Tesco PLC (or “Tesco”) is an international retailer. Based in the United Kingdom, where it is the leader in the grocery retailing, the company is considered to be world’s third largest retailer in terms of gross sales. The company was originally a UK-focused retailer that specialised n food and drink but eventually it has diversified both by products and geographically.
It is now into clothing, electronics, telecoms, financial services, health, car and dental insurance as retailing and renting DVDs, and software (Tesco, 2010a).
Geographically diversification has resulted to its retailing and associated activities outside the United Kingdom including that of China, The Czech Republic, India, Japan, Malaysia, Poland Hungary, the Republic of Ireland, Slovakia, South Korea, Thailand, Turkey, and the United States (MSN, 2010a).
This paper evaluates the company’s competitive environment, financial performance using ratio analysis, the corporate strategies being pursued by the company using relevant frameworks.
Discussion and Analysis
The Competitive Environment – Industry Analysis
Macro Environmental Analysis
The significant macro trends in for the past five or more years along with the telecommunication industry, and the much felt recession in the economy, not only in UK but in many parts of the world and which came about as result of the financial crisis.
The emerging trends of Internet and telecommunication have effected many changes, which can only have produced undeniable marks in business particularly in keeping the world economies running. These developments have enabled more business entities and many people as to interact to each other. Companies found themselves expanding and diversifying in not only products and services but also geographically.
These developments, believed have in fact driven business activities globally are supported by the increasing number of world internet users as by researchers. With the global online population online will grow to about more 2 billion by 2014 , or more than 40% from 1.6 billion in 2009 (Enright, 2010).
The Global financial crisis of 2008 and onwards has affected many British and American people. The US, UK and other governments needed to have bailout plans that would have to help solve the problems caused by financial crises that produced loss of many employments.
Loss of jobs means lower power of the consumers to spend and to keep the economy running (Samuelson and Nordhaus, 1992; Dornbusch, and Fischer,1990). It could also mean less trust for the financial system to encourage investors to take risks in putting once again their investments which suffered losses because also of the crisis.
Industry Analysis – Five Forces
Using the five forces model by Porter (1980) the following are the derived results. The threat of availability of product substitutes is high because retail products generally cater to basic needs and the effects of recession would cause people to look for low price products and bringing competition to more on prices and thereby affecting attractiveness of the industry.
The bargaining power of buyers is high because of the nature of the products – food, groceries, clothing – (Tesco, 2010a) and because of the low switching cost in changing brands for some products in the industry.
The intensity of rivalry by competitors as evidence by the competition for lower prices for which Tesco is known in the industry. There is also ease of entry by new entrants at to come is not requiring much capital in the retail industry. There is also a high bargaining power of suppliers since there are numerous manufacturers of consumer products in the industry.
Internal Environment Analysis
Financial Analysis
Financial analysis is constructed by comparing the overall financial situation of Tesco using ratio analysis based on its financial statements as retrieved from their Annual Report for year 2009 (Tesco, 2010b) and prior year.
The most critical for evaluation the strength of the company it is performance on whether it is profitable. Tesco appears to more profitable compared with industry average. While Tesco had a merely 4% net profit margin for 2009 as against that of competitors at 1.97 %, as represented by the industry had for the same year.
The difference becomes clearer in terms of return on assets (ROA) where the company had 5% in 2009 as against industry average of 2.13%. The same can be said on return on equity (ROE) where the company had 17% in 2009 as against industry average of 5.27%. Also using return on capital employed (ROCE), the company showed high positive ratios of 11% and 14% for the year 2009 and 2008 respectively.
The lack of available industry data for ROCE prevented the comparison with competitors. Tesco is evidently better than average competitors are when it comes to profitability. See Table A below.
As to liquidity, Tesco can be evaluated as to its strengths. If it can pay its currently maturing obligations on time then it is liquid (Helfert, 2001). The quick ratios of Tesco are 0.61 and 0.35 for the years 2009 and 2008 respective while the current asset ratios for same years are 0.76 and 0.58 the same respectively (Meigs, Meigs and Meigs, 1995).
See Table A. As against competitors or industry averages of 0.87 and 1.02 for quick ratio and current ratio, Tesco reported lower. Thus, the company is less liquid than its competitors and is therefore a weakness.
As to its gearing ratio, Tesco also showed a less superior position with its debt to equity ratio of 2.54 and 1.53 for 2009 and 2008 respectively as against industry average of 0.45. This time, the higher the ratio, the less favourable it is for the company from the point of view of an investor since it would mean more riskier investment (Helfert, 2001).
Unique characteristics of the company
By identifying unique features of the company not possessed by ordinary competitors that provide a competitive advantage, the same may also be considered as company strength. The company claims to have a consistent strategy for growth.
Using the above approach, Tesco can be considered to have strength of having consistent strategy for growth being able to outdo competitors in terms of sales and profits despite the crisis that started at the latter part of 2007 and even at present. The company is operating in many countries, which were affected by the crisis, but it was able to increase revenues and profits (Tesco 2010).
SWOT
This part in effect summarizes the discussions made in the external environment using the five-force model (Porter, 1980) and those made from internal analysis using unique company characteristics and financial analysis.
SWOT stands for strengths, weaknesses, opportunities and threats. The first two are the results of the internal environment analysis while the last two – opportunities and threats are those from the external environment analysis.
Strengths and Weaknesses
These are conditions or characteristics of the company, which could be tapped by the company in its design of its strategies. The following are the company’s strengths.
Consistent strategy for Growth – (Strength)
Tesco has a well-established and consistent strategy for growth, which has allowed the company to strengthen its core UK position and attain expansion into new markets outside UK (Tesco, 2010b).
High profitability – (Strength)
The company’s higher profitability than competitors is evident based on net profit margin, ROA and ROE as against industry averages. The company’s efficient is also evident in terms of ROA and ROCE at the same time
Generally less liquid than industry – (Weakness)
The company is generally less liquid with current ratios and quick below 1.0 for the last two years and even as against industry averages as found in the financial analysis.
Higher leverage position than industry– (Weakness)
Its debt to equity ratio is lower than its competitors. This may explain the higher stock price of the company compared with indices despite its having lower profitability than industry as earlier explained in the financial analysis.
Although the company was found to have weakness, knowledge of the same will be considered in the strategies by turning them into strengths or avoid unnecessary acts to aggravate the same so that it could accomplish its objectives.
Industry Opportunities and Threats
These are derived from Porter’s five forces and the macro environmental analysis
that may be favourable (hence called opportunities) or may cause decline (hence called threats) in the profitability of the company.
High availability of product substitutes –( Threat). This could decrease the chance to earn more profit as customers or buyers could switch to other products easily.
High Bargaining power of buyers – (Threat). This could aggravate the company’s low profitability, as customers would need to cut their expenditures due economic pressures caused by crisis
High intensity of rivalry by competitors – (Threat). As found earlier, this forces existing player to fight for profits in terms of lower prices.
Ease of entry by new entrants – (Threat). Not requiring much capital could actually encourage more to come in easily to the retail industry.
High bargaining power of suppliers – (Threat ). There are many suppliers of the industry and giving power over retailers thus reducing the latter’s profitability.
Evaluation of Existing Strategies
The corporate strategies being pursued by Tesco include that of continued organic growth and diversification. It also claimed to have long-term growth strategy, as it was able to grow despite the global recession. It strategy is staying close to customers while giving them value for their money (Tesco, 2010a).
The business of the company was originally in food retailing but it has expanded to non-food as way of showing and proving its diversification strategies. It helped the company to reduce risk as a result.
To evaluate the present strategy, there is need to know whether the company follows some of the principles that may be learn from some models for strategic management. The following questions will have to be answered in determining the strategic issues now faced by the company:
“How does present strategy competes in relation to strategic management models?”In using Porter’s Five-force-model, does it take advantage of industry opportunities, protect itself from industry threats, make uses of its strengths and correct its mistakes?
The present strategy is geared toward diversification as can be analyzed from the most expansions of Tesco’s business internationally and into non-food business. From the financial reports, the profitability performance of the company in relation to the industry is evidently better.
This is despite the industry threats and company weakness. Tesco was found to have protected itself from threats by offering value to mores customer via diversification and having efficient operations, it was able to sell at lower prices, which caused the company to have increasing revenues over the years (Churchill, Jr. and Peter, 1995, Kotler,1994).
The company has the policy of growth in annual dividends. Even during recession, the company was able also to provide dividends because of its profitable operation. The strategy would seem not to avoid its weakness of generally less liquid position in the industry. While maintaining giving its dividends, it also borrowed more than its expansion needs and thus further causing its gearing ratio or financial leverage to become higher.
Such acts also may further put the company to more risk. Since higher profitability and increasing stock price (See graph below) sustains such acts of management, it can only be inferred that company was still maximizing the returns from the increased risk and may be attaining optimization targets (Brigham and Houston, 2002; Bernstein, 1993; Byars,1991).
Stock Price Graph
Proposed Strategy
The company can invest on Research and Development activities to some differentiation on its as a way of building switching costs. One basis for this is the industry threat of strong rivalry among existing players in the industry. The company could strengthen its branding strategy and at the same further develop new as products needed by the market to create an advantage over competitors.
Another basis is the industry threat of high bargaining power of buyers. By focusing R&D on what will make its product unique and different other buyers may be neutralized or at least be warned of the high risks of spending resources that will not produce the expected rewards for more profitability. Still another basis is the industry threat of high availability of product substitutes.
By differentiating its brands, it could build brand loyalty and without the need to compete basically on price. Another basis is the company strengths of high profitability. The company can make use effectively of its resources being generated from operations.
Conclusion and Recommendation
This paper has found profit maximization strategies employed by Tesco for the past year. It was has increased its gearing ratio in 2009 compared to 2008. However, it had higher profitability as against competitors in the industry. It had also increased it liquidity but still the company has below 1.0 current ratio, which may cause a problem in paying currently maturing obligations.
The financial crisis tested the prowess of the company as it adopted further diversification as way to reduce risk and increase profitability. The company has been wonderfully responding to the changing needs of its markets by lowering prices, introducing more affordable products and offering sharper promotions.
By lowering its prices, the same has the effect of protecting itself from industry threat of strong rivalry in the industry and ease of entry by new players because of nature of the industry that being not capital-intensive. Its core strengths had indeed protected the company from the economic downturn.
As the crisis appears not to have gone away completely, it would do well for the company to continue diversification. It should also invest in research and development cost to protect the company from industry threats and make use of its strengths.
References
Brigham, E. and Houston, J. (2002). Fundamentals of Financial Management, Thomson South-Western, US.
Meigs, R,. Meigs, W., & Meigs, M. (1995). Financial Accounting. McGraw-Hill, New York, USA.
Tesco UPL started in London’s East End. It was founded by Jack Cohen as a one man business. He was a son of a tailor and when he started it, he specialized in selling groceries in the markets of London East End. The company started in 1919 and it adapted its brand name Tesco on 1924.
The brand name was delivered from a combination of the initials of its former supplier T.E. Stockwell (TES) with initials (CO) from his surname. Thus, the misconception that the brand name Tesco originated from a combination of his name Jack and his presumed wife Tessa is wrong, since he has never been married to such a woman.
Tesco started its first store at Burnt Oak, in 1929 and it started trading its shares in London Stock exchange in 1947. It was in 1956 that it started its first self-service store and first supermarket in St Albans and Maldon respectively (Tesco Corporate Profile (2004, para.5).
Tesco has expanded greatly to be the biggest chain of supermarket in United. Internationally, it is placed at position four after Wal-Mart of United States on America, Carrefour of France, and the Home Deport also from the United States of America. Tesco has been successful in opening stores in 14 countries in Europe, North America and Asia.
The company has expanded his line of production from specializing in selling groceries by also stocking consumer goods, financial services and Telecoms that has enabled it generate revenue of £3.41 billion annually(Tesco Corporate Profile (2004, para.7).
Tesco-Corporate Strategy
Tesco’s expansion over the last three decades comprises of a complete change of its strategy and image. In its early years it used a strategy that was known as ‘pile it high, sells it cheap’.
This strategy was initiated by Jack Cohen and was very effective by then, but latter it was not successful in selling the brand to the middle-class customers, since they had a poor image for the brand. In 1970s, many consultants recommended a change of the names of its store due to their poor, an issue that was never implemented.
They latter changed their strategy that enabled them establish a well consistent growth that facilitated it in 2005 to become the biggest retailer market in United Kingdom with a domestic grocery market share of 29% compared with 16.8% of Wal-Mart who were formerly dominating the market. The company established a strategy that that was aimed at broadening the scope of the business. This was meant to ensure that the company delivers a strong sustainable long-term growth.
This new strategy entailed expanding the domestic markets to offer diversified products such as non-food, telecoms and financial services. This strategy which was initiated in 1997 is the one that ensured the growth and success of the company. This strategy comprises of five elements;
Core UK: Tesco has the biggest domestic market in United Kingdom. Approximately 70% of their growth and profit occurs in UK. It has over 2,200 stores that have enabled to employ more than 285,000 people. Its expansion in UK happens as a result of extending its established store, opening new store and lastly by the strategy of multi-format approach.
Its sale of non-food has greatly boosted the expansion of the company. To sell its products, Tesco has adapted five diverse store formats which are costumed to meet the needs of their customers. They are categorized according to what they stock and size. They include;
Express (up to 3,000 sq ft)
Tesco has more than 960 such stores that sell a range of up 7,000 products to their customers. They are located close to where their customer live and work for convenience while buying. They stock high quality and fresh food stuff, wines and spirit.
Metro (approx. 7,000-15,000 sq ft)
The company has more than 170 metro. The first metro was established in 1992. Metro are aimed at enhancing the conveniences of shopping in towns and city centers. They stock variety of products including sandwiches and ready-meals,
Superstore (approx. 20,000-50,000 sq ft)
Tesco have more than 450 such stores that stock a wide range of products. Nowadays they have diverse products that include non-food products such as books and DVDs
Extra (approx. 60,000 sq ft and above)
In the United Kingdom, there are over 175 such stores. They stock a wide range of non-food and food products. These products include clothing, health and beauty, electrical equipments and others. The Homeplus is another store that is on trial .They are 10 in numbers and are aimed mostly at stocking on non-food products.
Apart from Tesco designing its stores in various formats to suit its customers, it offers its products in a broadened appeal. Tesco is continually investing to expand their line of production to offer their customers a wide variety of products to choose from. Tesco products enable various people to purchase their different products to supplement their lifestyle. For instance, their nutrition labeling educates their customers on the key information that enable them make an informed decision when buying from their stores.
The recent economic depression had challenged their business greatly and as a result invented 500 more products that will enable various categories of customers to buy various products at a cheaper price without compromising on quality. Tesco stores are designed to appeal all the classes of their customers in reference to their social economic status.
They ensure it by forming a slogan named ‘I’m not aware of any other retailer achieving’ this slogan has enabled Tesco appeal to every segment of UK market.
Tesco Clubcard is a global leading loyalty card scheme that has information that enable Tesco understands its customer better and give them an opportunity to appreciate their customer for shopping with them. Tesco possess more than 8 million distinct coupons. Each clubcard mailing designed to reflect the type of bid suitable for any of their customer. The company has more than 15 million active cardholders.
Tesco is the biggest private employer in UK with a workforce of more than 285,000. The company offers its customers packages of pay and benefit like children care vouchers or Save As you Earn. This is a scheme for saving that enables their customer to purchase shares at a discounted rate (Tesco PLC, 2010 Para. 6).).
In summary, Tesco has used the strategy of diversification to become among the leading firms globally.
The ability of the firm to succeed in selling its own-brand to its customers has helped the company make sufficient profit as this strategy ensures that a company retains a higher percentage of the overall profit. Thus, the company has enough resources at its disposal to expand to other places locally and also globally.
Another strategy adapted by Tesco is core UK business. This involves stocking of grocery in its home market. This retailing is characterized by very strategic moves that entails opening large scale store in areas that other competing firms have shunned to explore. This strategy gives Tesco the advantage of being the first entrant thus; concentrating on establishing a strong brand in those areas such that other competing firms cannot be able to match its performance when they venture in these areas latter on.
Non-food businesses-Apart from being successful in its grocery business, Tesco has also diversified its operations to include non-food products such as cloths, electronics, health and beauty products among others. This new diversification has ensured high revenues and especially in Ireland where it records very high revenues due to the sale of CDs. Retailing services;-Tesco has also expanded its operations to offer services such as personal finance.
It has succeeded in the retailing services by entering in joints with other main players in the sector. This has strengthened its brand and expanded its customer base. Other competing firms in UK have also adapted this strategy, but Tesco have implemented it more strategically a move that has ensured this venture very profitable (Tesco PLC, 2010 Para. 8).
For example, Tesco clients enjoy banking services from Tesco Bank which was initially a joint venture between Tesco and the Royal Banking of Scotland. It gives its customers offers on various products such as loan, credit cards among others. This new service ventures helps the firm record very high profits that assist the firm to venture in new services or areas. Tesco is also engaged in the cell phone industry.
It cells various home phones, mobile phone and broadband business to various consumers across the globe. It has liaised with successful experts of existing telecom operators.International-Tesco started to expand outside UK in early 1994, and in 2005 it was successful to globalize approximately 20% of its operations mainly in central Europe and Far East (Tesco PLC, 2010 Para. 10).
Tesco Social Responsibilities
Buying and selling their products responsibly: Tesco have thousands of suppliers globally. They prefer their suppliers to be innovative and dynamic. To ensure it, they spend approximately £800m of their turn over in United Kingdom for local sourcing. Tesco verify where their products originate from and also ensure they are produced in accordance to their standards.
