Strategic Human Resource Management Case Study Tesco Plc
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Published: Mon, 5 Dec 2016
For the purpose of this assignment the organization chosen to develop a strategic Human Resource Management plan, is Tesco. Tesco plc. is one of the world’s renowned and largest retail and grocery chain operating in more than 14 countries and is the largest supermarket of United Kingdome. Tesco faces a solid competition in UK market from the other supermarkets i.e. ASDA, Morison and Sainsbury. However, globally Tesco’s major competitor is WALMART which is the global market leader along with ASDA the second largest store chain. The company is employing more than 470,000 people (O’Reilly, 2009). The company has a slogan “Treat people how we like to be treated” which makes the company one of the best employers. Tesco prefer to hire fresh graduates and their staff-rooms gives a new look which are designed by the employees themselves. Respecting the employees, trust, team work, supportive environment good gestures are one of the major focuses of the management.
Resource Bases Strategy
Resource based approach sees the structures and superior systems of the firm for profitability not because of their engagement in strategic investments that may discourage entry and result in rise in prices above long run cost rather because they have lower cost and higher quality and performance (Armstrong, 2005). This approach focuses on the rents accruing to the owners of scarce firm-specific resources rather than the economic profits from product market positioning. Each organization has certain strengths and weaknesses, so this is very important to identify those in order to distinguish them from the other organizations. It is not necessary that organization can only gain the competitive advantage from the number of opportunities available, rather it can gain the competitive edge by utilizing the in hand resources efficiently and in distinguish manner from the other organizations.
Resource based view emphasizes to gain the competitive advantage by using the current resources and capabilities of the firm, that creates the superior value. As per this view a firm must attain the capabilities and such type of resources, which enable it to get a competitive edge over the competitors. The competitive advantage is one which the other cannot copy or replicate. The competitive advantage can be of two types i.e. cost advantage or differentiation advantage. Cost advantage occurs when an organization delivers the same product or services as compared to the competitors, but at lower prices and differentiation advantage occurs when the benefits from the product exceeds from the competitor’s products. Figure 1 shows a general model that how resources and capabilities can create superior value by attaining competitive advantage.
Figure 1: Model to create value by attaining competitive advantage
Resources – refers to those assets held by an organization which are able to attain wither cost of differentiation competitive advantage. Resources can be of both types i.e. tangible and intangible. However, resources alone are not able to enable the organization to attain competitive advantage as most of the resources are attainable by the other organization. Examples of such resources are patents, customer base, reputation/goodwill, brand equity etc.
Capabilities – refers to those abilities of an organization through which the resources are utilized efficiently. An example for this is to bring a new product or service in the market more quickly that the competitor. These abilities are not documented and are not related to any tangible resource as these are embedded with the culture and daily operations of the business and cannot be replicated or copied by the competitors. Such capabilities help to attain sustainable competitive advantage.
1.1 Dynamic Capabilities
Resource bases view has been criticized for conceptually vague and repetitive as it does not give attention to the mechanism which contributes towards the attainment of sustainable competitive advantage in dynamic environment (Porter, 2005). High global competitiveness has raised the need to understand that how sustainable competitive advantage can be obtained.
Factors of Production – These refers to those resources which are undifferentiated, means that these resources are firms specific. By having the resources firm specific an organization can attain competitive advantage over the competitors. Such resources are difficult not possible to imitate by the other organization. Such resources might be trade secrets, production plans, certain specialized production facilities etc. Such factors of production give a competitive edge and quiet possible reduce the cost of production of the organization which enables the organization to adapt a cost leadership strategy. Tesco can reduce their cost of production by having the products on bulk and by offering different facilities to the manufacturers.
Organizational Processes and Procedures – The routines and processes of the organization also enable them to gain competitive advantage. When the specific assets of an organization are assembled in an organized and systematic way then they produce distinctive routines and competencies which progress towards distinctive competitive advantage. These distinctive routines and processes can also be used outside the organization with the strategic partners to ensure that the venture is successful. Tesco’s organizational processes are very distinctive in nature. The largest store chain has adapted such innovative processes which enables them to gain competitive advantage over the other competitors.
Core Competencies – Such competencies which define the core business of an organization are called core competencies. In this way all the organizations have their own core competencies, but to make these core competencies distinctive it is necessary to engage these core competencies with the distinctive resources possessed by an organization. In this way that core competency will not be replicated by the competitor and a sustainable competitive advantage can be achieved.
Dynamic Capabilities – Dynamic capabilities of a firm refers to that ability which enables the organization to respond to the dynamic changes occurring in the business world by integrating, building and reconfiguring the internal and external competencies. Such capabilities allow an organization to achieve competitive advantage in different innovative ways.
Products – Most of the products offered by Tesco are not manufactured by the company itself. But the surety to the customer that the product is genuine or original makes the customer to come again at Tesco to buy the same product. This surety is obtained by Tesco over the passage of time by building strong customer relationship.
