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A study to analyze the strategic and cultural change at Tesco

Retailing is the concept of making goods and commodities directly available to the customer, making shopping a comfortable and easy business. Due to this fact, today retailing has become increasingly competitive and hence, it has enabled people to have more options to choose from different retail outlets than before. To increase business activity and ensure its market value, it’s now becoming the concern of every retailer to attract new customers of every sector, and retain previous customers. Customer satisfaction is the key to achieve market leadership, and customer satisfaction can be guaranteed by providing the customers the best price with ensured product quality accompanied with good shopping experience. Giving superior value to the customer is the successful strategy followed by many companies, which is why good companies understands and anticipate customer requirement and continuously monitors the changing lifestyles and demands of the customer (Henry, 2007).

Tesco is one such company that has made thousands of people its loyal customer and therefore, is the leading supermarket retailer of United Kingdom, one of the largest food retailers and also one of the top three international retailers in the world. Tesco is the market leader that has been the dominating within the wide spectrum of the industry. However, in order to sustain this position it must carefully monitor trends in its external environmental to provide product innovations and services that will build brand loyalty among its customers and food for thought for its competitors (EMCC 2007).

Tesco’s business strategies have successfully lead it to the top of the world’s best retailer list but efforts, in form of change in business strategies and the office culture for the sake of innovation and customer attraction, are required by the company to improve its work standards.

Statement of the Problem:

The statement of the problem will be stated as: “A study to analyze the strategic and cultural change at Tesco for improving work standards”.

Aims and Objectives:

The aims and objectives of the study are:

To review the cultural change and strategy modification of Tesco in recent years.

To propose new strategies and culture for improving the standards of work at Tesco.

To carry out the strategic assessment of Tesco for determining the success factors that have made Tesco a globally known brand

Literature Review:

TESCO is a United Kingdom-based global supermarket chain which is generating annual revenues of around £20 billion. Jack Cohen founded this company in 1919, he started off by selling surplus groceries from a stall in the East End of London, and the first store was opened in Edgware, North London in 1929. By 1960 Tesco owned a chain of 212 stores in the north of England and the number of stores increased up to 356 by the year 1965.

Tesco became the first major retailer to emphasize the nutritional value of its own-brand products by launching its ‘Healthy Eating’ initiative in the year 1985. By the year 1995, Tesco dominated the English market in food retailing, and thus started expanding the business beyond the boundary across the world. Tesco PLC was introduced and established in Hungary, Northern Ireland, Poland, Czech Republic and Slovakia. In 1998, the business was launched in Asian countries Taiwan and Thailand, and by 2004, Tesco business activities were extended in South Korea, Malaysia, Japan, Turkey and China.

After the success in food retailing business Tesco expanded its business activities into different formats targeting different markets and a wide range of customers of different sectors. With over 2,500 stores worldwide and more than 450,000 peoples employed, Tesco rules around the world with its business which covers retailing, distribution, logistics, telecommunication and financial services (EMCC, 2007).

The third key part of Tesco's long-term strategy for growth is to be equally strong in food and non-food retailing. Tesco ensures the same high quality, variety, reasonable price, and service for customers in both areas. The company offers a wide range of non-food products which includes electrical goods, home entertainment, clothing, health and beauty products, stationery, kitchen item, furnishings, and seasonal goods and garden furniture. Tesco has developed the concept of complete shopping under one roof by offering customers the convenience of shopping for non food items along with food and household goods.

Tesco’s 80% of the profit comes from the core UK business. The core United Kingdom business consists of over 1,800 stores and more than 260,000 peoples working as an employee. This growth in the business has been possible by the attainment of new space, extensions of existing stores, and mainly by a multi-format approach. The sale of non-food items, which are growing at around twice the rate of food sales, is also a contributing factor to the overall growth of the business. Tesco utilizes qualitative as well as quantitative research techniques to explore issues. The company has been working on having a broad appeal by continually innovating and investing in new product lines to increase options for the customers. These brand appeals include ‘Healthy Living Products’, ‘Free Form Products’ which are especially designed products for people with food allergies and food intolerances, ‘Special Healthy Children's Snacks’ which are rich in fiber and ‘Organic Product Line’ which offers affordable and more diverse organic food (EMCC, 2007).

Tesco have successfully established business outside the United Kingdom, around 100,000 employees are working for the company in international operations, serving over 15 million customers resulting in generating over GBP 474 million in profit. The key to this success is that Tesco has ensured that each business activity is unique and flexible according to the tastes and demand of the targeted customer of respective country. The multi-format approach has helped the company to prosper as it attracts by interesting a wide spectrum of customer in the products.

Tesco’s last long-term strategy for business growth and development is to provide new retailing services in response to customer demand. To achieve this goal Tesco has developed three tools; Tesco Personal Finance (TPF) which was launched in 1997 through a joint venture with the Royal Bank of Scotland, this joint venture combines Tesco’s knowledge of customers with the Royal Bank of Scotland’s expertise in financial services giving the customers a choice of products and services from banking to instant car and travel insurance. Tesco.com is the company’s online shopping service was launched in 1999 owing to the growing IT development. Shopping online gives the customers an added advantage of shopping from home at their own convenience. Tesco Telecom Tesco Mobile is another of Tesco’s scheme, it was launched in July 2003 through a joint venture with Telefonica subsidiary, and it now has over half a million customers.