To achieve a very competent workforce that will be dynamic and very effective, Tesco has trained more than 400 suppliers in China, India, Bangladesh, Spain and United Kingdom on how to enhance labor Standards to realize a workforce that is self motivated and very competent (Tesco Corporate Social Responsibilities, 2010, Para.2).
Protecting the Environment: Tesco is committed in ensuring that its activities have very little negative impact on environmental. It achieves this by leasing with its supplies and encouraging them to ensure they use environmental friendly production methods to minimize pollution. Tesco has a vision to reduce its carbon emission to zero by 2050 by adapting the following strategies. Reducing carbon emission in all the new stores they will erect and the existing ones by 2020(Tesco Corporate Social Responsibilities, 2010, Para.3).
Creating good jobs and careers:-Tesco employees are more than 285,000. Thus, Tesco expansion is an assurance that it will continue to give people more employment opportunities that assure them of a daily source of income for themselves and their families (Tesco Corporate Social Responsibilities, 2010, Para.3).
Assisting customers make healthy choices:-Tesco products are labeled accordingly to assist various customers make informed decisions, while buying from their stores. They encourage their customers to purchase and eat more vegetables and fruits. It is done by offering discounts and promotions on such products.
They occasionally take direct roles to ensure that their customers get healthy. They encourage people to lead active lifestyles. Healthy lifestyle helps one to balance the energy they consume to the one they expend. Some of the strategies it has adapted to make sure people live healthy lifestyles is by supporting aerobics and soccer tournaments for its customers (Tesco Corporate Social Responsibilities, 2010, Para.4).
Advertisements
Tesco capitalizes on the power of strategic advertisement to sell its brand locally and globally. It is noted as one company that uses very many advertisements yearly. It’s advertisements emphasis about affordable prices for their products and on healthy living. Tesco’s marketing department is very dynamic and innovative on the most successive advert to employ.
The following are examples of adverts that have been used in the past; in 1982 it used its famous advert referred as “Checkout 82” .this advert involved a till with receipt coming from it with various prices. In 2003 Tesco advertised through adverts that comprised of items and shopping trolley that contained information about Tesco. Currently, Tesco is using adverts that comprises of celebrates such as the Spice Girls
In conclusion, Tesco can be considered as a very successful company that originated from scratch to become a global company through its strategic chose of its corporate strategy,
Social responsibility and Advertising. Thus, it can be a good role model for those upcoming companies that they can live beyond their odds to become among the leading organizations in the world.
Tesco’s expansion strategy focused more on developing countries than the developed countries. This was the case because in the developing countries, there is no stiff competition and the markets in the developing countries have a great potential (Barclay, 2000). Competition is a very important aspect when it comes to investment decisions.
Thus, the management has to strategize very well so as to avoid being affected by competition (Hitt, Ireland & Hoskisson, 2007). Tesco’s aim was to make a profit; hence investing in less competitive regions was the best way to go. Furthermore, the market in the developing countries has a lot of potential and this is an assurance that the revenues received will be enormous.
Tesco creates value in its’ international operations in various ways, first Tesco does not involve a lot foreigners when launching an investment in a new country. It is imperative to recruit local individuals when launching an investment in a foreign country. The local individuals can be assisted by experts from other countries (Estrin & Meyer, 2004). Recruitment of local citizens enables the potential market to associate more with the company, this will increase the company’s market, hence more profits will be attained (Tallman, 2007).
Secondly, Tesco launches investments in countries where multinational companies are present. It is of utmost importance to analyze a specific market before launching an investment (Estrin & Meyer, 2004). This enables Tesco to be able to detect the mistakes done by other multinational companies and correct them. In addition, Tesco is able to know the most appropriate management and marketing strategies to apply.
Joint-venture agreements have also become a current trend with the launch of investments (Verbeke & Merchant, 2012). Tesco has engaged in joint-venture agreements with the Asian locals so as to be able to unveil their business in the region.
The benefits of joint venture agreements are high levels of innovation, the potential market associates more with the company, the company’s staff become diversified and high revenues are received (Bouchet, Clark & Groslambert, 2003). The risks involved with joint venture agreements include lack of goodwill of the local investors, the local company might have a bad reputation, and the profits realized at the end of the accounting period might be meager (Tallman 2007).
These risks have to be addressed by ensuring adequate research about a specific company is done before partnering with that specific company in any investment (Estrin & Meyer, 2004). The local company has to have a good reputation, it has to be a law abiding enterprise and the potential market should have a lot of respect for that specific company (Hitt, Ireland & Hoskisson, 2007).
Secondly the local company’s books of accounts have to be analyzed by financial experts and if sales volumes of the local company are low, it is not advisable to create a joint-agreement (Barclay, 2000). The local company has to be a stable entity and the perceptions of the potential market concerning the local company have to be analyzed before engaging in the joint-agreements (Verbeke & Merchant, 2012).
Tesco broke its’ tradition of investment in developing countries and invested in the United States in March 2006. The reasons why this decision was made include adequate research about the American market was already done, availability of the factors of production such as land, labor, capital and favorable legislation practices.
The US market is different from the market in the developing countries in various ways, such as the presence of stiffer competition, the existence of numerous multinational companies and different tastes and preferences of the target market (Bouchet, Clark & Groslambert, 2003).
The preferences of the American people will not be the same as those of other individuals. The risks associated with the launching of Tesco in the US are that the sales might be low due to stiff competition, the American market might not associate itself well with Tesco and the operating cost in the US might be very high hence lowering the profits. Considering Tesco’s performance in the UK it will also do well in the US. This is because the two countries are not very different and the US and the UK are great allies, hence the perceptions of the target market will be positive (Tallman, 2007).
The best option for the Canadian firm dealing with pharmaceuticals would be to enter into a joint-agreement with the large European pharmaceutical firm.
The benefits of this option are positive perceptions of the local market, high profits will be attained as the sales volume will be high, diversity of staff working in the joint venture will also enable the enterprise to earn the support of all nationalities and the joint venture will be able to comply with the local laws as the local company will already be enlightened about them (Estrin & Meyer, 2004).
The reputation and financial stability of the local company have to be investigated and in cases where these two aspects are unfavorable the effects become detrimental (Barclay, 2000). High levels of profits will be attained if the local company is financially stable and if the customer perceptions about the local company are positive (Verbeke & Merchant, 2012). The Canadian firm has to ascertain all these facts before engaging in the joint-agreement.
References
Barclay, L. A. (2000). Foreign direct investment in emerging economies: Corporate strategy and investment behaviour in the Caribbean. London: Taylor & Francis.
Bouchet, M. H., Clark, E., & Groslambert, B. (2003). Country Risk Assessment: A Guide to Global Investment Strategy. Chichester: John Wiley & Sons.
Estrin, S., & Meyer, K. E. (2004). Investment strategies in emerging markets. Cheltenham: Elgar.
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2007). Strategic management: Competitiveness and globalization: concepts. Mason, OH: South-Western.
Tallman, S. B. (2007). A new generation in international strategic management. Cheltenham, UK: Edward Elgar.
Verbeke, A., & Merchant, H. (2012). Handbook of research on international strategic management. Cheltenham: Edward Elgar.
To attain competitiveness amidst of modern changing business environments, an organization’s leadership team needs to implement operational, project and strategic management strategies that are responsive to the needs of the particular market the company is trading. With effective strategies, a company is able to resolve problems and conflicts that are likely to create a weak link in the companies operations.
Modern contemporary business environments are also posing some dangers to organizations as leaders are finding their old policies and business approached being challenged by the environment prevailing (Wheelen and Hunger,1998). This paper discusses the strategic issues facing the retail industry in the domestic and international market; it will focus on Tesco Merchandise Company.
After discussing the issues, the paper will discuss some strategic measures that the company can take to improve its business as well as improve its competitiveness.
Background of the company
Tesco is an international merchandise company with its main market in the United Kingdom; the company operated a chain of grocery that can amount to over one thousand supermarkets, convenience stores, and hypermarkets in Ireland, the United Kingdom, Asia and Central Europe. Although the company was initially involved in the food sector, it has diversified its operations to clothing, consumer electronics, financial services, and internet services.
The company’s management vision is to develop lifetime customer loyalty and ensure that it adds value on consumers. The company’s vision and mission statement establishes close links and connections with its customers and aims at understanding their needs and enacting policies that improve the relationship.
Other than focusing on customer needs, the company maintains an effective human resources department that ensures the Tesco maintains and sustains trained, motivated, and adequate staffs at any one point in time. Despite the company being among the oldest and successful retail companies in the world, it is facing some challenges that are limiting it meet its profitability (Tesco Limited Official Website, 2011).
Problems facing Tesco
Other than being a leader in the retail industry, the company is facing some challenges; the first issue facing the company is regard the use of e-commerce tools. Although the company has a computerized system of marketing as well as payments for goods, it is still lagging behind some of its competitors like Wal-mart that seems to have moved a step ahead.
Tesco’s system accepts only a limited number of electronic payment systems like debit cards, credit cards, and online payments buts lack some of the main upcoming e-business or payment methods like PayPal, western union transfer, and wire transfers. The weak system has locked some customers from buying form the company.
In the same line of computerization, the services cannot be differentiated thus a customer lacks the motivation or the drive that can make him or her come again for the services. The internet section of the company is facing some challenges especially when it comes to browsing and downloading works; the computers are slow and sometimes customers are expected to wait for over ten minutes to get a download.
With the large chain of works and variety of commodities they stock, the company has had deficit of products in some stores; at times, the products may have run out of stock without the management being aware or there has been a delay in delivery.
This is brought about by system failures and the interdependence of branches (when buying commodities that cannot be bought in bulk; the company joins the needs to two or more branches than orders the product in bulk), when this happens, some commodities are found not in their shelves (Tesco Limited Official Website, 2011).
Genetic tool kit to identify challenges and how to solve them
To identify the above problems and solve them, the company should use a hybrid management toolkit; a method of management that combines the strength of Six Sigma management approach and Total Quality Management strengths. Under the method, the company will be required to set some benchmarks of operations that should be maintained at all times in the organization.
To ensure that the benchmarks are attained, the management should set some operational system appraisal methods.
Identification of problems
All operations with the organization should be documented and optimal operation levels set; the document whether in print or electronic should be made available and accessible to every employee in the firm; the responsibility of every staff as long as the attainment of the set standard should be well defined.
Some challenges face an organization because of reluctance of employees or those companies that have been subcontracted; to ensure that this does not happen, the company should have a punishment mechanism of any person whether natural or artificial who limits the attainment of the benchmarks set.
The blue print document acts as the point of reference in day-to-day operation and the best strategy line of operation should be formulated. With the strengths of Six Sigma, which allows a company to establish its areas of weakness and inefficiency, then the approach will help know those areas that need to be addressed for a competitive business.
To have efficiency, the company should strengthen its internal control and review its contacting policies; those operations that are not core, like cleaning the stores, should be outsourced to ensure that the company’s management concentrates in the main line of business (Wheelen and Hunger,1998).
The over one thousand chain should have an independent or regional management approach; having a central management structure of more than one thousand stalls is not practical and If made, then chances of high inefficiency can be expected. The management should change its structure to ensure that managers are responsible for few stalls.
This will improve e delivery and facilitate solving of problems at local or regional level. The computer and internet system seems to be one of the thorns that the company should be looking at; the failures that the company is getting are coming from adopting technology that is outdated or one that cannot be fully be relied upon.
As far as the system is concerned, the company has two options; to either change the complete system and adopt a better version or improve the current one. The choice of the matter depends on the situation and the availability of either option.
The company should continuously restructure and rebuild its vision and mission; developing a strategic vision and mission involves thinking strategically about the following three questions
What are the customer’s needs?
How much is the company offering? Can we do better?
Where are we now?
Where do we want to go?
How will we get there?
The following diagram shows how the company can use the Hybrid system to counter check its processes and probably improve them:
Chart 1
A vision is a view of an organizations future and business course: it is a guiding concept for what the organization is trying to do and become. All must be looked into to ensure that there is no one area that benefits at the expense of the customer. Setting objectives that are aimed at meeting the gap that the company had not been filling in the past; the aim of setting the objective is to ensure that the company has embarked on the fulfillment of the need of the customer.
The aim is to improve the feeling that the customer will get when he has transacted with the business. The objectives are aimed at improving all the area of the organization and the measurement is the satisfaction that the customer will get. A satisfied customer will be a loyal customer and the business stands to benefit (Kotter and Schlesinger, 2008).
The failures in deliveries can be a matter of internal controls, supply chain management or the computer system; this is a sensitive area that needs to be addressed independently; by independent it means that the problem should be handled separately and the root causes sort. After noting the area with a problem, then the management should seek to handle and solve the root cause.
The following is a sample of a supply chain chart that the company can adopt to have an effective supply chain management:
Chart 2
(Goold and Campbell, 2002)
Periodically, the company should be taking internal and external business analysis: internal business analysis seeks to show the strengths of the company, how well it is compiling with the set standards and establishing any area that need improvement. When undertaking internal analysis, the managers should ensure that the benchmarks they have set are complied with and when they have not, the cause of the deficit should be diagnosed.
Through TQM, the company will be able to develop customer royalty; it will be able to surpass other companies to become the world largest merchandise retail chain. For a company to continuously improve its processes and attain the set goals as well as surpass the expectations of the customer the company should keep reviewing its policies (Fred, 2008).
Strengths of the proposed method
A hybrid management-tool kit has its main strength in the approach that it will take; the method address all areas of the business and ensures that problems that the company may be facing are recognized at the earliest time possible. On the other hand, the process involves every human capital in the organization for its success; it does not overburden the managers but spreads the functions across the board.
Strength with hybrid system is that it ensures that a benchmark has been set which operates as the line of best business pathway. With such moves, Tesco will establish those areas that might be causing problems and be able to address them accordingly.
Weaknesses of the method
The method is an overall quality and problem recognition approach, this means that it can only operate when all mechanisms are set to go; it does not offer advice on what to do but only evaluates the mechanism set.
The method establishes weaknesses and areas of inefficiency but does not offer mechanisms of preventing the occurrence of challenges; the main concentration is how to identify a problem and solving it but no-much has been provided to avid the occurrence of a problem, thus the business may be identifying problems when danger has already happened.
Method of improving the system
To ensure that the system works better, management should integrate a gap analysis mechanism: gap analysis is a tool used by managers to decide which tactics and strategies to use in order to increase production. It is a tool used to link a business vision with its strategies and goals. It helps in identifying a discrepancy in the performance that helps in selecting appropriate strategies to fill the discrepancy.
It was necessary to conduct a gap analysis on the implementation and use of TQM in the company. This was done by asking two simple questions, where is the company now? Where does it want to be five years from now? The following diagram shows the process of identifying the gap within the company (Camillus, 2008).
New policies
As Tesco continues with the hybrid system of detecting and solving issues, the management should understand that every outlet has its unique issues that can be solved by unique management techniques. They should be open to adopt new approaches to different outlets.
Conclusion
Tesco is an international merchandise retail company that is facing strategic issues; the main issues are caused by changing business environments that calls for continuous policy formulation. To ensure that the company remains competitive amidst changing business environments, the management should adopt a hybrid management system. The system will assist the company identify weak points and solve them before they become substantial threats to the company.
References
Camillus, J., 2008. Strategy as a wicked problem. Harvard Business Review. 86(5), pp. 98-106.
Fred, D. ,2008. Strategic Management: Concepts and Cases. New Jersey: Pearson Education.
Goold, M. and Campbell, A. ,2002. Do you have a well-designed organization? Harvard Business Review. 80(3), Pp. 117-124.
Kotter, J.P and Schlesinger, L.A.,2008. Choosing strategies for change. Harvard Business Review, 80(30), pp. 117-124.
Wheelen, L. and Hunger, J.,1998. Strategic Management and Business Policy: Entering 21st Century Global Society, 5th edition, Reading, Massachusetts and Harlow: Addison Wesley.
There are a lot of new companies which emerge in the modern world economy. At the same time, many giants of business appear overboard. Why does it happen? There are a lot of reasons for this and one of the main of them, is the company assuredness of its superiority. The time when the company believes that nothing can ruin its popularity and success, it appears in a great problem. Many factors affect the company success, therefore, a failure in one issue may ruin the whole scheme. Tesco has appeared in such situation when it has chosen to adopted “a mea culpa strategy” (Woods, 2012) and to enter a USA market without following the pieces of professional advice and applying to the research results. The main idea of this report is to consider the situation when Tesco appeared in crisis, to analyse the events and after this to offer some pieces of advice which may help the company to recover from crisis. Even though it seems that the company begins to increase its sales and to return the preference of the customers, some aspects of the company national and international strategies are to be changed. The research is going to be based on the literature review of the information when the company appeared in crisis and the latest news devoted to the current state of affairs in Tesco. The paper will also focus on the company overview with the purpose to understand the decisions made before the problems in the company appeared.
Company Overview
Tesco is a British multinational grocery which started its business in 1919 and successfully continued its raise to the peak of the UK business world. Being the largest retailing company in the UK with the closest rival of half of Tesco size, the company is famous all over the world. Being the largest UK retailer, the company did much to enter the international arena. However, the company is not that unique to enter all the countries and to gain the customers’ preference at once. Tesco managed to enter the markets in Check Republic, France, Hungary, Poland, Slovakia, the Republic of Ireland, Turkey, China, India, Japan, Malaysia, South Korea, Thailand, and the USA during different years. The most complicated for Tesco was the USA market. The problems the company faced are going to be discussed further (Tesco, 2013).