1.2 Strategic Capabilities
The environments in which the organizations operate are not the factors which differentiate them as the environment is usually same for all the organizations. Strategic capabilities are the factors which differentiates the organization (Joakim, 2010). For clearer understanding of strategic capabilities three main aspects are to be clarified. The first is that all the organizations are not unique in their capabilities, the second is that one organization cannot easily copy the capabilities of other organization and the last one is that competitive advantage is obtained by an organization with those distinctive capabilities which difficult to imitate by the competitors. For instance Morrison cannot readily obtain the experience, management and all the retail sites of Tesco. Strategic capabilities of an organization can be defined as the resources and the capabilities of an organization which are necessary to sustain and grow in the business.
Value of Strategic Capabilities – In order to obtain competitive advantage it is important for an organization to obtain such capabilities which give value to their customers. This seems very simple and obvious, but most of the times it is misunderstood and even ignored by the organizations (Porter, 2005). It is often perceived that the distinctive capabilities are those which provide the value to the customer, but it is not necessary. It should be considered that which of the capabilities of organization provide real value to the customers.
Rarity of Strategic Capabilities – Tesco has some rare capabilities which give them a competitive advantage over the other retail store chains. These include certain products which are not available in any other store chain, positioning of stores at primary locations where the others don’t and patented products and services that cannot be offered by others (Joakim, 2010). Another major capability that Tesco possesses is their extraordinary customer services which is benchmarked by other organization (O’Reilly, 2009).
Linking Business Strategy with HR strategy
Human Resource quality plays a significant role in the success of any organization. Human resource is the one which make efficient utilization of assets and increase the quality production of an organization. Furthermore, a business culture is developed by the people (employees) of an organization which make is distinguished from the other organizations (Galpin & Murray, 1997). The financial resources are only the means to attain the proposed target, but to make this happen human resource build up and lead towards the development of the organization.
Every organization has its own business aims and objectives and the progress towards those aims and objectives is measured by evaluating business efficiency. Different factors are involved for such evaluation such as productions, financial calculations and marketing. Usually organizations do not bother to relate the organizational strategy with human resource policies, procedures and plans. It is very important to understand that every human resource is not same, means that each person possesses his own level of competencies, skills and knowledge. By efficient utilization of human resources and combining it with the business strategies will give an organization required results (Vinet, 2010). However, this activity should be performed very intelligently and the competency and level of skill of each human resource should be measured very carefully because if the evaluation is misjudged then it can be very risky for the organization. HR strategy will be different for different business strategies. To gain the competitive advantage the organizations can chose different business strategies. Below discussion will elaborate the HR strategy against two different business strategies i.e. cost leadership and differentiation.
Cost Leadership Strategy – Under cost leadership strategy, organization will reduce its cost of production or cost of goods sold in case of Tesco. Following this strategy, there will be need of making long term investments, finding distribution channels with low cost, detailed reporting and analysis of different market aspects to find out low cost business activities, accountability measures and a simple product design. To meet such business needs HR policies should respond by describing specific duties and responsibilities for relevant personnel, conducting cost effective training programs for the employees to create awareness of cost cutting techniques and benefits and focusing on rules and regulations.
Differentiation Strategy – This strategy is used to differentiate the products or services from the competitor’s products by offering unique features. Differentiation strategy is aimed to provide high quality products and related services such as customer services, to the customers. Several activities are involved when organization try to gain competitive advantage by using differentiation strategy. That includes developing new innovating products and innovative features, high focus on research and development, focus on the high product quality and brand image etc. Integrating the HR strategy with these business activities involves recruitment of highly skilled and experienced personnel, market researchers, employee training for team work, development of performance linked compensation and reward system to increase motivation among the employees to promote innovation and outsourcing for some activities.
2.1 Components of Tesco’s HR strategy
The key elements of Tesco’s HR strategy involve employee training, performance management, work simplification and efficient utilizing the core competencies of all the employees. This HR strategy of Tesco shows that the business measures are linked with performance management (Anonymous 2003).
Employee training – Employee training is one of the major component of HR strategy of Tesco. Employees are offered different training programs which can be on job or off job. Training is must for the employees at front end dealing with the customer however; the other employees working at back offices are also given trainings throughout the year to enhance their capabilities. That is the reason that Tesco’s customer services are one of the best in the country.
Performance Management – Tesco has an efficient performance management system. The HR strategy involves compensation and reward systems linked with performance management. Each employee is assigned with certain targets and on the completion of those rewards and benefits are associated. In this way the employees are motivated.
Work Simplification – Another major purpose of Tesco’s HR strategy is to simplify the responsibilities by keeping all the employees aware of the policies and procedures and their role in the organization.
Human Resource Planning
To meet the organizational overall strategic aims and objectives, a comprehensive HR strategy plays a vital role. Tesco HR functions fully understand and support the aims and objectives of the organization. A comprehensive HR strategy of the company also supports the other business functions such as finance, marketing, operations and IT. In simple words human resource planning ensures that right kind of people should be at the right place at the right time. HR planning is a process of identifying and evaluating the needs of human resource by an organization to meet its objectives (Armstrong, 2008). Linking HR planning with the organizational goals ensures that the organizations can attain competitive advantage over the competitors (Galpin & Murray, 1997). Following are the four major purposes of HR planning:
Forecasting the demand of the human resource based on the strategic goals of the organization.