Tesco being such a large industry faces many risks, since it targets a large variety of customers covering wide spectrum of industry, it involves a lot of risk, biggest being the decline of the quality of the products. Also, the increasing number of business activities and especially the wide spectrum upon which Tesco has been working has greatly increased the number of competitors. Since, Tesco grows to increase its business covering all aspects of the life; the company faces a lot of rivalry. Thus, to maintain brand loyalty of its customer Tesco needs to develop new strategies for the growing business to ensure that company’s policies of customer satisfaction is being fulfilled.

Strategic and cultural change at Tesco for improving work standards

Organization culture may be defined as “the shared assumptions, values, and beliefs that guide the actions of its members.” [CITATION SWO \l 1033] It is influenced by a variety of factors, including the founder’s value, nature of the business, the external environment and the behavior of the senior leaders. Culture determines the success or failure of an organization, because it directly impacts its core values as well as its employees. Hence, organizations adapt their cultures depending on their current needs. Culture changes are more likely to occur when companies undergo a major setback, such as a finance crisis, or when they expand themselves across product categories or countries. According to Kennen (2007), organizations can induce culture change by uncovering the core values and beliefs of the employees, by discussing and communicating the process of change, and by establishing new behavioral norms. Change management can become a very crucial issue, if not implemented properly it can result in loss of employee trust in management. Successful organizations inspire a strong organization culture into their employees.

Tesco is an example of such organization which have undergone major adaptive cultural and strategic changes in the past along similar lines. Through our secondary research, we have found material showing Tesco’s success linked with its change.

Tesco is one of the largest retailers of food and drinks worldwide. Based in United Kingdom ever since 1920 [CITATION SWO \l 1033] , it has to date expanded itself into several countries across the European Union as well as in Asia. It sells around 40,000 food and non-food products through its wide network of 2318 stores and its online service Tesco.com.

Such success of Tesco has been possible due to its focus on growth strategy, and its core competencies which are basically its brand reputation and the value-added services its provides through the brand experience. In addition, Tesco has shown a wide potential to capture foreign markets with variable environmental, cultural and political factors. It is highly sensitive to external environment, and adjusts on a need basis. It is also important to consider the factors of Tesco’s internal environment which add to its competencies. These include its strong IT integration and integration of its supply chain. [CITATION Eur07 \l 1033] Advanced extranet and intranet systems which are regarded as luxuries in many organizations are the very operational tools in Tesco. This ensures quick flow of information within the organization, and outside, ensuring timely decision making and innovation to take place. Tesco also has enhanced supplier relationship programs, which are unique in their structure and very specifically designed keeping in view its culturally and ethnically diverse suppliers from all over the globe. Strong communication links are developed and close relationships are maintained to increase trust and respect, and to attract more prospective suppliers through word-of-mouth.

In addition, Tesco treats its human resource as an important asset and invests due fully in it. The Times 100 research has shown that, keeping in view the Maslow’s Hierarchy Model of Needs, Tesco seeks to fulfill all the level of needs, from basic to the highest through its various employee motivation programs. It provides basic pay and locker room facilities and health security and pension. In addition it addresses the higher needs of the individuals by empowering them in a team based environment, providing them feedbacks and appraisals, and motivating them through encouragement and respect. Tesco even has Personal Development Plans, which focus on the personality and skill developments of the employees, helping them progress in career and in life. Thus, Tesco’s treatment of its employees covers all aspects of the employee needs.

According to European Foundation for the Improvement of Living and Working Conditions (2007),Tesco is the biggest private sector employer in UK. It seeks employees from different cultures, background through different sources, including government programs and campaigns. Its recruitment system allows the employers to consider people from diverse cultural and local groups, and fit them into particular jobs depending on capabilities and tendencies. It also participates in the government ‘regeneration’ programs which looks fro employees amongst those that have been chronically unemployed. It also makes sure that its managers work shoulder-to-shoulder with its workforce, and are aware of the technical aspects of the work. Tesco provides its employees salaries based on the nature of work, and additional benefits, both monetary and personal in the form of flexible work hours. Tesco also supports the part-time employment, which is becoming more popular than full-time jobs.

In the book Value-based human resource strategy: developing your consultancy role, Grundy and Brown (2003) assert that in 1990, Tesco decided to undergo a culture change to “enhance its responsiveness throughout the organization.” However, when it hired an HR consultant, it discovered that the term ‘culture change’ had an inherent risk of failing. It was too overwhelming a concept, indicating a huge change in the organization’s function which made it incomprehensible for its stakeholders. Hence Tesco underwent change in the name of ‘customer service’ instead, because the term described exactly what kind of change was going to be targeted. Similarly, when BP introduced its cultural change, it put an economic value that came from the change to motivate the employees to adopt it. Thus, organization culture change can be adopted in several steps, namely ‘value change’ which lead to ‘behavioral change’ in employees.