It should be mentioned that Tesco was the first companies which referred to the Internet retailing. Tesco.com is the website of the company which started functioning in 1984 when the first online purchase was made. The Internet shopping of the company is available for the large scope of customers since 1994. This strategy improved the company positions and helped Tesco become the leading retailer in UK. In spite of the leading positions and successful business, the company has a number of problems which have lead to the particular difficulties. Having enumerated the issues Tesco faced with, the literature review of the situation is going to be conducted with the purpose to give the reader the full view of the problem and the measures which have been taken. Additionally, the recommendations for further actions and changes are going to be made.
Summary of the Organizational Problem
Absence of the appropriate leadership is one of the main problems the company has faced with. The top managers of the company which appeared in 2011-2012 failed to complete their tasks successfully as this is the period when the company became to reduce its income. The sales declined and the actions of the managers may be considered as the crucial factors for this. The analysis which is going to be discussed in the next section has shown that Tesco became too assured in its success and it has referred to the risky “mea culpa strategy of self flagellation in response to the 15 per cent plunge in share prices” (Woods, 2012). One more aspect which is going to be considered is the failure to enter the US market with the income the company predicted. The failure in 2011 Christmas campaign and as a result the declination of the income in January 2012 are also the problems which are going to be highlighted.
The company began to lead shabby politics which frustrated many customers. Moreover, the failure to take on and train new employees resulted in the reduction of the service quality. Tesco seemed to stick in one time period while other companies successfully continued development and referred to the changing strategies. The price drop campaign was not also a good idea as the advertising created an impression that the company offered low quality products rather than cheaper ones for the lower from rivals’ price. Therefore, many consumers refused to buy products with Tesco having chosen cheaper but top quality goods. One more problem is the refusal from core food business of Tesco. Specialists say that “Tesco went on an acquisition and diversification spree, but at the same time it under invested in existing stores in the UK and lost its focus on food” (Barford, 2013).
Summary of the Academic Literature on the Problem
Speaking about the scope of the problems Tesco has faced with, it is possible to present the following examples. According to the research, “Tesco reports a 1.8% rise in like-for-like sales in the five weeks to 5 January and Sainsbury’s a 0.9% increase in the 14 weeks to the same date” (Tesco and Sainsbury’s all apples and oranges over Christmas trading figures, 2013). Nevertheless, Tesco cannot be called a winner due to the following. The increase is seen in comparison with the previous periods, however, it to take the numbers from the previous year of the same period, the declination of the income is seen. The income of Tesco reduced by 2% and Sainsbury’s income went down by 0.5%, therefore, Tesco cannot be considered as a winner in this situation. Being one of the largest retail companies in the world, Tesco has fallen backwards.
Furthermore, it has already been mentioned that “a mea culpa strategy of self flagellation in response to the 15 per cent plunge in share prices wiped off its value” (Woods, 2012). The main reason of the appearance of this problem is a mistake of a new chief executive, Philip Clarke, who failed to complete its task and to calculate the income and expenses of the Tesco Christmas campaign successfully (Woods 2012). The staff problem also provoked the issue of lowering the quality of staff performance. The US issue is also connected with the staff. Trying to enter the US market, Tesco has committed a number of mistakes. First of all, it should be mentioned that before entering this market the company spent 20 years on searching the US market, its needs and customer preference. Moreover, Tesco also spent 2 years on intensive on-the-ground research.
The senior executives of the company were sent to the US families with the purpose to research their preferences and needs. The test stores under other trade marks were opened to research the customers’ needs. However, when it was time to practical implementation of the US invasion, Tesco ignored all the research points and organized the marketing in accordance with personal desire. As a result, the US invasion was ruined. The US strategies did not work at the US market, the cultural differences and various life positions affected the situation (Butler 2012). Speaking about staff issues, the personal use of the corporate money should be considered. According to Neate (2012) the Tesco executives spent £9m in 2011 for private jets. Such expenses are to be limited as the company is unable to pay such sums of money on the points which may be reduced.
The company was lucky to have profit at other world markets, therefore, it managed to get some profit and to remain active. However, the expenses the company suffered from were too big to leave the issue without consideration. The company has to reconsider its vision of entering new international markets (Schultes, 2012). There is one more problem Tesco faced. Many scholars stress that there are a lot of grocers which are opening now. It is difficult to keep the priority as different customers have different needs. Additionally, having used to go to one market, not many customers are going to change their preference and go to another one (Felsted, 2012).
According to The Guardian, the company has increased its sales in 2013. The Christmas campaigns 2012 were much better than those of 2011 when the company suffers the deepest crisis. Philip Clarke, Tesco’s chief executive is also sure that the company is “back on form” (Moulds, 2013). However, it has not reached the income it had in January 2012 after the 2011 Christmas campaign as the failures the company has done are too serious to be solved just by one successful campaign (Tesco, 2013). More specific actions are to be done in order to reach the pre-crisis activities and cover the problems which occurred in the company structure.
Solutions to the Problems
Therefore, it is obvious that a company has faced a number of difficulties connected with the staff organization and the choice of the business strategies. However, why has it happened? Pratley (2012) is sure that Tesco has faced all the difficulties and expenses because it became too complacent. The company became assured in its uniqueness and that no one was able to overcome it. The success of the company was considered as something ordinary and obvious, not as the work of many specialists and employees. Tesco management focused too much on overseas expansion having forgotten about the need to pay attention to the national stores.
Trying to solve the problem of the declination of the income, the company should refuse from its cheap products strategy. The advertising campaign should be created with the purpose to stress the quality of the food without mentioning the price. The previous company strategy has shown that customers prefer top quality products even though they seem to be more expensive to cheaper low quality goods. Solving the problem with the staff, it should be mentioned that having a good team of analyst and researchers, the company top managers became so assured in their magnificence that they ignored the recommendations and research results. The company conducted the research of the US customers for 20 years and the self-assuredness of the managers and the rulers of US business ruined everything. The recommendations in this care are going to be directed at the HR managers who have to change the staff training scheme having stressed on financial risks.
Tesco should not try to increase the number of the stores both at the national and international markets. It is important to strengthen its positions as the already existing niche. Moreover, it is possible to widen the clients by means of attracting new range of customers. Various advertising campaigns and discounts may be emerged, however, it is important to listen to the recommendations of the experts who conduct a research. Therefore, the buying rate of the UK and world customers may increase due to the company strategy in the already existing stores.
Conclusion
Therefore, it may be concluded that having assured oneself in personal superiority over its rivals, Tesco failed to notice the fact of personal degradation. The company was sure that nothing could affect its superiority and leading positions at the UK market. However, the company has forgotten that to remain a leader it has to support its positions and strengthen them. The wrong staff and marketing management have led to the situation that Tesco has failed to success and suffered expenses. The change in the HR management and in national strategies may result in positive affect.
Reference List
Barford, V, 2013. Five things Tesco got wrong. BBC News Magazine. Web.
Butler, S, 2012 Fresh, but not so easy: Tesco joins a long list of British failure in America. The Guardian. Web.
E-Commerce can be defined as the process of deploying digital information processing technology and electronic communications to establish, rename, and renovate valuable relationships between individuals and organisations. This goal can be achieved through electronic messaging, advertising, sharing of information, and the interchange of electronic documentation. As a leading retailer in the UK, Tesco has implemented e-commerce in its operational strategy as a means of enhancing its overall operational efficiency and also to meet the needs and expectations of the contemporary consumer.
However, this implementation has been faced with challenges such as the management of delivery and packing costs, maintaining a desirable appeal and relevant assortment, product returns, the unpredictable nature of consumers, building and maintaining consumer loyalty, competition, channel conflict and finally privacy and security challenges. This study followed a mix of qualitative and quantitative approaches to determine the extent of these challenges. Two different sets of questionnaires amongst other forms of collecting secondary data were used.
The results of this study revealed that varying business law across borders within target operation zones, concern with regards to data security and privacy and difficulty in implementing e-commerce to the current system as the main problems behind the implementation of e-commerce by Tesco from which a critical discussion was conducted on these results and conclusions and recommendations drawn.
Methodology
This study took a mixture of qualitative and quantitative approaches. As a result, the study utilized several approaches to gather the relevant data that was required to give out the required information with regards to the research aim and corresponding questions at hand. To answer these questions, the case study approach was applied. Thus, observations were conducted on various aspects of e-commerce with regards to their application in the business model of Tesco.
To ensure that the data that was collected was effective and efficient, only constructs that were affected by the implementation of e-commerce were investigated in this study. These included aspects such as the management of picking and delivery costs, product returns, competition, consumer loyalty and so on. Thus, the impact of these variables of Tesco’s operations, sales and competitive advantage and consumer building, retention and satisfaction were monitored throughout the study period.
Specific personnel were interviewed during this research exercise to ensure that the information that was collected was correct, efficient, and reliable for this study. The sample size was designed in a manner that ensured that all the variables that were affected by the application of e-commerce within Tesco were captured. As Dees (2008) asserted, such inclusion is essential since it enhanced the validity and reliability of the data that will be collected.
In such an event, it will be easy to generalize the overall results to reflect the trends that are being experienced in the market. Thus, the case analysis approach was applied to determine the impact of applying e-commerce in the retail industry in the contemporary world hence meeting the aim of this research study. In addition to this, the observations provided a lot of information that was used to base arguments with regards to the third and fourth research questions.
Population and Sample
This study focused on various departments of Tesco as an entity. The target group of this study was the managers or personnel within the senior managerial positions in the company who could provide relevant data for the study with regards to impacts of the application of e-commerce within the firm’s operations and the possible challenges that they are facing within their respective departments.
Given the positions that they hold in their respective departments, these individuals stood a high chance of giving out information that represents the attitudes and perceptions of the employees who work under them in their respective departments. This focus thus ensured that the data that was collected for the study and the inferences that were made could easily be generalized to reflect the trends of the Chinese market with a strict emphasis on foreign direct investment.
Given the huge size of Tesco and the numerous departments, outlets, and employees that it has, the random sampling technique was used to collect the relevant data for this study. As asserted by Leonard-Barton (2010), this consideration ensured that the sample group was heterogeneous in the sense that it comprised of personnel from different departments and localities within the same entity. This was an essential move to ensure that the data is reliable and could be generalized to reflect the trends in the market. Consequently, this strategy ensured that the case analyses that were conducted were not biased.
Research Design
To fully focus on the research questions, a mix of qualitative and quantitative research methods were used. These methods ensured that all the aspects of the study were covered. This, in turn, increased the validity of the results. The data from the respondents that were collected from case analysis was achieved by the use of questionnaires. A case study analysis was also an essential tool in the research.
Data Collection Methods
As asserted earlier, the research design of this study took a mixture of qualitative and quantitative approaches. These approaches were essential since they ensured that all aspects of the study were considered and scrutinized rigorously. This was a critical consideration, as it enhanced the generalizability and validity of the results of this study.
Interviews
The quantitative data for this study was mainly collected using well-structured questionnaires. These questionnaires will be used to collect subjective data from the respondents of this study. Given the nature of this study, interviews through the use of questionnaires were considered to be the most effective method to collect the data that will be required to realise the study objectives. This method was considered superior as compared to other methods due to:
This study only focused on only one corporation, Tesco. In this respect, obtaining in-depth data would increase the validity of the results instead of generalizing the results to a larger population from a small sample group.
Several studies have been conducted on the challenges of applying e-commerce to business models. The outcomes of these studies can thus be used as sources of information with regards to literature review and areas that require further research on the current study hence setting up the base of developing the questions to be used in the interviews. However, more issues can be used as a basis for further research can be raised through the qualitative approach.
The main aim of this study was to determine the challenges that Tesco is facing in the application of e-commerce in its business model and strategies that it has put in place to overcome them. To realise this aim, primary data was mainly collected by focusing on the interviews that had been conducted on the senior management officials of the firms that formed the sample group of this study. Only one interview was conducted in every department of the company in the outlets that were within the study population.
Consequently, since the main aim of this study was to focus on a specific factor that affects the overall application of e-commerce within this entity, the questionnaire was designed in a manner that ensured all research questions are answered concerning advanced various e-commerce theories. Therefore, the questions were designed either to replicate or contrasts the results with regards to the theories that were presented.
Document Review (Case Study)
Document review is categorized as a qualitative research method. Document review was a source of secondary information for the document. Through document review, some of the methods that had been used in the previous studies were borrowed and applied to the current study. Also, the recommendations of the previous studies were considered in the current work. Information from document review was therefore used as a guiding tool in conducting this study. Additionally, the case study approach was also used extensively to provide general information with regards to the challenges that retailers are facing in the application of e-commerce in their business models. Document review has always been considered as an effective tool for collecting qualitative data.
This approach was thus used as the main source of secondary data for this study. Information was collected from journals, books, magazines, online articles and other credible sources with regards to the issue of e-commerce and challenges that firms face as a result of its implementation. Some of the methods that were identified by critically analysing previous studies were also incorporated in the current study to enhance its validity, reliability, and generalizability. Moreover, the recommendations of previous studies were also considered in this study to enhance the knowledge that is available in the field of e-commerce.
Observations
In this study, it was essential to conduct observations to validate the data that was collected from case analyses and document review. To achieve this, the observations were conducted with regards to the activities of specific departments with regards to how e-commerce was applied and the direct and indirect impacts it had to their operations. Of essence, this technique aimed at determining the policies and frameworks that Tesco had put in place to ensure that its operations are effective and efficient not only in maximizing their profitability but also meeting their needs of their consumers and standing at a competitive edge over rival firms.
Thus, the observations formed an essential part of the data collection method in this study. Observations were used to determine whether the specific departments and the general target group responded (Tesco customers) in a manner that is similar to the results that were collected from the case analyses. After this analysis was done, the resultant data was compared with the data that was collected from the case study and literature review. Observations were thus used to bring out a different perspective of the study to make the conclusions and arguments towards the research questions to be much stronger.
Data Analysis
The first step that was involved in the data analysis process was to summarize the questionnaire responses that were received from the respondents. Further analyses were conducted to determine the relationships that might be present between the questionnaire responses and the data gathered from secondary sources of information (document review). Statistical analyses were also conducted to determine the correlation that might be present between the application of e-commerce and the overall performance of the firm.
Analysis of variance tests (ANOVA) was also be conducted to determine whether or not the results of this study can be generalized to represent e-commerce implementation trends within the retail industry. Further analysis was conducted to reveal the similarities and differences that exist between the responses of various respondents from different departments and outlets. Through this cross-case analysis, the internal validity of the results was also enhanced because a given outcome was confirmed by data that originate from a variety of sources.
Additionally, this study utilized a two-phased process to critically analyse the already collected data. In the first phase, SPSS 16.0 was used to determine the various challenges that Tesco was facing in the implementation of e-commerce through the application of multiple response analysis techniques. As asserted by Leonard-Barton (2010), this approach entails the analysis of different variables in a given time to determine trends and relationships between them.
As such, the responses from various variables can be conducted at the same time developing a pattern that can be further used to further analyse these variables. The second phase entailed the application of hierarchical multiple regression. The study conducted by Leonard-Barton (2010) used this approach to test the impact of specific predictors independent of the influence that the might have on other predictors. In this study, this approach was used to allow the variance in outcome variables to be analysed at various hierarchical levels.
Ethical Consideration
While conducting this study, several ethical issues were considered. Most importantly, the study design considered the religion, culture, and practices of the sample population. Moreover, considerations were put in place to avoid bias on the grounds of gender and ethnicity. Most importantly, the consent of Tesco was sought before the commencement of the study. At the same time, the consent of respective respondents was sought before administering questionnaires to them and their anonymity and confidentiality of their information will be guaranteed (Westfall 2010).
Limitations and Accessibility Issues
Despite these considerations, the main limitation of this study was time. Usually, such studies need to be conducted for several months. However, the current study was conducted within one month. Moreover, due to limited financial resources, rigorous surveys and analyses will not be conducted hence affecting the overall validity of the research study.
Results
After the completion of the pilot study, it was found that Tesco has been facing several challenges in the implementation of e-commerce in its operations. Based on this fact, it was critical to develop a new questionnaire that would best be used to critically analyse these challenges and the impacts that it had on Tesco’s operations with regards to the implementation of its e-commerce strategies. In this respect, it was critical to conduct a validity and reliability test of this instrument before using it to conduct a survey.
This new instrument comprised of a total of ten obstacles that were listed. Respondents were requested to give their views on these issues based on their best knowledge, understanding, and point of view. However, to ensure that it was easy to code their responses, their responses were based on a five-point scale whereby five and one were considered as being very significant and non-significant factors respectively. Using this five-point scale, respondents were asked to rate how each one of these obstacles affected their implementation of e-commerce with regards to the respective departments that they were working for within the overall Tesco operating platform. At this juncture, it was critical to use SPSS 16.0 multiple response command to critically analyse all these variables. From this analysis, it was possible to identify and separate the most important variables from the least important ones. After this exercise, the next step entailed the application of the hierarchical multiple regression modelling. This method was applied to critically analyse the most important variables as well as testing their statistical significance for the impacts that they had on the application of e-commerce by Tesco.
After applying the multiple response analysis techniques in analysing the data at hand, it was found that the following factors were considered as the leading obstacles in the implementation of e-commerce by Tesco:
Lack of proper measures to ensure data security and privacy over the online platform.
Currency challenges especially with regards to cross border transactions and the volatile nature of exchange rates.
Varying business laws across borders.
Unpredictable consumer behaviour.
Challenges with regards to effectively implementing e-commerce to the existing business model of the entity.
Table 1 (check on the list of tables) summarizes the responses received to the ten questions posed in the questionnaire. However, it is critical at this point to note that these five key challenges could have been highlighted by the respondents only by chance. As such, the data below did not have any statistical significance for this study. To realize their significance, it was therefore critical to further analyse the current data.
To critically analyse the statistical significance of the problems that have been highlighted from the primary study, it was essential for this study to conduct further tests. To achieve this goal, hierarchical multiple regression modelling was used. As discussed earlier, this model is essentially a variant of the basic regression model but gives the user the ability to select a predetermined order of entry of the variables as a means of controlling the resultant effects of covariates. At the same time, this model allows the testing of specific predictors independent of the effects of others.