Forecasting the supply of human resource based on the talent or expertise required for the forecasted positions.
Keep the HR data base updated of the available talent in the job market.
Creation and modification of HR policies, practices and procedures to align the demand and supply of the human resource.
Two types of approaches are used in Human resource planning at Tesco i.e. quantitative approach and qualitative approach. Below is the brief discussion of these two approaches:
3.1 Quantitative Approach
In this type of approach several techniques are used to analyze the human resource information which is quantifiable. Common approaches used for forecasting demand and supply of human resource are discussed below.
Trend analysis – The forecasts are made regarding the compensations, rewards etc. These are quantifiable as the compensation and rewards are associated with the sales which are forecasted in figures. Some forecasts are developed by considering the past trend of the organization and the industry trend is also considered in this regard.
Regression Analysis – Using the regression module past level of several factors such as production levels, sales and value added are examined for statistical relationships with staffing levels. Where sufficiently strong relationships are found, a regression (or multiple regression) model is derived. Forecasted levels of the retained indicator(s) are entered into the resulting model and used to calculate the associated level of human resource requirements.
Productivity Ratio – Historical data are used to examine past levels of a productivity index (P) i.e. P = Work load / Number of People, Where constant, or systematic, relationships are found, human resource requirements can be computed by diving predicted workloads by P.
Time Series Analysis – Past staffing levels (instead of work load indicators) are used to project future human resource requirements. Past staffing levels are examined to isolate and cyclical variation, long-term terms, and random movement. Long-term trends are then extrapolated or projected using a moving average, exponential smoothing, or regression technique (Armstrong, 2008).
Personnel Ratios – Past personnel data are examined to determine historical relationships among the employees in various jobs or job categories. Regression analysis or productivity ratios are then used to project either total or key-group human resource requirements, or personnel ratios are used to allocate total requirements to various job categories or to estimate for non-key groups.
3.2 Qualitative Approach
Under qualitative approach there is not numerical calculations and forecasts involved for the future need of human resource. Some of the most commonly used techniques are discussed below.
Delphi Approach – Under Delphi Technique several experts are asked questions separately regarding the forecasted demand and supply of the human resource through a questionnaire and then the results are combined and then again sent for the opinion of the respondents who participated (Armstrong, 2008). The respondents give their comments against the opinions of each other and this process continuous until the consensus is found among the respondents.
Expert Forecast – Using the Expert forecast technique the requirement of human resource in the future is forecasted by the experts and experienced managers.
Nominal group technique – It is opposite to the Delphi technique, in this the respondents are required to meet face to face and present and generate their ideas independently at first. After that discussion is made among the group and then a compiled report is prepared.
The structure of an organization describes that how that organization operates. It defines that how the business decisions are made and how the reporting is done from bottom level to top level. Following are some of the major purposes of organizational structures:
Organizational Chart – This chart elaborates the way in which the departments and different divisions of organization interact with each other. These charts are the visual or graphical presentation of organizational structure.
Departmentalization – Another major purpose of organizational structure is to define the distribution of different tasks among the departments. For instance HR representatives are groups with Human resource division.
Distribution of Authority – The structure of the organization also elaborates that how the organization has distributed the authority to the other departments or divisions. Some organization delegates the authority to the lower level and some don’t.
Chain of Command – Organization’s structure also identifies that how the decisions are made and who is authorized to make the decisions.
Span of Control – A detailed organizational structure also defines the number of employees under the control of managers.
4.1 Tesco’s Organizational Structures
There are different types of structures such as functional structure, structure by process, structure by geographical location, centralized or decentralized. Organizational structures play a very important role in the success of the organization (Armstrong, 2008). If the structure is not appropriate or right and does not correspond to the nature of business then the organization will not be a success story. Many organizations have gained the success after a long failure after changing their organizational structures. Most of the organizations are structured according to their functional areas or geographical locations, but the major point of concern is that either the structure is centralized or decentralized. In centralized structure the decision making power is in the hands of top management. Only the upper tier of the management is authorized to make the decisions. If the organization is larger in size then it is not wise to have a centralized structure as it puts more pressure on the upper management (Pieniazek, 2007). In decentralized structure the power is delegated to the middle and lower tier of managers and the managers are authorized to make the daily routine decisions according to the requirement.
In case of Tesco, the organizational structure is functional and decentralized where the organization is divided in to functional divisions and the decision making power is delegated to the functional managers. It means that store manager can take decision to enhance the space of the warehouse by coordinating with the admin manager. This allows the low level managers to make the decision according to the customer needs and demands and more quick actions can be taken. This type of organizational structure empowers the employees and allows them to improve their performance by acting on the spot and taking the immediate effective decisions (Pieniazek, 2007). This also helps to increase the motivation level among the employees as they feel empowered and the part of the organization. Figure 1 shows the organizational structure of Tesco Plc. In which it is clearly viewed that organization is divided in to different functional areas and a decentralized approach is in place where the functional heads are responsible for their area of concern.
Figure 1 Tesco Plc. Organizational Chart
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