Tesco is a heavily customer oriented organization, with a focus on its external environment. Bedingham (2000) has described the process of an organization change with respect to Tesco. He says that there is a relationship between organization culture and organization results. In order to bring about change, an organization needs first to decide what it wants to achieve as a result. This was implemented by Tesco in 1987. According to the article, when Coca-Cola appointed Verax to do research on retail stores, it made the research findings open to the stores themselves. Tesco’s finding was the lack of professionalism amongst its store managers. In response, Tesco decided to review its management practices to improve customer satistaction. IT developed pilot programs for personality development of its store managers which covered all aspects of the managers’ personality. One of such initiatives was the Store Management Development Project, after whose success the company moved on to shift the entire organization to a professional and customer-oriented culture. The change was need-driven and focused on areas where improvement was needed. All these measures helped Tesco gain value in terms of better customer response, which translated into a successful commercial outcome.

Ma and Ding (2010) have also described the customer-orientation of Tesco.com, by asserting that customer value and customer satisfaction are amongst the core values of the organization. They have a clearly defined purpose, and they fulfill it through their excellent customer and delivery service. According to the work, 67% of the people take Tesco as their favorite supermarket.

Leahy (2004) asserted that a financial crisis that Tesco underwent in 1990’s was what triggered the change process as Tesco. The event guided Tesco’s managers to change their values from being competition-focused to customer-focused.

Hence, from the literature review it is evident that Tesco has experienced strategic as well as cultural change, and to improve work standards, it can keep moving in the same direction of customer-focus and quality service.

Methodology:

We shall further conduct primary research on the subject to identify more variables that can be involved in improving the working conditions at Telco. In order to do so, we plan to test the perceptions of the Telco employees themselves, as well as the managers. These perceptions shall reveal whether the employees are satisfied with the working conditions and culture at Telco, and if their core values are in line with the customer-oriented strategy of the organization. This should help confirm the secondary research, and show new areas to explore where improvements can be made.

We shall test the perceptions of employees and managers by means of survey questionnaires, focus groups and in-depth interviews.

Survey questionnaires shall seek information about the motivation level of employees and their basic problems and opinions. Mostly close-ended questions, they will give a quantitative analysis of the situation. Based on our findings from the surveys, we shall conduct focus groups with the employees where we gain insights about the core employee feelings and perceptions. These include:

What are the main problems employees face at their workplace?

How do employees want their workplace to be like?

What will motivate employees to perform better?

To what extent are the current working conditions fulfilling the basic and higher needs of its employees?

How do employees describe their workplace? Is it ‘fun’, ‘shabby’, ‘business-like’, ‘delightful’?

Thirdly, we are going to conduct in-depth interviews with the managers of Telco to understand their view-points about the culture. This may also help us gain ideas about how to make Tesco a better working place.

Conclusion

The success story of Tesco revolves around the four key elements which have been the company’s long-term strategy for business development and growth. These key elements include growing the core United Kingdom business, expanding business internationally, becoming equally strong in its non-food retailing chain and to provide new retailing services in response to changing customer demand. The company believes in customer value and describes its core purpose to earn their lifetime loyalty and to achieve this purpose, Tesco try harder on behalf of customers than its competitors and treat people how as they would like to be treated and be better for customers in every possible way. Tesco has been successfully responding to changing lifestyles and demand of the customer. This has been one of the company's key drivers over the past five to 10 years.

Tesco PLC, after the completing this successful journey intends to remain on top of the world of retailers and for that constant change and innovations are required in the companies strategies to keep the old customers loyal and to make as much new customers as possible. From the past studies it is observed that when in 1990’s when the company formulated a change in its cultural strategy and the concept of ‘customer service’ was born, which have made Tesco not only the leading company of the United Kingdom but also among the top companies of the world. To maintain this position, the time has come to develop and create ideas or to develop new strategies building up a completely different culture that will ensure further boost in the economy of the company.

According to the report of Datamonitor (2003) Tesco Plc might be regarded as the largest retail sector of the UK industry, recruiting almost three million employees for the product manufacturing and services. Approximately 9% of the total domestic production is catered by Tesco. Although this present era have shown a great inclination of suppliers to buy company owned products having a well reputed brand name, thus increasing limitations imposed on the supermarkets but still the strategic development of supply networks is regarded as the prime driving force for the retail store chains operating within the previous decade. Tesco plc is affected by the external environment in which it operates. The company now owns almost 2318 retail centers with the workforce of 326,000. Online shopping facility is also provided under the company’s official web domain “Tesco.com”. The market concentration ofTesco is well distributed in United Kingdom with extensions of Superstore, Express, Metro and Extra. Annual sale of products is estimated to be 40,000 with the inclusion of clothing line and accessories. The products launched by the company can be classified into three categories of “value, normal and finest”. Other than that Financial services and petrol stations are also regulated by Tesco Plc in United Kingdom.

References:

Henry, A. (2007). Understanding Strategic Management. London: Oxford University Press

European Foundation for the Improvement of Living and Working Condition Case Studies, European Commerce Center: Tesco PLC. Available at: <http://www.eurofound.europa.eu/pubdocs/2007/1063/en/1/ef071063en.pdf> [Accessed: 3 March 2011]


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