In this study, the thirteen obstacles that were identified in the primary study were considered as the variables for the secondary study. From this point henceforth, these variables will be referred to as predictors. More specifically, the five variables that were identified as being the leading challenges in the implementation of e-commerce by Tesco in the primary study were tested using the hierarchical regression model to determine whether indeed they had a significant impact in the implementation of e-commerce practices by the institution.
However, it was critical at this point to note that there is a probability that other variables could as well have a significant impact on the same but were not identified as either being key or not identified at all in the primary study. Therefore, it is critical to ensure that these additional variables do not deter away from the resultant outcomes of the secondary study.
Thus, to overcome this, it was critical to include the other variables that were identified in the first study (other than the five selected) in the first model of the hierarchical regression model in the secondary study. This is critical, as it will ascertain that any shared credibility between these additional variables and the predictors in hand.
In this respect, it is essential to state that the hierarchical model that was used in the second study comprised of six different stages. Stage 1 of this model entailed the step where the initial group of predictors were added in this model. In stage 2, the predictor, Varying business law across borders within target operation zones are introduced to the model as the contributing factor that affects the implementation of e-commerce by Tesco. In stage 3, the challenges varying business law across borders within target operation zones and difficulty in understanding the unpredictable nature of consumers are considered as the contributing factors that affect the implementation of e-commerce by Tesco.
In stage 4, difficulty in implementing e-commerce to the current system, varying business law across borders within target operation zones and difficulty in understanding the unpredictable nature of consumers are considered as the contributing factors that affect the implementation of e-commerce by Tesco. In stage 5, concerns with regards to data security and privacy, difficulty in implementing e-commerce to the current system, varying business law across borders within target operation zones and difficulty in understanding the unpredictable nature of consumers are considered as the contributing factors that affect the implementation of e-commerce by Tesco.
In stage 6, concerns with regards to currency and exchange rate fluctuations, concerns with regards to data security and privacy, difficulty in implementing e-commerce to the current system, varying business law across borders within target operation zones and difficulty in understanding the unpredictable nature of consumers are considered as the contributing factors that affect the implementation of e-commerce by Tesco.
Table 3 (check on the list of tables) below shows a summary of the data of this model with regards to the percentage of variability that comes about as a result of the influence on the dependent variables by all the predictors. As asserted earlier, this model gives the user the ability to input predictors independently in his/her desirable sequence to determine their effects.
It is as a result of this fact that the application of this model in this study comprised of six different stages. The interpretation of the effects of these predictors on independent variables is determined by the value r-square. Additionally, the values that fall in the column R are the values arrived at after conducting multiple correlation coefficient tests between the predictors and the outcomes. The next column of R2 measures the variability that is present in the outcome as a result of the influence of predictors.
At this point, it is critical to note that any change in R2 is an indicator of the how the predictive power of the model is affected as a result of introducing an additional predictor to the model. In this model, the percentage of variability went up from 4.7% to 26%. This is a significant increase of approximately 21%. Due to this fact, this study conducted further analyses using the Durbin Watson statistics.
This approach is critical as it provides credible information with regards to the tenability of the assumptions of independent errors in the sense that the closer this value is, the better. In this model, the attained value is 2.431. This is relatively close to the R-squared value. As a result, one can easily conclude that there is a likely indication that the assumption has been met.
However, to ensure that valid statistical tests and results of the current data were arrived at, it was critical to analyze variance (ANOVA) tests. In this study, this was a critical step as it verified the results hence increasing the acceptability, reliability and validity of the results. Through ANOVA tests (shown on table 4), all the stages of this model predicted specific scores on the dependent variable to a given degree of significance, all of which were below 0.05. Usually, the F-value of any study is used to determine how accurate the regression model that was applied is (Leonard-Barton 2010; Grosse 2012; McNally 2012).
Therefore, in an event whereby the F-value is greater than one, the obvious interpretation is that the regression model has surpassed any inaccuracies or inconsistencies within the model and hand. In this respect, the SPSS software only calculates the probability of obtaining the F-value by chance. In this study, the F-value and p-value that were calculated in stage 1 under the multiple hierarchical model 4.081 and 0.070 respectively. From a critical point of view, it is evident that these results are not statistically significant. In stage 2, the F-value was 3.634.
However, the p-value of this stage was less than 0.05. In this respect, the results of this stage could not have happened by chance since the p-value is below 0.05 hence. Therefore, these results are statistically significant. Consequently, the F-values for stages 3,4,5, and 6 were 4.388, 4.230, 3.880, and 3.721 respectively. The p-values of all of these stages were also below 0.05 that interprets the results as being statistically significant. Based on these results, one can easily conclude that this model might be considered as being significant in predicting the outcome variable.
At this juncture, it is critical to focus on the parameters of the model. Of most importance is the last stage of the model since it incorporated all the predictors that had a significant impact on predicting the relationship that might be present between the predictors themselves and the overall challenges of implementing e-commerce in Tesco. For this part of the study, the notation “Beta (β)” and the standard alphabet “B” were used to refer to standardized and unstandardized coefficients respectively.
β was thus used to represent changes present in the standard deviations of the dependent variables as a result of a change in the standard deviation in independent variables present in the model. Furthermore, the B values are critical as it gives us the information with regards to the relationship that is present between the coefficient and specific predictors whereby positive and negative values are used to represent positive and negative relationships respectively. At this point, however, it is essential to state that every
β value has a specific standard error value that it is associated with. This is an important consideration as it gives an exact extent to which these values vary across the different samples. Based on this, any t-test conducted with on a B value is considered as being significant. Additionally, if this value is located in the column “Significant is less than 0.05” the only conclusion that can be arrived at is that the predictor has a significant effect on the model.
From the results that were arrived at as shown on table 5 (check on the list of tables), it was evident that varying business law across borders within target operation zones (t=2.487, p<0.05), concerns with regards to data security and privacy (t=1.749, p<0.05), and difficulty in implementing e-commerce to the current system (t=1.293, p<0.05) are the most statistically significant factors.
This is because their p values are greater than 0.05 and their t-values are positive. As a result, they are the most influential factors that act as the main challenges in the implementation of e-commerce by Tesco. On the other hand, high costs of developing effective means of overcoming the competition and lack of confidence in the benefits of e-commerce are considered as not being statistically significant due to the mere fact that their p-values are greater than 0.05. Furthermore, the fact that β is quantified in standard deviation units means that they can be compared directly.
In this respect, varying business law across borders within target operation zones, concerns with regards to data security, and difficulty in implementing e-commerce to the current system have positive β values. As a result, it was concluded that these predictors have a significant effect on the implementation of e-commerce by Tesco. On the other hand, high costs of developing effective means of overcoming the competition and lack of confidence in the benefits of e-commerce both have negative standardized β values. This, therefore, led to the conclusion that they are not statistically significant to the model and hence did not have a great influence in the implementation of e-commerce by Tesco.
Discussion
The UK and the world at large have always benefited from a vibrant retail industry (Bell 2006). As Dutrénit and Vera-Cruz (2014) asserted, the retail industry is critical to any economy since it plays an integral role in linking producers with consumers. In the UK, the retail industry comprises of several multinational corporations, high street anchors, and innovative and resilient small-scale retailers. Given this mix, it is evident that the level of competition within this industry is high (Thompson 2008; Benady 2012).
Additionally, given the fact that the needs, tastes, and preferences of the consumers within this industry are dynamic and change with time, retailers have always been in a continuous process of being innovative and creative as a means of standing at a competitive edge over their rivals (Sussman 2007; Fox 2011). Just like in many markets, retailers in the UK play a vital role in controlling the supply and demand for goods and services due to the mere fact that they like producers and consumers.
From a critical point of view, this industry can be considered as a bellwether for the wider economy as well as the confidence exhibited by consumers within the market. It is as a result of this fact that Pinder (2012) concluded that the retail industry is vital in any economy because it provides employment, goods and services, as well as providing an avenue for social cohesion.
At this point, it is critical to note that the operation of the retail industry relies on numerous factors. For instance, the level of competition greatly affects the policies and strategies that different firms put in place to ensure their operations are sustainable, effective, and efficient (Dees 2008; Gee 2013). Additionally, entities in this industry do not receive financial support from the government but are highly affected by the policies and regulations that have been put in place by the government through their respective administrative bodies. Finally, the nature of consumers, as well as their tastes and preferences, have been changing with time.
As a result, retailers have been forced to modify their business model to meet these new changes that have come up in their contemporary operating environment (Melvin 2007). As put by Mudambi (2015), retailers are now shifting from exclusively operating in physical locations to adopting and implementing e-commerce strategies to their operational models.
This has resulted in the re-engineering of their business models to integrate various sales channels hence providing their customers with a seamless and flexible shopping experience. However, the integration of e-commerce techniques has not been an easy task. In the course of incorporating e-commerce to their existing business models, retailers have faced several challenges. From the results of the current study, it is evident that these challenges are indeed present. However, the magnitude and extent to which they affect the implementation of e-commerce vary depending on their nature and applicability.
E-commerce and Cross Border Laws
The results from this study revealed that varying business law across borders within target operation zones is one of the leading challenges that Tesco is facing is the process of implementing e-commerce in its operations. As e-commerce is becoming more popular in the retail industry, more and more rules and regulations are developed to ensure that business is conducted respectably and ethically as a means of enhancing consumer confidence (Alwi 2009; Niranjanamurthy et al. 2013; Butler 2015).
In Europe, for instance, the main reason behind e-commerce laws is to ensure that one unified e-commerce market is developed to meet the needs of the European retail market. Despite its overall intentions of controlling the retail industry, some shortcomings come about with the implementation of these laws (Oddou 2011; Gillespie & Hennessey 2011). For instance, geo-blocking is one of the leading factors that affect the implementation of e-commerce by retailers in Europe. Through geo-blocking, consumers from certain nations cannot purchase goods or services from specific nations (Adeleye 2014).
A survey conducted by the European Union (EU) revealed that 38% of retailers who retail consumer goods geo-blocks their consumers due to contractual agreements that they have with states, producers, and other stakeholders (Nakiye 2015). This is a huge blow to the overall implementation of e-commerce in this industry. Additionally, Porter (2010) concluded that running the retail industry through e-commerce is a challenging exercise due to the different tax rules different nations have.
Taxation rules, for instance, varies from one nation to the other in Europe. Due to this fact, retailers have been facing the challenge of whether to charge taxes such as V.A.T based on the country of origin or the country of residence of the purchaser (Kathawala 2015). This brings about adverse problems especially with regards to pricing and purchasing procedures.
Data Privacy and Security
The concern with regards to data security and privacy was also identified as a major obstacle that Tesco is facing in implementing e-commerce. To serve customers at ease using the online platform, Tesco and other corporations that use e-commerce tend to request, collect, and store their personal information. Boritz and No (2011) asserted that the collection of information through this approach results in the generation of huge data sets that not only enhance the ease of operation within respective firms but also stand a high potential for being used for illegitimate purposes.
The malicious use of this data has always raised security and privacy concerns. For instance, in 2014, the system of Arkansas University was breached and the personal information of approximately 50,000 people was put at risk (Carpio 2015). In the online world, this is relatively a small number of individuals. The database of Tesco or a similar organization has hundreds of thousands of personal information of people from different localities and backgrounds. This includes personal as well as financial information. Therefore, a breach of this database would have tremendous effects both to the organization as well as the affected consumers (Lodato 2014).
To overcome these breaches, different approaches have been used. For instance, Amazon has been using the distributed computing approach whereby the firm uses different access points located in different geographic regions across the world (Cosper 2012; Caves 2011; Bilgin et al. 2015). Despite the success associated with this approach, Amazon has consistently been a victim of physical and cyber attacks (Moorhead 2013). Tesco has been facing similar challenges and as a result, it has been difficult for the firm to develop an effective and efficient system that will guarantee the privacy and security of its database (Rigby 2014).
Operational Strategy and E-Commerce
Difficulty in implementing e-commerce to the current system is another challenge that Tesco has been facing in its process of adopting the digital approach in its operations. Tesco viewed the process of adopting and implementing e-commerce as a critical move in transforming its operations to meet the demands of the electronic age (Creasey 2014; Brenner 2009; Rid 2011; McDonald 2015). To realize this goal, Tesco developed an online platform through which customers can access and purchase their products online (Ghandour 2015).
Despite the overall advantages that this approach has, several shortcomings have hindered the full realization of e-commerce implementation especially with regards to the effects it has on its existing system (Mendenhall 2007; Tookey 2014; Andress & Winterfeld 2012). Even though Tesco is the leading retailing company in the UK, the cost of developing, implementing, and maintaining an online platform is very high. According to the study conducted by McLean (2013), these high costs usually originate from intangible expenses such as improved consumer services and online advertisements as a means of gaining a competitive advantage over rival firms.
At the same time, there are security and privacy issues that have already been discussed in this paper. Based on the results of this study as well as other studies conducted on this field, it is evident that there is an issue of trust between consumers and specific organization with regards to the safety and privacy of the information that they provide online (Grounaris, Tzempelikos & Chatzipanagiotou 2007; Pucik 2007).
Furthermore, some studies have shown that there are firms that put in place weak security measures as a means of reducing their overall operating costs and in the process make the information that has been provided by consumers vulnerable to hackers. It is as a result of these facts that a considerable number of consumers lack the confidence of providing their personal information online (Berger 2006; Reynolds 2015). At the same time, there are reliability issues such as regular system maintenance and upgrades, protection against virus and attacks that have a tremendous effect on consumer confidence (Carmel & Tija 2006; Yeaple 2006).
At the same time, some firms do not guarantee the privacy and confidentiality of information that make customers reluctant in providing personal and confidential information such as a home address, banking information, date of birth and so on due to risk of being exposed or attacked (Mani 2010). At the same time, the online environment attracts people from different cultures and backgrounds. As a result, it is difficult for Tesco and other firms operating in the online portal to customize their online portals to meet the needs and preferences of their diverse customer base (Kogut & Singh 2008).
Furthermore, given the fact that the online portal lacks touch and feel functions, studies have shown that it is difficult for consumers to purchase higher-priced products through the online portal because they cannot authenticate the overall quality and status of the product they are purchasing (Rugman 2010; Yao 2006). Tesco, as well as other firms, have tried to come up with approaches such a detailed description of the goods that they offer but still, they have not been able to navigate around this challenge (Chaffey & Smith 2013).
Controlling intellectual property rights is usually challenging on the online platform. This is since the Internet was developed to share information freely without any barriers (Gibb 2006). It difficult for an organization to control the content that is published on its website and other online platforms. This is more so given the fact that different countries have different attitudes and perceptions towards intellectual property rights (Behrman 2012; Shi 2010).
Finally, given the fact that e-commerce has enabled Tesco and other firms that use this approach to conduct cross border transactions, it has always been difficult to integrate an effective sales tax collection system given the fact that different nations have different tax laws and the fact that there has always been contention with regards to which tax policy should be adopted for this purpose.
Other Predictors
However, some predictors were identified in this study that did not have a significant impact on the implementation of e-commerce by Tesco. High costs of developing effective means of overcoming competition, for instance, did not have a significant impact on the implementation of e-commerce practices in Tesco. From a critical point of view, it is evident that firms have modified their operations to implement e-commerce strategy as a means of meeting the needs and requirements of the contemporary market (Zhou 2006; Head 2006; Latta 2008).
However, it is not just Tesco or firms within the retail industry that are adopting this new approach but almost every other industry within the global economic community. In this respect, therefore, firms have to come up with effective and efficient strategies that will enable them to meet the needs and requirements of their consumers as a means of achieving a competitive edge over rival firms (Shin 2001). Firms are willing to go to any extent to achieve this goal.
Confidence in E-Commerce Benefits
As it has been stated repeatedly in this paper, firms all around the world are operating in a digital era. It is as a result of this fact that Tesco and other retailers in the UK and the world at large are adopting and implementing e-commerce strategies to meet the demands of the contemporary market (Arya & Srivastava 2015). Based on this fact, therefore, this study found the notion that lack of confidence in the benefits of e-commerce as being statistically insignificant. E-Commerce has unlimited benefits especially if it is applied and integrated effectively and efficiently.
The study by Kassim and Abdullah (2008) revealed that e-commerce has provided firms with opportunities such as gaining a competitive advantage over rival firms, the development of new distribution channels that increase sales, the overcoming of physical barriers, reducing of costs by both the consumer and the seller, and most importantly consumers have a wide range of options to choose from within the online platform. Concerning this, it is evident that Tesco, as well as other firms within the retail industry, greatly benefit from e-commerce practices within their operations (Fallgren & Sundborg 2013; Kazmi 2007).
E-Commerce and the Consumer
The results of this study did also focus on the impact of the consumer in the implementation of e-commerce by Tesco and other firms in the retail industry. Contrary to the findings of various studies conducted on the impact of the consumer on operational strategies, the results of this study did not recognize the consumer as a critical factor to consider in the course of developing and implementing e-commerce strategies (Timmers 2000).
Despite these results, it is evident that the entire focus of developing an online platform by any firm in the contemporary world is to enhance the overall shopping experience of their consumers (Kornum & Bjerre 2005). In this respect, therefore, the development and implementation of e-commerce strategies have been strategically geared to meet the needs and expectations of the contemporary consumer in a bid to building a desirable relationship hence enhancing the level of consumer loyalty (Hu, Kandampully & Juwaheer 2009; Huang & Chiu 2006).
