1997) are those set of assumptions, beliefs which are rarely talked about, which are not considered problematic and most often managers in an organisation are unlikely to be explicit about it. It reflects the collective experience without which members of an organisation would have to do things their own way in different situations they face (Johnson 1992, Johnson &Scholes 1997). According to Dwyer & Kemp (2000:3), “the forces at work in the environment and the organisations capabilities in coping with these, are made sense of in terms of the individual experience of managers and the collective assumptions within the paradigm”. Figure one below summarises the cultural web and the organisational paradigm as construed by Jonson and Scholes (1997 Fig. 2.10, p. 69) These assumptions are more commonly observed in conversations, discussions between the different stakeholders in an organisation (Dwyer & Kemp 2000). In some situations assumptions are deeply embedded in an organisation and its’ members that it can only be manifested through peoples action (Dwyer & Kemp 2000). In all, these assumptions, ways of doing things are the backbone of the organisation (Johnson 1992, Johnson &Scholes 1997). Johnson & Scholes (1997) contend that, using the organisation paradigm a new cultural environment can be created. This is so because, by looking at the cultural web, you see what the organisation is like “now” and you mimic how you want it to be in future. The difference is the change the organisation intends to make. The same idea was supported by Dwyer & Kemp (2000) when the researchers argued that, most organisations only look at the paradigm during a change process. From the cultural web above, six major types of artifacts can be distinguished — rituals and routines, stories, symbols, power structures, organisational structures and control systems (Johnson & Scholes 1997). These artifacts are the wider aspect of an organisation that give a clue of the paradigm, reinforces the assumption behind the paradigm and represent that organisational aspect taken for granted (Johnson & Scholes 1997, Dwyer & Kemp 2000, Johnson 1992). 3.0Possible Outcome of Tesco Change Management Program The change process begins with identifying the need for a change in the foregoing state of the art. You need to identify the necessity first for a change and then have belief in yourself that you can do it. The change process involves factors such as making the employees aware of the change to come and taking away resistance to designing an efficient and effective organizational structure. (Hoogendoorn et al, p1). Only a part of the organization may be affected by the change or the entire organization. The initiator of a change in any institution may be an individual within the organization, the institution itself or the external environment and also may involve only members within the organization or other agents from outside the organization. (Hoogendoorn et al, p1). In going into the change process, there should be total clarity as to the purpose, values, mission and culture of the change required. Some workers will quit, the will be some resistant to change, and change will be a continuous process. 3.1 Conclusion and Recommendation The successful management of the change for Tesco involves the taking of ‘critically systemic’ decisions with respect to the use of multiple methods in relation to the problems encountered. (Cao et al, 2000, p189). During a strategic change process, an organisation paradigm becomes quite useful because it identify within the cultural web what is now, how the organisation wants it to be. The difference between what it is and what the organisation wants it to be is the intended change (Johnson & Scholes 1997). Looking at the factors in each, you can begin to see the bigger picture of your culture: what is working, what isn’t working, and what needs to be changed (Johnson & Scholes 1997:68). References Bennett, H., & Durkin M. (2000). The Effects of Organizational Change on Employee Psychological Attachments: An Exploratory Study. Journal of Managerial Psychology. Vol 15, No 2 pp 126-147. MCB University Press. Cao, G., Clarke, S., Lehaney, B. (2000) A Systemic View of Organizational Change and Total Quality Management. The TQM Magazine Vol 12 No 3 pp. 186-193 MCB University Press. Dwyer, K. & Kemp, S., (2000). An examination of an organisational culture- The Regent Hotel Sydney. International Journal of Hospitality Management. Vol. 20, Issue 1 Pp. 77-93 Hagan, M. C., (1996).The core competence organisation. Implication for Human Resource Practices. Human Resource Management Review Vol.6, No 2. 1996, Pp. 147-164 Hoogendoorn, M,. Jonker, C. M., Schut M., Treur J Modelling the Organization of Organizational Change. Available on Website: http://www.cs.vu.nl/. Johnson, G., Scholes, K., & Whittington (2007). Exploring Corporate Strategy, Prentice-Hall, Europe Kanter, R. M. 1995. “Mastering Change.” Pp. 71-83 in Learning Organizations: Developing Cultures for Tomorrow’s Workplace, edited by Chawla and Renesch.Portland, OR: Productivity Press Sacconi, L. (2004). A Social Account for CSR as Extended Model of Corporate Governance (Part II): Compliance, Reputation and Reciprocity. Journal of Business Ethics, No. 11, pages 77-96. Wonglimpiyarat, J. (2004). Amex’s strategies for launching the smart card innovation. Technovation 24 (2004) 773–777 Wu, S. & Chien, F. C. (2006). Building Core competences through operational Excellence. International Journal of Production Economics special issue on ‘‘Building Core-competence through Operational Excellence’’ Read More