The UK and the general global retail market is in a transitional state of cultural change and as a result, the application of e-commerce will have a tremendous impact in saving the time and money of these individuals (Park & Regan 2004; Cuadros 2014; Irmer 2015). At this day and age, consumers prefer reading product reviews and making purchases remotely as a means of saving time and avoiding any form of inconvenience that might result due to making a trip to an actual outlet (Asare 2011; Chaffey et al. 2012).
It is as a realization of this fact that Tesco and other entities in the retail industry have resulted in adopting and implementing e-commerce practices in their operational strategies in a bid to meet the needs and requirements of their contemporary customers (Dixit & Sinha 2016). Thus, to realize this goal, retailers need to ensure that their websites are easily accessible, consumers can easily navigate through them, products are described in a precise and detailed manner and whenever possible, the use of imagery is encouraged (Petersen & Kumar 2010; Clarke, Thompson & Birkin 2015).
As asserted by Grebe (2015), it is also important to provide consumers with reliable and flexible payment options with a reliable refund policy in an event of a dispute. It is as a result of all these facts that Levy (2014) concluded that e-commerce has played a significant role in empowering the consumer in the sense that their activities online play influences the responses of business entities with regards to the supply of information, products, and services that could not be achieved in traditional stores.
Therefore, to remain profitable and stand at a competitive edge, Tesco and other contemporary retailers need to understand the unpredictable nature of their target market and come up with goals and strategies that will result in the development of consumer loyalty as a means of ensuring their operations are sustainable in the long run (Goddal 2008; Boroto, Abudullah & Wan 2012).
E-Commerce and Supply Chain Logistics
With an online store in place, many questions with regards to stocking, warehousing, sorting, and delivery come to the mind of many. It is therefore critical for an organization to determine which products are best suited for online and offline purchases (Vanelslander, Deketele & Van Hove 2013). Tesco and other online other stores within the retail sector that have adopted the e-commerce approach use several criteria to determine which products they should stock for online and offline sales. First, it is critical to consider the shelf of products.
From experience, it is advisable to stock products that have a long shelf life for online sales and maintain selling products with a short shelf life on physical outlets as a means of minimizing losses due to waste (Doherty & Ellis-Chadwick 2010). At the same time, products that have a high price to weight ration are more suited for online stock as compared to the ones that have a low price to weight ration since the former have reduced delivery costs and the high price of the latter are convenient to be sold at physical stores where the customer can engage with clerks at the store, conduct a thorough inspection, and to some extent, get a discount on the purchase price (Seiders et al. 2005; Ndubisi, Malhotra & Chan 2009; Creasey 2014).
This consideration is critical as it reduces the frequency of product returns that might have detrimental impacts on sales and the revenue earned (Szafrańska-Blank et al. 2011). Urgency is also a critical factor to consider because there are some products that consumers purchase for immediate consumption hence it is much convenient to stock them at physical outlets as compared to online stores where they can take hours, days or even weeks to be delivered. Once these factors have been identified, it is advisable to deliver a large number of products to customers within one location reduces the cost per item or product picked and delivered (Bhatia 2008; Gil, Hudson & Quintana 2006).
The discussions presented in this paper has focused on the three main obstacles that prevent the effective implementation of e-commerce by Tesco. Given the fact that the results of this study were statistically significant, these results can be generalized to represent trends in e-commerce implementation within the retail industry. In addition to these three obstacles, this paper has also focused on the other factors that were identified as being obstacles during the pilot study and critically analysed the impact that they have on e-commerce implementation. Based on the discussions presented in this paper, the next section will focus on the conclusions that have been drawn from this study and recommendations on improving e-commerce implementation.
Conclusion
Based on the two surveys that were conducted in this study, the results pointed out varying business law across borders within target operation zones, concern with regards to data security and privacy and difficulty in implementing e-commerce to the current system as the main problems behind the implementation of e-commerce by Tesco.
As stated earlier, the value of R2 (2.431 as ascertained by the Durbin Watson statistic) was used to measure the variability of the outcomes by the predictors. By the Durbin Watson statistics, values that lie between 1 and 3 are considered as being acceptable. Therefore the R2 value of 2.431 is thus within the acceptable range leading to the conclusion that all the conditions had been met.
Recommendations
This study entirely focused on the statistical implications of the implementation of e-commerce at a macroeconomic level. However, from a critical standpoint, it is evident that this study is relatively horizontal in a topological level. With this in mind, one of the main recommendations would be to conduct studies of a similar nature in future but on a microeconomic level using a case-to-case basis.
To increase the precision of future studies, it is also recommended that critical analysis should be conducted to determine the relationship between the identified obstacles and e-commerce with special consideration to the size of the firm, the nature of the business involved, and the industry under which it operates. Similar studies should also be conducted on start-up firms, small and medium scale enterprises, as well as multinational corporations.
Based on the results of this study, it is critical for managers at Tesco to view the three main obstacles as their main responsibility in a bid to meet the operational demands of contemporary firms especially with regards to the successful implementation of e-commerce. To overcome the challenge of successfully implementing e-commerce within the current system of the organization, managers can handle and solve this obstacle at the organization level. However, given the technical nature of these obstacles, it is usually advised that external help from professional is sought (Boblitz 2006).
Additionally, the firm should enhance its cyber frontier by using sophisticated software and techniques that ensure the safe handling of private and confidential information within its database (Fickes 2006; Meier & Stormer 2008). It is also advised that big companies such as Tesco should avoid having multiple access points for their data and instead worth with a single access point for their big data (Balasubramanyan 2015). This is a critical consideration as it reduces the ease at which data provided by consumers can be breached.
At the same time, having a single access point makes it easy for an entity to put and manage security features and software hence further protecting their big data (Foster 2012). This, in turn, enhances the confidence that consumers have towards a company with regards to the security and privacy of the information that they have provided (Vaidyanathan & Mautone 2009; Araste 2013).
Additionally, using approaches such as encryption, strict terms and conditions on registration, intrusion detection, and access control can have a significant impact in reducing big data breach hence protecting the information provided by consumers (Borensztein 2008; Broadhaust 2012). This not only enhances the ease at which Tesco can implement e-commerce in its operations but also ensure that this new operational approach can easily be integrated into its traditional operational strategy.
Law is dynamic and as a result, able to meet with the changing trends as the society develops with time (Pulaj, Kume & Cipi 2015). This study identified varied e-commerce laws across borders as one of the key challenges that deter an effective implementation of e-commerce by Tesco. Currently, the European Union has come up with new policies that aim at enhancing free and fair trade across Europe. For instance, the EU has developed a new policy that aims at ensuring individuals across Europe benefit from a single digital market (Cantwell 2011; Caves 2011).
To realize its goal, this new policy mainly focuses on overcoming the challenges that come about as a result of geo-blocking in a bid to ensure that individuals across European Union can purchase goods and services irrespective of their physical location or nationality (Cavoukian & Tapscott 2006). Additionally, this new approach also aims at reducing cross border service delivery charges as well as enhancing return options hence improving the overall purchase process. These two considerations play a significant role in enhancing the Tesco’s logistics and supply chain operations.
Finally, this new policy also aims at strengthening consumer trust to e-commerce by increasing the involvement of national authority in protecting and maintaining the rights of consumers (Davidson 2015). This is a critical consideration as it plays a significant role in building consumer trust, enhancing consumer loyalty, and understanding the nature of consumers (Kathawala 2015; Jun 2016).
These are critical considerations that will enhance the overall operations at Tesco with regards to product management and service delivery. Tesco can further develop the trust of its consumers by developing an effective conflict resolution mechanism in its online purchases. This tool will be influential especially in resolving cases effectively and efficiently hence ensuring that both the rights of their consumers as well as the institution are respected.
Furthermore, for Tesco to enjoy the success of e-commerce, the firm needs to enhance its online credibility by offering services such as recalls on goods that were either damaged during transit or did not meet the expectation of the consumer (Erramilli 2010; Klein 2011). Toporowski and Lademann (2014) asserted that it is important for such a firm to ensure timely delivery of products as well as giving out proper information with regards to whether or not they can fulfil orders placed by customers.
Such considerations increase the trust that consumers have towards online purchasing hence increasing sales and profitability in the long run (Vanelslander, Deketele & Van Hove 2013; Hitt, Ireland & Hoskisson 2008; Hitt, Ireland & Hoskisson 2009). At the same time, Tesco needs to ensure that its online portal, where accessed on a PC or a mobile phone is easily accessible and navigable by consumers of all ages, cultures, and backgrounds (Fourne, Jansen & Mom 2014). This consideration greatly encourages consumers to shop using this platform as compared to visiting physical outlets (Hodgetts 2013; Jae-Nam 2008; Kaplan & Norton 2006).
Furthermore, the design of this portal should greatly consider the needs of their target market. This consideration is also critical with regards to product stocking and delivery options. To further enhance sales and ensure consumers get value for their money, Tesco should come up with strategies that boost the online basket size (Latta 2008).
Strategies such as partnering up with third parties to reduce delivery costs and logistics have a tremendous impact on enhancing the overall operational efficiency of the firm (Hays, Keskinocak & De López 2005; Grounaris, Tzempelikos & Chatzipanagiotou 2007). As a result, people will view Tesco as a reliable firm that stocks goods and offers services that meet the needs and expectations of their target market. Once this is achieved, Tesco will enjoy and benefit from the success that comes about as a result of implementing e-commerce strategies in its operations.
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List of Tables
Table 1: Multiple Response Analysis OutputTable 2: Variable DescriptionTable 3: Model SummaryTable 4: ANOVA.Table 5: Coefficients of the final stage
The past few decades have witnessed cut-throat competition among business entities in nearly all industries, trying to cut a niche for themselves and net some profits for their shareholders. Firms have conglomerated into distinctive industries for the purposes of marketing their products and services. Today, we have the travel industry, car industry, manufacturing industry, supermarket chains, and many more industries that compete for consumers in the marketplace. In this trade, some industries are more profitable than others owing to the dynamics of the competitive structure used by stakeholders. The supermarket chain industry is one such entity that has benefited immensely from utilizing the dynamics of competitive structure and various analytical models to gain a foothold in the increasingly competitive business market (Yu 2008). This paper aims at analyzing the business environment of Tesco supermarket in relation to various business analytical models used in the assessment of the nature of competition in the supermarket chain industry. The paper also aims at analyzing Tesco’s strategic capability.
Based in Britain and with subsidiaries in many other countries, TESCO is an international general merchandising and grocery retail chain (Tesco 2008). It is accredited for being the largest British supermarket retailer by both domestic market share and global sales, with profits rising to 2 billion sterling pounds by the close of the 2007 financial year. It has risen in rank and file to become the fourth-largest retailer in the world. Though it originally specialized in the eating business, Tesco has managed to use sharp business acumen to diversify into areas of consumer electronics, consumer health insurance, clothing, consumer financial services, renting and retailing music downloads, DVDs, CDs, and internet service, software, and consumer health insurance.
Tesco has utilized various business models to sustain itself in the market as one of the market leaders in the supermarket industry. From its humble organic growth of the 1950s, Tesco has mastered the game of acquisitions to own more than 800 supermarket stores to date (Tesco 2008). How Tesco’s management has been able to beat other leading supermarkets in their own game remains a matter of debate among industry analysts. Using various analytical models such as Porter’s Five Forces model and PESTLES, this part aims at analyzing Tesco’s key business structure, strategy, and operations that have enabled it to be one of the kingpins in the supermarket industry.
Porter’s Five forces Model
The Five Forces Model invented by Michael Porter remains one of the Competitive Position models that are greatly used by industry analysts to analyze and assess the competitive position and strength of a business organization or corporation. According to Porter, long-run industry profitability and attractiveness is determined by five forces namely: entry of new competitors, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the degree or intensity of the rivalry between competitors (Jackson 2007). Being in the competitive supermarket industry, Tesco has been influenced by all the five forces mentioned in Porter’s model.
The Five Forces Model can be used to analyze the business environment of Tesco’s supermarket chain. According to porter, the level of competition can be raised by new entrants to the industry thereby influencing its attractiveness (Jackson 2007). In the supermarket industry, new entrants largely depend on the barriers to entry to be able to effectively penetrate the market. Key entry barriers faced by any industry include economies of scale, investment or capital requirements, admission to industry distribution networks, customer switching costs, and the probability of retaliation from existing industry players. Through its sheer appetite to acquire other superstores, Tesco has particularly been effective in putting up considerable barriers to entry for other supermarkets aiming to enter the market. From the 1950’s up until the ’60s when the supermarket chain was shaping up, it was able to acquire 200 Harrow Supermarkets, 70 Williamson Stores, 97 Charles Phillips supermarkets, and 212 Irwins Supermarkets. Plainly put, the supermarket chain has effectively curtailed the threat of new entrants through acquisitions.
In the admission to industry distribution channels, Tesco has successfully reigned over the market for specific products especially in areas of consumer electronics and grocery, thereby shielding new supermarkets from accessing low-priced, consistent suppliers. It has a distinct advantage over new entrants when it comes to the economies of scale basically because it pays a lot less per item supplied than new entrants would pay through purchasing large consignments of goods at low prices (Mindtools 2008). Economies of scale demand new entrants to purchase small quantities of goods at a much higher cost. The supermarket chain has been in operation since 1929 and therefore enjoys a good capital or investment portfolio that new entrants would almost find challenging. All these have contributed to the competitive advantage of Tesco over other new entrants.
Porter argues that industry profitability and attractiveness are also influenced by the threat of substitutes. Substitute products have been known to influence the prices of various commodities depending on the costs of switching to the substitutes, the willingness of the buyers to buy the substitutes, and the relative performance and price of the substitutes (Jackson, 2007). The threat of substitutes has been credited with driving profits to zero in classical economics. In Tesco’s case, stiff competition from other supermarket chain stores with the capability of offering substitute goods like Sainsbury has driven their prices downwards thereby affecting profit margins. In fact, prices of various commodities have been revised downwards owing to the power bestowed on the buyers. It is common sense that buyers will exercise their authority and shop in other supermarkets if the price of groceries becomes unbearable in Tesco. It is also clear that the profit margins of the supermarket chain have been affected by the cheap prices of substitutes found in other supermarkets across the world. But Tesco has been able to maintain its dominance owing to its organizational nature.
The power of suppliers is an integral part of Porter’s Five Forces model. The profitability of an organization is overly influenced by the cost of products that are bought from suppliers in form of components or raw materials (Jackson 2007). Suppliers are engaged in the business of supplying products and materials to the industry. The industry is thought to be less effective in theory if the suppliers have high bargaining power over the business entity. Accordingly, suppliers’ bargaining power is high when: there are a few dominant suppliers and numerous buyers; there are highly valued and undifferentiated products on offer; when product manufacturers strive to set up their own retail distribution outlets; when buyers are not keen on integrating back into the supply chain; and when the business entity is not a vital customer group to the supplier chain (Mind tools 2008). In the supermarket industry, retailers are often demanded by suppliers of goods and commodities to pay a particular price for the goods offered. Supermarket retailers don’t get the goods if they don’t pay the price. But Tesco has had a distinct advantage as far as influencing suppliers owing to its huge portfolio. Due to its huge capital returns and wide network, the supermarket chain has ably managed to dictate the price it pays the suppliers thereby gaining a distinct competitive advantage over other supermarkets. Suppliers are often left with a much smaller market for their products if they do not reduce their prices to the satisfaction of Tesco.
In the center of all this, the profitability of the industry is determined by the intensity of the rivalry between various players. Rivalry depends on the structure of the competition and is less intense when there exists a clear market leader in the industry and more intense when there are many equally sized or small competitors (Jackson 2007). Tesco is a sure market leader in the supermarket industry and hence rivalry between it and other small establishments has been minimal. According to the model, the rivalry is also less pronounced when the buyers have higher switching costs or when the buyers are required to pay more for buying an alternative product. To this extent, the rivalry between Tesco and other supermarkets is minimal based on the fact that supermarket commodities are generally priced around the same price tag. The degree of rivalry is also informed by strategic objectives. In the 1980s and ’90s when Tesco was pursuing aggressive growth tactics, the rivalry between it and other supermarkets was at its fever pitch as witnessed in its hostile takeover bid of Hillard’s chain of supermarkets in 1987. Rivalry is also influenced by the degree of differentiation of the industry, with Porter arguing that less rivalry exists in industries where competitors can differentiate their products. In the supermarket industry, Tesco has not only differentiated the range of products on offer but has effectively differentiated its network into six formats namely Tesco Express, Extra, Metro, Superstores, Home plus, and One stop (Tesco 2008). This has given it a competitive advantage over the other supermarket chains.
PESTLE Analysis
The PESTLE tool can be used to evaluate the position and current status of an individual or organization in relation to their current roles and external environment to form the basis for strategic management and future planning (Allan 2007). It entails evaluating the political, Economic, Social, Technological, Legal, and Environmental influences on the industry. These external conditions are beyond the influence or control of the industry as they arise from the external macro-environment. However, external factors are crucially important for the survival of any business. In the political scenario, Tesco has been motivated by good British government policies and regulations, tax policies, and directives to be able to blossom from a single supermarket store into one of the largest supermarket chains worldwide. In the social arena, it has been positively driven by efficient consumer culture, increase in population, and general lifestyle changes to effectively establish a ready market for its products.
The appealing enterprise and business economic directives coming from the British government and other governments where Tesco has a stake coupled with good income generation targets has enabled the supermarket to be favored by external economic factors. In its home country of Britain, stringent fiscal policies effected by the government have been critical in curtailing high-interest rates and inflation while at the same time ensuring that distribution of disposable income among the citizens can efficiently maintain a working consumer culture (Mind tools 2008). External economic factors have also brought about rapid globalization which has been central to the growth of Tesco. What’s more, Tesco has invested heavily in technology to become the largest grocery home shopping service in the whole world. Due to huge investments in technology, the supermarket is able to provide a large variety of consumer goods, financial services, and telecommunications online. In 1996, Tesco was the first supermarket chain to offer a vigorous online home shopping facility that has enabled the chain stores to expand rapidly using minimum investments (Tesco 2008). In essence, it has been able to utilize relevant emerging technologies to reach end consumers of its products from the comfort of their homes. For the supermarket chain, online business transactions have enabled it to increase remote working while at the same time reducing costs of communication.
Environmental and legal factors have minimally affected the growth chances of the supermarket chain. In fact, EU legislation requiring nations from the European Union to do away with trade barriers has served to make the supermarket chain more effective in reaching out to its most loyal customers in countries affected by the legislation (Mind tools 2008).
Critical success factors
According to analysts, both analytical models are used by industry stakeholders to understand the dynamics of the business environment in which an entity is operating, thereby determining the success, opportunities, and threats of an enterprise. A businessman can minimize threats and take advantage of the opportunities that the above two analytical models present through merely understanding the environment in which the business operates (Anna 2003). In this perspective, Tesco has been effective in reigning over the market for specific products and services. Through acquisitions, Tesco has been successful in putting up a strong resistance to supermarkets aiming at entering the industry. Being a market leader in the supermarket industry, Tesco has also successfully fed off rivalry among key players in the industry. It has been successful in winning over the power of the buyers owing to its long history of operation, and at the same time winning over the power of suppliers owing to its favorable economies of scale and strong financial backing. These are strong success factors for Tesco
Summary of opportunities and threats
Due to its competitive advantage, Tesco’s future is bright. It has numerous opportunities for growth owing to the fact that it has been able to acquire more than 1800 supermarkets in acquisitions and takeover bids; it has an adequate investment or capital requirements; and is overly favored by the economies of scale. More opportunities are guaranteed by the stability of the government in Tesco’s parent country, freedom of press, proper tax policy and tariff controls, low-interest rates, low inflation, healthy consumer culture, positive lifestyles and attitudes, and job market freedom. It has also been impacted positively by emerging technological trends. However, it has weaknesses in form of the threat of substitutes brought in by competing supermarkets chains and rivalry.
Analysis of Tesco’s Strategic Capability
In the analysis of the two models, we have seen how Tesco has been influenced by the external environment to bring about opportunities and threats. But a critic would want to ask why Tesco is a superior performer to Asda and Sainsbury super stores yet the supermarkets compete for business in the same environment. To answer such a critic, the difference in performance is brought about by strategic capabilities discussed below.
Value chain and Network
Developed by Michael Porter, value chain describes all the categories of actions within and around a business entity which together produce a commodity or service for uptake by the end consumers (McKissick 2004). The value network is the set of inter-organizational relationships and networks that are essential in the creation of a commodity or service. Broadly put, a value network is a connected series of knowledge streams, resources, and organizations involved in the development and delivery of a value product to end customers. A single business entity does not undertake all the value activities that are involved in the production of a commodity from the design to the delivery of the commodity but rather position itself to take on a specialized role as part of a wider value network.
To this effect, Tesco utilizes both the value chain and the value network to come up with products for their consumers. In the value chain, Tesco has developed unique products such as consumer health insurance and consumer financial services. In value systems, Tesco has been overly concerned with inbound logistics involving all the activities it goes through in receiving the materials for the commodities, storage, and the distribution of the inputs to the services or commodities offered, including transportation of the materials, materials handling, and stock control. It also involves outbound logistics through the process of storing and distributing various commodities to consumers through its supply network (Strategy 2008). It also involves itself with marketing and sales, whereby the organization provides consumers with knowledge about its various products and services and where the consumers can get them. This is often done through the process of selling, sales administration, and advertising. Through using such systems, Tesco has effectively been able to position itself superbly in the supply chain to attain the maximum heights of value and customer satisfaction while effectively taking advantage of all the competencies of all business entities in the supply chain.
Competitive advantage: Threshold vs. Unique competencies
For a company to achieve a competitive advantage over its competitors, it must utilize its threshold capabilities and unique competencies. The capabilities needed for any organization to effectively compete and survive in a specific environment or market are the threshold capabilities. Though important, the threshold capabilities by themselves do not create a superior performance or competitive advantage like is the case with Tesco. The competitive advantage of Tesco is actually based on its ability to come up with products and services that other supermarket chains have found hard to imitate. This is the unique competency of Tesco. It has been credited with designing unique financial services and consumer healthcare insurance that is unique to itself thereby giving the supermarket a strong financial footing over its competitors. Therefore, unique competencies are basically the abilities and skills through which resources are positioned through an entity’s processes and activities so as to accomplish competitive advantage in ways that other business entities cannot easily obtain or imitate. From its online grocery stores and DVDs and CD rental to offering products in insurance, Tesco has effectively positioned itself to offer core or unique competencies that other supermarket stores such as Sainsbury find hard to copy or imitate. This has given the supermarket chain a distinct competitive advantage over other supermarkets (Strategy 2008).
Sustainable competitive advantage
In a layman’s language, sustainable competitive advantage enables industry players to survive cutthroat competition over longer periods of time. At Tesco, this prerogative has been credited with allowing the improvement and maintenance of the supermarket chain’s competitive position in the global market. Tesco’s sustainable competitive advantage can be attributed to its favorable economies of scale, increased diversification of products and services, as well as its long history. It started operations in 1929 and therefore enjoys superior resources as well as superior skills (Strategy 2008).
Strategic choice
Tesco has overly utilized the strategic choice approach to maintain its competitive advantage over its competitors. The approach utilizes four basic principles namely shaping, designing, comparing, and choosing. In the first principle, Tesco supermarkets have effectively been able to identify the problem areas in the supermarket industry. In designing, the supermarket chain has sat down to design what could be done to the problem areas and has henceforth compared various principles and ideas to choose the best methodologies to solve the problem areas (Chapman 2005). For example, Tesco made a strategic choice in coming up with online stores to sell its grocery and food when it was faced with a problem of shortage of consumers. Managers decided to use the internet and other emerging technologies to ensure that they remained ahead of the pack. The introduction of online grocery stores made the supermarket chain command a substantial proportion of consumers thereby helping it to regain its competitive environment. That is the power of strategic choice.
Strategic fit
Strategic fit or strategic realignment is basically the extent to which various activities of a sole business entity work in partnership to balance out and complement one another so as to contribute to the competitive advantage of the organization (McKissick 2004). Tesco supermarkets have been a master in strategic fit in that it has come up with diverse activities that work to complement one another thereby making the supermarket chain enjoy a distinct competitive advantage over its competitors. While average superstores deal with the sale of commodities, Tesco’s chain of supermarkets has increasingly diversified its activities to include offering services such as internet service, consumer financial services, and consumer health insurance. These services have complemented the traditional supermarket role of offering commodities for sale to consumers thereby increasing its competitive advantage. Its internet-based grocery stores were well received in the market thereby increasing its competitive advantage. Overall, Tesco has benefited a great deal due to the transfer of skills and knowledge, and also through the economies of scale as its various activities complement each other in the market. In the same vein, it has been negatively affected by strategic fit when it comes to acquiring other supermarket stores as some of the activities of the supermarket to be acquired conflict rather than complement Tesco known roles and activities (Anna 2003)
The Ansoff Growth Matrix
This is another analytical model that could be used effectively to analyze Tesco’s products and its market growth strategy. For organizations, any attempt to grow to depend on whether the business entity focuses on if it is trying to introduce new products to new markets or if it is selling existing products into existing markets (Wright 2006). The Ansoff Matrix utilizes market penetration, market development, product development, and diversification to evaluate an organization’s market development strategy. In market penetration, Tesco has been involved in selling existing commodities to existing markets. It has been able to increase its market share substantially through advertising its products, competitive pricing, and sales promotions. It has been engaged in efforts of restructuring mature markets through acquisitions and hostile take-over bids thereby effectively driving out its competitors. Through its introduction of loyalty schemes such as the Clubcard, Tesco has been able to increase the capacity of existing customers to buy its commodities and services thereby dominating the supermarket industry (Tesco 2008).
Tesco has also been able to utilize market development to sell its existing products and services into new markets through acquisitions of foreign supermarkets. It has effectively entered into new markets in countries such as China, Czech Republic, Japan, Hungary, France, and others. With its introduction of new products into new markets, Tesco has effectively entered into product development. It has also effectively utilized diversification strategies to market new products into new market environments such as its internet shopping service (Wright 2006).
Summary of strengths and weaknesses
Due to Tesco’s integration in value and network chain, it has effectively positioned itself in the supply chain to attain the maximum heights of value and customer satisfaction while effectively taking advantage of all the competencies of all business entities in the supply chain. Tesco’s unique competencies have given it a distinct strength in coming up with products and services that other supermarket chains have found hard to imitate such as the Clubcard and the internet service. Tesco has also gained from utilizing strategic choice to come up with online stores to sell its grocery and food when it was faced with a problem of shortage of consumers. It has effectively used strategic fit to come up with activities that complement each other thereby maintaining its competitive advantage.
Tesco chain of supermarkets have increasing diversified its activities to include offering services such as internet service, consumer financial services, and consumer health insurance. It has also found strength in restructuring mature markets through acquisitions and take over bids thereby effectively driving out its competitors. It has benefited from Ansof’s matrix through increasing the capacity of existing customers to buy its commodities and services thereby dominating the supermarket industry. Above all, Tesco has also been able to utilize market development to sell its existing products and services into new markets through acquisitions of foreign supermarkets.
The weaknesses of Tesco cut across the supermarket industry. First is the increased competition coming from other industry players, coupled with an ever soaring economic environment occasioned by global recession. This can aptly be explained using PESTLES analysis. Consumer power is decreasing owing to external factors. Tesco is also faced with the challenge of venturing into new markets especially in countries where it is rarely known. But overall, Tesco’s business environment and strategic capability is healthy when analyzed using the various analytical models described in this paper.
References
Allan, A.W 2007. PESTLE and SWOT Analysis.
Anna, B.C 2008. Business Definition for Strategic fit. BNET.
Financial analysts recognize that the evaluation of a company’s capital structure is a key step to understanding its financial prospects over the long term (Arnold, 2013). The strength of a company’s balance sheet is determined to a great extent by the composition of its capital structure. A firm’s capital structure refers to the composition of investor-supplied capital that is used to fund overall operations and growth (Brigham & Houston, 2015). A capital structure or capitalization is a mix of an organization’s debt and equity (Brigham & Houston, 2015). Taking into consideration the fact that no company functions in the perfect market in which its long-term capital has no bearing on its success, it is extremely important to understand the effects of capital structure decisions.
This paper aims to analyze the capital structure of Tesco PLC (henceforth Tesco). The paper will discuss the strengths and weaknesses of the company’s current position and provide comments on the firm’s long-term financing decisions based on several theories of capital structure.
Overview
Tesco is a multinational food retailer headquartered in Welwyn Garden City, England (“Annual report,” 2017). The company was founded in 1919 by Jack Cohen who opened the first grocery stall in the East End of London (“History,” n.d.). Tesco built the first supermarket in 1950, which allowed it to increase the number of its outlets to more than 500 in less than five years (“History,” n.d.). Currently, the company has 27.6 percent of the grocery market share in the UK, which makes it the largest food retailer in the country (“Market share,” 2017). The fresh produce retailer has 6, 902 outlets in the following countries: the UK, the Republic of Ireland, the Czech Republic, Poland, Malaysia, Thailand, and Slovakia (“Company overview,” 2017). Tesco employs more than 464, 500 specialists around the world (“Company overview,” 2017). In 2016, the group revenue of the company amounted to £55, 917M, which represented a 3.7 percent growth from the result of the previous year—£53, 933M (“Annual report,” 2017).
In addition to selling fresh produce, the company provides banking and insurance services. Tesco Bank has more than 7.6 million accounts and reports a high level of customer growth (“Annual report,” 2017). In 2016, the bank’s total revenue was £1,012M, which constituted a 6 percent increase from the previous year’s figure—£955M (“Annual report,” 2017). Furthermore, financial income from joint ventures and associates of Tesco grew to £109M in 2016 (“Annual report,” 2017).
Justification of Choice
Tesco has been chosen for the analysis because it is a company with the highest debt-to-equity ratio in the industry—1.1 (“Tesco PLC (OTCPK: TSCDY),” 2017). Its closest competitors Morrison Supermarkets PLC, Sainsbury PLC, Ocado Group PLC, Greggs, PLC, Conviviality PLC, and Crawshaw Group PLC have substantially lower ratios—0.37, 0.32, 0.91, 0.00, 0.49, and 0.00, respectively (“Tesco PLC (OTCPK: TSCDY),” 2017). Furthermore, until recently, the company’s debt-to-equity ratio was 1.86 (“Tesco PLC (OTCPK: TSCDY),” 2017). Tesco has been steadily increasing its debt-to-equity rate since 2013 (“Tesco PLC (OTCPK: TSCDY),” 2017). The elevation of debt levels is not the soundest long-term financing decision if one’s EBITDA generation capacity is diminished. In the first quarter of 2015, Tesco’s debt/EBITDA ratio increased to 5.4x, which is a substantial increase in comparison with the 2014 level of 4.1x (“Moody’s downgrades,” 2015). For this reason, the company’s credit rating was downgraded by Moody’s in 2015 (“Moody’s downgrades,” 2015). Taking into consideration the reduction of the retailer’s sustainable debt capacity and the rating agency’s action, it would be educational to critically analyze the company’s capital structure. By evaluating the constituents of the company’s capital, it is possible to understand the company’s financial strength.
Current Position
The company funds its current operations and expansion endeavors with the help of 16 percent of senior debt, 24 percent of junior debt, and 60 percent of equity (“Tesco (UK),” 2017). Senior debt accounts for a relatively small share of the company’s funding and represents the cheapest form of long-term financing. The junior debt of Tesco has maturity dates that exceed ten years (“Annual report,” 2017). Equity capital accounts for the largest share of the company’s founding. In 2016, the company substantially reduced a share of debt in its capital structure (“Annual report,” 2016). The long-term financial decision is associated with the disadvantage of the high cost of equity financing. However, by reducing its debt, Tesco diminished its ongoing financial liabilities, which is a significant benefit of the action. Moreover, the company safeguarded itself from the potential bankruptcy risk. It is extremely important because, during recent years, the company experienced substantial financial difficulties. For example, half-year operating profits of the retailer fell by 55 percent from £779M in 2014 to £354M in 2015 (“Tesco half-year,” 2015).
Analysis
Equity Capital
Equity is the element of the capital structure of the company that is sourced through the issuance of shares or profits claimed by stockholders (Arnold, 2013). As of February 2017, the total shareholder’s equity of Tesco was £6.414B (“Annual report,” 2017). The total equity consisted of the following items: £409M of share capital, £5, 096M of share premium, £601M of total other reserves, and £332M of retained earnings (“Annual report,” 2017). In 2017, the capital value of Tesco’s equity was lower than that in the previous year—£8.616B (“Annual report,” 2016). However, the value of total equity in 2015 was £7.071B, which represented a substantial decrease from the previous year’s level (“Annual report,” 2015).
It is clear from the company’s statement of changes in equity that variations in accounting policies of Tesco contributed to £80M adjustments in reserves of stockholders (“Annual report,” 2017). Differences in currency translation resulted in £764M worth of changes in equity from 2016 (“Annual report,” 2017). Other equity variations during the accounting period were due to transactions with owners, taxes, and gains on cash flow hedges. The closing balance shows that in February 2017, shareholder equity was substantially lower than that in the previous year (“Annual report,” 2017).
Debt Capital
Debt is a portion of the capital structure that is sourced by entities that do not have an ownership stake in the company (Arnold, 2013). As of August 2017, Tesco’s short-term debt was £3.8B (“Tesco PLC,” 2017). The liabilities of the retailer came in the forms of trade and other payables, borrowings, derivative financial instruments, customer and bank deposits, tax liabilities, and provisions (“Annual report,” 2017). The company managed to substantially reduce its short-term debt in comparison with the previous year’s level of £5.1B (“Annual report,” 2017). The marked improvement of the company’s indebtedness can be attributed to the increase in operating cash flows for the accounting period. Proceeds from retail operations amounted to £2.3bn, which represented a 9.1 percent increase from the previous year’s level (“Annual report,” 2017). Tesco’s long-term financing goal is to smooth its debt maturity profile while simultaneously strengthening the continuity of financing (“Annual report,” 2017). Therefore, in 2016, the company redeemed £1.9B worth of bonds and issued new ones (“Annual report,” 2017).
Financial Leverage
Financial leverage refers to “the degree to which a company uses fixed-income securities such as debt and preferred equity” (“Financial leverage,” n.d., para. 1). To assess the capital structure of Tesco, the debt-to-equity ratio will be used. As of February 2017, the company had a total debt-to-equity ratio of 1.86 (“Tesco PLC (OTCPK: TSCDY),” 2017). The figure was slightly above the 2015 value of 1.79 and the 2016 value of 1.57 (“Tesco PLC (OTCPK: TSCDY),” 2017). However, these ratios were markedly higher than the 2014 value of 0.76 and the 2013 value of 0.65 (“Tesco PLC (OTCPK: TSCDY),”) 2017). When compared to its top competitors, it is clear that the company tries to finance its growth by borrowing. Current debt-to-equity ratios of Morrison Supermarkets PLC, Sainsbury PLC, Ocado Group PLC, and Greggs PLC are 0.37, 0.32, 0.91, and 0.00, respectively (“Tesco PLC (OTCPK: TSCDY),” 2017).
Enterprise Value
Enterprise value is a concept that refers to “the sum of all debt and equity in the capital structure” (Bagaria, 2016, p. 21). Enterprise value is used by financial analysts to compare different organizations at various growth stages. As of August 2017, the company’s enterprise value was £27,48B (“Tesco PLC Enterprise,” 2017). Tesco’s enterprise value was extremely volatile in recent years. A downward trend from £57,29B in February 2013 to £30,18B in February 2016 shows that over these years the company became cheaper to buy (“Tesco PLC Enterprise,” 2017).
Discussion
Tesco relies more on equity financing than debt financing—40 percent debt and 60 percent equity (“Tesco (UK),” 2017). The current debt to equity (D/E) ratio of the company is 1.86 (“Tesco PLC (OTCPK: TSCDY),” 2017). According to the trade-off theory, a company can have an optimal structure of capital that maximizes its value by making a balance between the costs and benefits of increasing debt (Ghazouani, 2013). Such a structure of capital has a direct influence on Tesco’s weighted average cost of capital (WACC). A WACC calculation helps to determine how much capital costs for a company by proportionately weighing its categories. It follows that whenever a firm changes the proportion of its debt to equity its WACC also invariably fluctuates (Hirschey, 2016). It has to be born in mind that the market value of a firm is calculated as its future cash flows divided by its WACC (Hirschey, 2016). Therefore, to increase the market value of a company, it is necessary to reduce its WACC.
If one were to look at fluctuations in the Tesco’s WACC for the last three years, they would discover a downward trend. In February 2015, the company’s WACC was equal to 7.77 percent (“Tesco PLC WACC,” 2017). In February 2016, the WACC was lowered to 5.58 percent, which was followed by a further reduction to 4.51 percent (“Tesco PLC WACC,” 2017). The reason for this reduction is a substantial change in the company’s capital structure. In 2015, Tesco announced its intention to sold its joint venture with Samsung—Homeplus (Butler, 2015). The sale allowed the company to reduce its total debt from £21.7B in 2015 to 15.5B in 2016 (“Annual report,” 2016). Thus, with the reduction of the level of total indebtedness the company’s WACC was also substantially lowered.
The decrease in the WACC may seem counterintuitive because equity is more expensive than debt. It follows that the lowest WACC can be achieved by issuing more debt (“Optimum capital,” n.d.). However, by increasing a share of debt in its capital structure, a company raises the amount of interest it has to pay out of its profits, thereby putting its ability to pay dividends at risk. The increase in the financial risk to a company’s shareholders translates into a higher cost of equity (“Optimum capital,” n.d.). Therefore, a company has to achieve a balance between the amount of its equity and debt, to lower its WACC. The reduction of the company’s WACC points to the fact that Tesco was able to strike such balance.
Theories of Capital Structure
To understand the company’s recent financial decisions and their impact on its long-term financial health, it is necessary to review several capital structure theories. Under the traditional theory of capital structure, an organization “should aim to minimize its weighted average cost of capital and maximize the value of its marketable assets” (Ross, 2015, para. 2). From this vantage point, it is clear that Tesco made a sound decision when it decided to reduce its net debt, thereby strengthening its balance sheet. Two major credit rating agencies commented on the company’s action by arguing that it was “a step in the right direction” (Butler, 2015, para. 4). It has to be borne in mind that after measuring the company’s ability to repay its debt, Moody’s downgraded Tesco from Baa3 to Ba1 in 2015 (“Moody’s downgrades,” 2015). Following the net debt reduction, the retailer’s debt to EBITDA ratio fell from 2.8 to 2.4 (“Tesco (TSCO),” 2017). However, this year, the company has increased the share of its debt, which is, arguably, not the soundest long-term financing decision (“Tesco (TSCO),” 2017). Modigliani and Miller’s trade-off theory suggests that a company’s capital composition has a bearing on its WACC (Miglo, 2016). Changes in Tesco’s WACC that were preceded by the reduction of the share of its debt confirm the theory’s key proposition.
Another approach to capital structure decisions is based on the pecking order theory. According to the theory, a company should fund its current operations and growth through retained earnings. However, if for some reason, retained earnings cannot be used for financing, a firm has to increase its debt level. Equity should be issued when other sources of external financing are not available. The long-term financing decisions of Tesco are not informed by the pecking order theory. The company’s debt-to-equity ratio is the highest in the industry, which translates into high volatility of earnings (“Tesco PLC (OTCPK: TSCDY),” 2017).
Conclusion
The paper has critically evaluated the capital structure of the largest retailer of fresh produce in the UK—Tesco. The analysis has included the discussion of the strengths and weaknesses of the company’s current proportions of debt and equity. The paper has also commented on Tesco’s long-term financing decisions. It has been argued that the company pursues optimal debt-equity relationships, which is evidenced by the marked reduction of its WACC in recent years. However, the current debt-to-equity ratio of Tesco, which is the highest in the industry, suggests that it might be hobbled by the high level of debt in the long term. Given that food retail is a highly competitive industry, the long-term financing decision may provide its rivals with an advantage in the future.
Ghazouani, T. (2013). The capital structure through the trade-off theory: Evidence from Tunisian firm. International Journal of Economics and Financial Issues, 3(3), 625-636.
Hirschey, M. (2016). Managerial economics. Boston, MA: Cengage Learning.
Tesco is a retail company headquartered in the United Kingdom. The company currently operates in many countries around the world, and offers groceries, food, and other goods. It began trading as a public company in 1947. The year 2001 marked the launch of Florence and Fred clothing range by Tesco (Our Tesco 2015).
By 2007, the company had become international and was entering the United States market using the name Fresh & Easy. It has almost 200 stores. In 2010, Tesco opened the first zero-carbon supermarket in Cambridge to market its ambitions of going green and managing its operations in an environmentally sustainable way.
It also launched online grocery stores in 2010 in Central Europe. Meanwhile, it has kept on with its expansion plans by entering the Saudi Arabian market in 2012. Most recently, it entered into a joint venture with Trend Limited in the Southern and Western regions of India.
Over the years, Tesco has also launched its popular food brands to make them more appealing and relevant to changing consumer needs (Tesco 2015).
Tesco serves all types of customers in its retail business, and offers products for daily use as well as long-term occasional uses.
Most customers are middle class to low-class people seeking to find high quality products for affordable prices. In addition to that, the company runs a club card system to build customer loyalty and for customer intelligence gathering purposes.
The purpose of this report is to investigate the operations management of Tesco and come up with a conclusion about its future prospects. It will highlight the important tools and techniques that Tesco is using to achieve its operations management objective.
It analyses the company’s internal resources using the resource based view framework and also highlights the historical improvements in service delivery that have affected Tesco’s growth to date.
Concepts of Managing Operations
Tesco’s strategy is to manipulate the elements of the marketing mix to create competitive benefits and to have positive effects on sales. The company offers a wide range of products and it has been doing so for the last few years.
Currently, its stores have food, clothing, financial services, electronics, furniture, and home décor among others. Pricing for commodities differ, but the company keeps overall prices similar to market prices for respective commodities.
The price element of marketing-mix is also a business strategy differentiating Tesco from other retailers. The company follows its marketing message of “Every Little Helps” to indicate its focus on the small margins that allow it to earn considerable returns and for its customers to make substantial savings when shopping in bulk (Zao 2014).
Customers can get Tesco services at its stores located in many cities around the world. At the same time, the company provides customers with products online.
In the online avenue, Tesco offers products bundled in one brand name, Tesco Direct, while for in-store purchases; customers get products under different brand categories namely the Tesco Express, Tesco Metro, Tesco Compact, and the Tesco Superstore.
The names are given according to the size of the store and the potential products that would be stocked in the store. Thus, customers rely on store names to influence their shopping expectations. The overall business strategy informs the promotion activities undertaken by the company.
The company seeks to achieve maximum profits and places marketing campaigns to reflect shopping seasons, and also enhances or rebrands popular products to improve sales. It also engages in traditional marketing campaigns such as advertisements and sponsorships of events.
In addition, the company has also been working with point-of-sale placement, announcements and gifting strategies to improve sales. It sometimes supports charitable causes publicly and runs promotional offers for its loyal card-holding customers.
The loyalty card offered by the company serves as a customer intelligence tool allowing the firm to analyse trends and position it adequately, or alter its key marketing messages to reflect market needs (Brenkert & Beauchamp 2010).
Operations in retail businesses require people coordination, empowerment, and management. Tesco has a large number of front service workers who interact directly with customers in its stores. To ensure service quality, it runs strict and regular recruitment exercises to attract the most competent candidates (Zao 2014).
It also invests in training of employees and offers competitive compensation packages to retain its staffs. Currently, the company offers the Colleague Priveledgecard and the Buy as You Earn scheme to enable employees take advantage of the company’s product offerings (Tesco Careers 2015).
The company’s analytical team includes engineers and statisticians capable of making sophisticated calculation on customer data to predict sales (Swabey 2013).
Process and value chain analysis
Process analysis for Tesco would relate to customer wait times, inventory acquisition, disposal, and level of helpfulness provided by customer service staffs at Tesco. In the above elements, Tesco has a robust operation because it has employed an adequate number of sales assistants for its online and offline operations.
It also ensures that the sales assistants are on shop floors at all times. They respond to customer queries and fill in absent or busy cashiers and other staffs inside stores. Tesco brand is visible in its stores, on its staff’s uniform, on its transport fleet and online.
The design of stores is similar throughout the world, although some aspects of orientation or size are different. The packaging quality for its branded in-store products remains high and appealing, while all stores provide adequate parking space for customers. Moreover, most of its parking spaces have special areas for the disabled (Zao 2014).
Figure 1: Value chain analysis. Web.
As a retailer, the key activities at Tesco are; inbound logistics, operations, outbound logistics, marketing and sales, and services offered to customers (Christopher 2011). Tesco has to work closely with its suppliers.
As shown in the figure above, operations take the biggest share of the company’s core activities because it does not manufacture any goods. The next section of the report evaluates the specific details that make up the overall operation activities at Tesco (Slack, Brandon-Jones & Johnston 2012).
Tools and Techniques for Managing Operations
Tesco has expanded its dotcom distribution network to respond to growing online grocery shopping by its customers in the UK. The company now runs a 120,000 square feet distribution centre in Enfield, England.
The centre and its associated technologies allow Tesco to offer dedicated inventories for online sales, which does not affect retail store sales. Previously, its staffs had to go to the retail stores and pick products than ship them to customers.
Pick shopping to serve online customers worked when the company had limited demand and had just launched the online version of its stores.
Now with home shopping distribution centres in five locations in England, the company can rely on technology and logistics management to have the smart zone routing integrated conveyor systems and zone picking solutions required for chilled goods.
The separation of different categories at the inventory level, which aligns with packaging and shipping needs, allows personal shoppers, hired by the company, to pick grocery produce and baked goods then drops them on conveyor systems for consolidating and dispatch.
Meanwhile, the personal shoppers capture every detail of the transaction on their wrist-mounted devices, which is online and updates every other connected database to provide timely information for decision making at all levels of operations management in the company (Bradley 2012).
The company also runs a chase management strategy, where it relies on installed automated scanning and payment machines that allow the customers pay for goods without assistance. With reduced human checkouts, customers are able to shop at peak times and still avoid queuing.
This is an example of a unique application of just in time thinking in operations, where customers get to check off in an offline store just when they would do online.
Tesco is a service management company, whose operations are different from those of a manufacturing company. It has to handle capacity management tasks optimally so that it retains a high level of customer satisfaction throughout.
Tesco offers goods in its stores and online shop, but customers prefer the company’s stores to others because of its associated services, in addition to goods variety. In the retail business, there is no way to guarantee identical services when customers and staffs are transacting.
In addition, customers play a major part in the service delivery and they have an influencing role to play, in the service quality they get. The business design of Tesco makes it absorb the functions of wholesalers in the goods distribution chain. It accepts goods from suppliers and sells to consumers.
It is possible for Tesco to implement a level demand strategy because the business can afford to stockpile; however, filling up stocks before an anticipated high demand season will also negatively affect inventory processing efficiencies of the company’s distribution centres.
A better approach for Tesco has been the use of lean management principles, which seek to eliminate all unnecessary elements and minimize waste. Since 1999, Tesco has been utilizing a continuous replenishing system that relies on point of sale data.
It makes changes to inventory based on real time information and now covers all distribution divisions in the company. The company minimizes delays that would be caused by daily exhaustion of inventory, but the continuous replenishment solves the challenge and helps the company to avoid implementing a level demand strategy.
Part of customer satisfaction in the retail business comes from the provision of goods that customers want. Customers will likely stop shopping at a particular store when they miss their preferred item several times. Therefore, a continuous replenishment system is very handy for a retailer like Tesco.
Besides that, Tesco also runs cross docking operations. It relies on collaborative planning, forecasting, and replenishment to anchor its inventory management.
The company relies on its partnership with retail analytics provider Dunnhumby to analyse customer data and manage sophisticated analyses on its supply chain data (Swabey 2013).
So far, the company has come up with a statistical model that predicts the impact of the weather on customer buying behaviour and uses the model to forecast demand and ensure that stores never run out of goods in high demand.
The analytical team at the company is able to combine various parameters such as weather, store location, work practices, customer preferences, and conventional retail intelligence to come up with predictions on stock.
Tesco has been working on its supply chain to realize incremental gains, especially in the implementation of technology and design of service agreement frameworks. For example, it has its own fleet to transport goods from suppliers, and this arrangement allows it to supplement the transportation capabilities of its supply.
The move serves as an agile management strategy where the company has enough resources to meet sudden spikes in demand, and when there is low demand for a particular supplier’s goods, and then Tesco can dispatch fewer trucks and let suppliers rely on their own transport infrastructure.
Moreover, the trucks used for suppliers at Tesco are also capable of serving as delivery trucks to customers.
Since 2003, Tesco has been relying on radio frequency identification (RFID) technology to monitor inventory throughout its supply chain. The technology allows Tesco to achieve three operation management gains. First, it lets the company deliver better customer services.
Second, it offers higher working efficiency, which reduces overall demand for labour and improve accuracy and quality of job assignments by its staffs. Third, the technology makes the supply chain reliable. Tesco can expect with certainty when goods will ship from suppliers and arrive at its stores, and it can tell when they leave the store.
The use of RFID allows the company to track the movement of goods and use that information to analyse store arrangement and its impact on consumer shopping choices. It then uses the information to achieve better product placement for its branded products.
The Management of Quality Systems
Tesco aims to have its Tesco brand products meet high quality requirements and high quality requirements, both as a company policy and a legal requirement. The company runs a Tesco Food Manufacturing Standard (TFMS) policy that governs its conduct with suppliers and their obligations to the company.
The technologies in use at Tesco allow the firm to match demand for staffs with actual staffing needs. It can then measure an individual store performance against expectations (Koufteros, Verghese & Lucianetti 2014).
Proper design of stores, matching staff demand and provision of self-paying options for customers increase staffs output, reduce idle time for sales representatives and significantly cuts administration schedules (McNamara 2011).
Legislation/Health & Safety
Health and safety are everyone’s responsibility at Tesco. The company maintains a policy of ensuring that employees are in charge of their colleague’s welfare as well as their own.
It also has a safety arrangement in all stores that work together with the safety policy. Highlights of the policy include the need to record all accidents to facilitate future improvement of workflow and equipment design.
The company has first aid boxes placed strategically in use in safety and health emergencies. It has designated areas for smoking and it provides e-cigarettes to the employees to help them maintain a smoke free working environment. Tesco gives employees one free eye test as long as they are operating display screen equipment.
For some workers, a medical report is mandatory before assignment of duties, and the requirement ensures that only workers who are fit to work actually do so. Otherwise, the company finds alternative jobs that match employee capability (Our Tesco 2015). Such arrangements ensure that productivity remains high at Tesco.
It also limits the cost of having to deal with injuries or worker absenteeism (Kim et al. 2013). The use of accident reporting mechanisms and the matching of worker abilities, health, fitness, and job demands put Tesco ahead of its competitors (Tesco 2012).
The table below shows Tesco’s relative performance in the rate of reportable workplace injuries, which highlights the effect of monitoring, and the improvement that the company has achieved from 2011 to 2012.
Figure 2: Rate of reportable injuries (Tesco 2012)
The company does not discriminate based on religion, physical or mental disability, age, gender or sexual orientation. It also offers equal employment opportunities that comply with affirmative action legislation in the respective countries of operations.
The fairness policy at Tesco extends to performance appraisals, compensations, opportunities, and disciplinary matters. At the same time, the company upholds employee privacy to comply with privacy legislation.
The company only collects wheat is minimally acceptable to facilitate normal functioning, and ensures that most of the employee information held by the company is submitted voluntarily. Moreover, the company relies on best practices and technologies to protect confidential information (Tesco 2004).
The adherence to safety, health, and legal conditions to facilitate smooth operations at the firm is part of the strategy to ensure continuity of business (Dimba 2010). Firms that protect employee privacy and offer appropriate working conditions appear as caring, and elicit organizational citizenship behaviour expressed by employees.
Employees are a source of competitive advantage in the service industry. The human resource department handles the employee issues, which act as supporting activities for the core activities like operations management as per the value chain analysis (Harms, Hansen & Schaltergger 2013).
Nature, Content & Process of Operations Strategy
The nature of Tesco’s operations is retail, where the aim is to avail products to as many customers as possible.
Tesco embraces the use of a common platform to build innovation. With branded categories such as the Fresh & Easy concept and branded stores, the company uses a single format that applies to a uniform range of products. For example, the Fresh and Easy format is only for food and groceries.
Customers expect to get all food and grocery offerings at any Fresh & Easy store. The same strategy expands to the bigger stores where each category is under a mini-department within the store. Several categories of goods fit into stores, allowing the company to run many different promotions concurrently (McNamara 2011).
The model then extends to other operations, such as transport planning, automated ordering, club card, and innovative display capabilities in stores.
The benefits of the strategy include better shopping experience for customers, simpler storage management tasks for staffs, reduced costs for the company and faster ordering and delivering, which benefit both the firm and the customer (McNamara 2011).
The main strategy at Tesco has been to combine product availability techniques and customer focus orientation to have order-winners.
With increased use of tracking technologies for goods, and improved capabilities of its analytical team, the company is able to focus on individual and group customers and provide them with relevant services that precisely meet demand.
The precision afforded by technology serves as a differentiation strategy for Tesco (Slack, Chambers & Johnston 2011).
Differentiation at Tesco serves as a source of competitive advantage. When reviewing internal factors for success using the resource based view theory, one sees valuable resources at Tesco as its analytical team, and its distribution centres.
In addition, its supplier quality policies and its recruitment strategies are also value-adding resources that help it to offer differentiated retail experiences that are superior to what the competition is offering.
The pricing strategy, which keeps Tesco well positioned to take on bargain hunters and other price sensitive shoppers combines well with the loyalty card strategy that allows customers to opt in to an information collection system run by Tesco to offer them rewards, and deliver a better shopping experience.
In addition, the use of self-paying technologies for customers at stores, which ends up cutting checkout wait times, is also influential in making Tesco achieve its objectives of lean management, and to reduce overall costs of operations.
Conclusion
Tesco can attribute its operations excellence in its relentless pursuit of innovation in inventory management, in-store customer service satisfaction, and proper treatment of employees according to their job abilities, fitness condition, and position in the company.
As a retailer, Tesco does not face operations challenges typical in manufacturing industry and, therefore, had to come up with improvised implementation of the just-in-time inventory management system.
The company relies a lot on technologies to assist in transportation, tracking goods and consumers, and enhancing work performance of the employees.
The combinations of technologies and work planning process help Tesco to differentiate itself from its competition and earn higher revenues, despite its low cost value proposition to its customers.
Reference List
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Employee training benefits companies and employees by improving customer service, increasing efficiency and effectiveness, and reducing errors. For these and many other reasons, Tesco, a multinational grocery retailer, chooses to train its employees. “In this article, the author answers the question, ‘Why does Tesco train its employees?’”
Some of the reasons for Tesco’s training and development are:
The business environment has undergone major developments over the recent years and this has necessitated the need for companies to engage in different strategies. This is necessary to make them more competitive in their industries of operation. One of the strategies that have become common is training and development of staff members at the work place. This is because businesses with highly qualified staff members who have the necessary skills and knowledge have been known to perform better.
In addition, they produce quality goods and services for their customers who play a major role in determining the level of business activity that takes place in an organisation. In order for such knowledge and skills to be passed on to an organisation’s staff members, different learning styles are used. These styles are included in the training and development programs adopted by such organisations.
This paper looks into different learning theories and styles used by TESCO in its staff training and development program. In addition, it will look at the evaluation techniques used by the company to determine the level of skills and knowledge acquired by the staff members and the different initiatives the government has put in place to aid in the development of skills in the labour market.
TESCO is a retail chain company dealing in grocery and general merchandise sales. It was founded in 1919 by Jack Cohen and has grown since then both in size and in geographical expansion. Apart from groceries and other consumer products, the company has businesses stakes in the telecoms, banking, technical support and fuel sectors. The company faces major competition from other members in the retail chain sector such as Wal Mart, Safeway, Costco and Trader Joe’s.
In order to remain competitive in this sector, TESCO has adopted a training and development program for the company’s employees in order to help them realise their potential and as such increase the performance of the company. Other than training and development programs, the company also engages in monetary rewarding for the employees such as benefit packages, paid leave and flexible working hours, defined pension schemes and profit share schemes (TESCO, 2005, Para. 2-5).
The introduction of this comprehensive training program at TESCO has helped the employees to learn new concepts and thus use them in their work places. In training their staff members, TESCO has adopted individual training which allows a large number of their employees to acquire the necessary knowledge within a short time. Such knowledge is then used to improve the quality of work done in the organisation and as such produce quality results. This has made TESCO more competitive compared to its rivals in the market.
Learning Theories and Learning Styles
Differentiate between different learning styles
Learning styles refers to approaches used in the learning process. The learning styles are mainly based on individual perceptions towards the information given in the learning process and how they process this information in their minds. From this, different learners can be developed.
They can be either abstract and concrete perceivers or reflective and active processors. In addition, there are various learning styles that are available to organisations. Visual learning style prefers the use of pictures, images and colours to ensure that information is well organised and communicated to others.
Through this, learners will be able to have a good sense of direction with a well laid down outcome. Aural learning style on the other hand uses sound and music to ensure that the learning outcomes are well achieved. In this case, some certain music will be able to invoke strong emotions and feelings. It can be further enhanced by good sound recordings that will guarantee visualisations.
The verbal learning style uses both the spoken and written word. This is enhanced through reading and writing. The use of rhyme and rhythm will ensure that assertions are effective. Physical or bodily-kinesthetic is a learning style that uses sense of touch and the body to learn. In the process, learners are more sensitive to the physical world around them. Movements and hands-on work can also be used to enhance learning activities.
The logical or mathematical learning style uses the brain for mathematical or logical reasoning. This enables the learners to recognise patterns more easily. In the process, they are able to group and classify information that will help them to learn and understand. In this style there is need to understand the reasons behind the skills and their content (LeFever, 2004, p. 20).
Learning Theories and their Contribution to the Planning and Design of Learning Events
Various theories have been developed regarding the learning process. The focus here will be on the constructivist, experiential and social or situational theories due to their applicability to TESCO. The constructivist is of the view that adults have the ability of learning by constructing their own knowledge.
This is applicable to TESCO as some of its employees learn from the experience gained through working in the company. This means that they are able to deal with different work situations depending on the experience they have. This is especially so for those who have worked in the company for long periods of time. The experiential theory caters for the needs of different people and as such provides training for those specific needs.
TESCO provides for this kind of learning; for example where employees are trained to be team building managers, planning, communications and organisational managers through their off job training programs. The social or situational learning theory advocates for learning through observing others and how they deal with different situations. In TESCO this is undertaken through on the job training, for example through shadowing and mentoring.
Implications of the Learning Curve and the Importance of Ensuring the Transfer of Learning to the Workplace
The learning curve represents the knowledge and skills acquired in a specific time while performing a particular task. The graph shows that the time taken to complete a specific task reduces when the task is repeated time and again. At the workplace, the learning curve can be used to gauge or determine the time employees take to perform particular tasks and as such determine their productivity.
This is important as it can help organisations forecast their productivity. In a company like TESCO which is more service oriented, it can be used to determine how long it takes employees to perform particular duties and as such determine their productivity and the need for training.
The transfer of learning in the work place is important as it enables more people to acquire different knowledge and skills that they would otherwise have had no time to acquire, especially when offered outside the workplace due to time constraints. TESCO offers on the job training for its employees and thus ensures that they gain new skills and improve their productivity.
Planning and Design of Training and Development
Training’s Contribution to the Achievement of Business Objectives and the Role of Training and Development Policy
In order for an organisation to carry out its training and development program successfully, comprehensive planning is necessary. This ensures that the training and development process runs smoothly and challenges can be easily recognised and changes made immediately. Training and development of employees contributes to the attainment of different business objectives as it enables employees to learn what is important to the organisation and focus on it.
Training also gives employees of an organisation a solid basis upon which to gauge their work in line with the objectives and goals of the company. This ensures that employees address the actual goals set out by the organisation and also increases their competence.
Training and development policies in an organisation are thus meant to enable the organisation improve its productivity, efficiency and effectiveness in its daily operations as it better utilises the potential and abilities of its employees in terms of their knowledge and skills.
Training and Development Stages
Training and development helps to improve the employees’ skills, knowledge and attitude. This is well done with a good and proper planning, implementation and evaluation process. In order to carry out successful training and development, an organisation should carry out an assessment on its employees to determine the kind of training required.
The kind of training should be able to suit the needs at that particular period. It is important to have an assessment because every organisation has different departments that demand distinct skills. A proper assessment will enable the management to know which areas to lay more emphasis on. After this has been done, it will be good to create a training program with reference to the needs of the employees.
It is assumed that every employee in an organisation has specific needs as far as their skills are concerned. In this stage it will be efficient and advisable if the training program is created according to the needs of the employees at a given time. The next stage is to take into consideration the different personalities of the employees as well as the learning styles that best suit them. The training that is undertaken is supposed to be appreciated by employees.
This will only be achievable if it is done in relation to their personalities and the styles that they will be comfortable to use. After this has been done it will be necessary to plan the training and evaluation process. A proper plan will give a roadmap on how the training will be carried out. This will ensure that there is consistency and time bound training and development. Finally the management is supposed to come up with the techniques and methods that will best deliver their training and achieve the required objectives.
Factors to Consider when Planning a Training and Development Event
In order to accomplish the goals of training in an organization it is important to take several factors into consideration. This is because they play an important role in ensuring that a training and development program is effective and efficient. These include the number of people that are expected to go through the program and the time the program or event is expected to run.
The number of people to be trained is important as it will determine the style that will be used to ensure that all the employees are covered. This will also help to tell the impact that the program will have on the organisation and specific departments. Time is important as it will have an impact on the delivery of the process. It is important to know the time that the process will take so that the organisation can create enough time that will be enough to for the employees to participate in.
The cost of the program should be taken into consideration by the organization so as to ensure that it fits within the company’s budget. Some of these training programs can be vey costly and the organisation should have enough funds to ensure that they engage in an effective process that will achieve its aim. The people undertaking the training and the issues they will be dealing with are also considered since not everything can be covered within the available time.
Issues to be tackled should be well analysed to ensure that they are pressing and worth the training and development program. The relevance of the training to the performance of the organization should also be taken into account. This is because it will ultimately add some value to the organisation.
TESCO’s Approach to Training
TESCO invests greatly into the training and development of their employees. It has adopted a very flexible training program which focuses on individual employees and their individual needs. Individuals are identified and allowed to participate in this program depending on their potential and in the process their leadership and other skills are improved.
The program also allows on the job and off the job training. On the job training uses training methods such as mentoring, shadowing, job rotation and coaching, whereas off the job training offers specific training on specific skills such as communications, planning, organization and team building.
They are then allowed to practice the acquired skills practically in the company (The Times 100-A, 2010, para. 3-6). In terms of development, TESCO offers a long term development strategy for its employees through workshops, learning logs, review platforms and helps employees to continuously carry out evaluations on themselves.
Role and Purpose of Evaluation and Evaluation Techniques
Importance of the Evaluation Process and its Contribution to the Marketing of Training and Development in an organisation
After carrying out staff training, it is important to carry out evaluations in order to determine the effectiveness of the training and whether it has been beneficial to the employees and in effect the organisation as a whole. The main purpose of the evaluations is to determine the levels of skills and knowledge that the employees have acquired from the training and whether they are applying them in carrying out their duties and if so, if their productivity has improved.
Once the evaluation has been carried out, the results can be used to show the importance of training and development to the organisation and as such increase its popularity and the commitment of the organisation towards investing in further training and development programs for its workforce. It is normally expected that once staff members have undergone training, the result will be witnessed in their productivity and quality service delivery and impact on the general performance of the organisation.
Evaluation during Different Stages of the Training Cycle
It is necessary to carry out evaluations during and after training programs for employees as this enables the organisation to keep track of the training and development progress. During the training, employee trainees may be asked to fill in learning questionnaires which will help trainers to determine the level of skills and knowledge acquired at different levels of training.
Employees may also be asked to submit their own self assessment plans and these may be used by trainees to determine whether the employees are finding the training beneficial. Upon completion of the training and development program, employees may be required to engage in debriefing meetings with line managers and trainers from which the impact of the training can be assessed.
In the long run, an assessment can be carried out on the employees to determine whether they are applying the skills and knowledge acquired during their training on their day to day work activities.
Roles Played by Key Stakeholders in the Evaluation Process
The major stakeholders in the evaluation process include the managers of the organisation, those offering the training, the organisations customers as well as the employees themselves. The trainees are required to participate in the training program and evaluation process and generally support the evaluation process.
Trainer’s importance stem from the fact that they are the ones who offer the training, assess the trainees and work in liaison with the management to ensure the training program runs as expected and also give feedback to the management on the process that will be used to develop the necessary reports.
The managers of the organisation aid in developing and implementing of the evaluation process as well as allocating necessary resources to the process. Managers are supposed to ensure that the trainers are accorded enough funds for them to be able to avail all the resources that they need.
Because they run the organisation, their support will ensure that the process is participatory and involving which will bind all employees together. For the process to be effective it needs proper implementation which will be enhanced by managers as they will oversee it. Employees are supposed to be involved in the evaluation process for it to be successful.
In this case, they need to provide the necessary skills that will enhance its implementation. On the other hand, they are also supposed to be cooperative as this will make the evaluation process to be done faster. The organisations customers also play an important role as they are supposed to be cooperative on whatever is being done to help in evaluation as the outcomes will likely benefit them more.
Pros and Cons of Different Evaluation Techniques
A comparison will be made between system based and goal based evaluation. The goal based model as developed by Kirkpatrick rests on four levels of evaluation, namely learning, results, reaction and behaviour (Guera-Lopez, 2008, p. 47-48), while the system based model’s evaluation (in this case the CIPP model developed by Stufflebeam) is conducted on the basis of process, context, product and input (Guera-Lopez, 2008, p. 107).
The concept of Kirkpatrick’s method of evaluation is easy to grasp, gives four different levels on which the success of training can be gauged, it is reliable and thus recommended for use and gives those carrying out evaluations a framework that can be easily used to measure the level and effectiveness of training.
Its disadvantages include: The fact that it is simple makes it prone to overgeneralisations, the levels are not correlated to each other and as such cannot be used as hierarchies and in most cases evaluation usually stops at the first or second level. The CIPP model is decision oriented, practical, comprehensive and practical but is disadvantageous in that it is too structured, complex and costly to the organisation.
Contribution of Evaluation Models and the Difficulties Faced in Practice
It is important to note that the evaluation process especially in training and development is a complex process and as such it is necessary to use evaluation techniques that will capture the essence and purpose of the training. Evaluation models enable organisations to determine the effectiveness of their training programs and as such should be carried out whenever possible.
In practice however, the implementation of these evaluation techniques may prove difficult because they require a lot of time and resources, which may not be available to the organisation at all times. These evaluations can also not be conducted regularly.
TESCO conducts structured monitoring and evaluation processes to those employees that have undergone training through instruments such as timetables, scheduled tasks that are required to be performed by the employee trainees as well as check lists for the trainees. Employees are also required to carry out regular assessments on themselves through recording of their progress in learning logs and coming up with personal development plans. This ensures that their post training progress is monitored (The Times 100-B, 2010, para. 2).
Government-led Initiatives Aimed at Developing Skills in the Labour Market
The context influencing the role of government in training and development and the growing emphasis on lifelong learning and continuous development
Any country’s government should take an active role in developing the skills of people in the labour market, and many do so through offering proper education systems. The government’s role is pivotal and as such should be taken seriously by government policy developers and implementers.
The Government’s main role is coming up with viable education policies that will ensure that once a person goes through the education system, he/she is ready to work in the labour market because the necessary skills and knowledge has already been acquired. The government is also charged with the duty of providing the necessary resources required in education and training institutions so as to provide both theoretical and practical skills to the country’s citizens to ensure that they become marketable in the labour market.
The Development of NVQs, MCI and the Competency Movement
According to Powell, the competence movement came to be in the United Kingdom as a result of the belief that the competencies essential for the performance of certain roles should guide peoples’ occupational roles. As such the body charged with the development of a competent labour force in the United Kingdom, that is the Manpower Services Commission and Training Agency under the government, has sought to take the country’s labour force through a competent guided training (2001, p. 20).
This system is aimed at improving the flexibility of UKs workforce in the labour market. To do this, different occupational standards have been developed. This includes the National Vocational Qualification (NVQ) and the Management Charter Initiative (MCI) for managers which were developed. These two standards form the basis upon which managers competencies are gauged through assessment processes which can be either appraisals, appointments and other training programs.
Contemporary Training Initiatives Introduced by the UK Government
Contemporary training programs have been undertaken to ensure that human resource is well endowed with the necessary skills. These have been introduced every now and then to ensure that there is competency and efficiency in the county (when it comes to human resource issues).The United Kingdom government has established several training initiatives under the Learning Skills Council such as the Train to Gain among other apprenticeship programs.
The main aim has been to ensure that there is proper planning and funding of further education in all aspects. To ensure that all the areas of the country are covered the government has made it possible for the council to cover different regions for a wider reach. There have been focused skills training programs that have also been funded by the government through the Learning skills council.
In extreme cases, the government has been involved in partnerships to enhance trainings. An example is the partnership with local authorities to conduct trainings on their employees. Beyond 2010 the government has a new initiative to involve small and medium sized businesses so that they can also be able to enhance training programs that will improve efficiency and productivity in their operations. Even though the programs have proved to be successful since their establishment, they have also faced their share of problems.
An example of this is the funding problems that were brought about by the global economic crisis between 2008 and 2009 (Woods, 2009, para. 1-6). These needs to be attended to so that the laid programs can be enhanced as they ultimately have an impact on the employees. Employees need to gain new skills for efficiency and improved productivity and this can only be attained through good training initiatives.
Reference List
Guera-Lopez, J. I., 2008. Performance Evaluation: Proven Approaches for Improving Program and Organisational Performance. San Francisco: John Wiley & Sons, Inc.
LeFever, D. M., 2004. Learning Styles. Colorado: David C Cook.
Powell, W. F., The Politics of Social Work. London: SAGE Publications Limited.
