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Every day we hear from organisation and people about performance management system. This system has function to communicate objectives, complete financial goals and to track the business performance in different period. All the managers share their responsibilities together to ensure for employees’ contribution in business. If the organisation creates a clear system will be a success for individual and the organization and can lead and eliminate competitors (Hr.commerce.gov, n.d.). Lack of performance can change the structure of the business.
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Tesco is one of the companies which used performance management system and leadership in retail industry to increase business success rate. They are founded in 1919 in London and produce their product in their brand in 1924. Since in the start they sell food, clothes and banking service. This company is multinational and is in the second place based on revenue. According to Tesco (2019), turnover in UK are approximately £6000 each minute. In 2010 Tesco have issue with financial performance this means that the shareholders wealth was decreasing. Even gross profit, return capital, dividend and share prices were reducing from one year to other. The consequence for Tesco is that maybe they will run into loss in future (Tesco, 2019).
This paper argues that features in organisational performance management system is essential to ensure organizational effectiveness. It reviews the literature on the organizational and performance management in retail system especially in Tesco and give a real tablo in financial and management part.
The purpose of performance management and measurement is to increase the quality, efficiency and to control resources that have for business in order to stay in the market longer (Mackie, 2008).
According to Burton (2016) Tesco aim is stay longer, lead supermarket sector and to ensure good quality in products and service with low cost and competitive prices, cheaper than other competitors.
Tesco mission is ‘to be the champion for customers, helping them to enjoy a better quality of life and an easier way of living.’’ and visions “to be the most highly valued business by: the customers we serve, the communities in which we operate, our loyal and committed colleagues and of course, our shareholders” (Tesco plc, 2019). The most important part is strategy which is listed below.
1.1.1. A differentiated brand
All they wanted is to serve clients in better way and to have products in good quality. Online they give customer, opportunity to send feedback for service and with this system improve in five point. They want to be unique, special for customer and to attract more clients in presenting new brands such as Hearty Food Co and ready meals for cheaper price. In May 2017 they have a campaign to swap little product with low fat, salt and sugar and record highest score since they created, and clients said that Tesco helps them to live healthy life (Tesco plc, 2019).
1.1.2. Reduce costs
Their ideas are to reduce costs and to increase saving in £1.5b. They have the culture to encourage saving so they can invest in something else for customers. Also, they have machines “scan as you shop” where they are reducing costs and time for both sides. They have improved the services in facilities management, shipping and media services, while also delivering savings of £50m (Tesco plc, 2019).
Most important method for them is to listen and respond customer needs with innovation. Tesco launch exclusive Wicked Kitchen range of plant-based dishes, where raise the number of people vegetarian buying in Tesco. Also, investment in technology is a key to improve operational performance, improve the customer journey and key to revenue growth like shopping machines and delivery. (Tesco, 2019).
Management system has created framework to support balanced between financial or non-financial measures and management factors (Mackie, 2008). According to Marr (2018), they have corporate steering wheel same with balance scorecard. This system allows the company to monitored, managed and set goals for the company. This framework consisted into five perspectives such as finance, customer, operations, people and community. The figure below shows all perspectives following by two goals:
- Responsible and honest
- Save time and money
Stakeholders are a group of people that can influence the company (Gossy and Wentges, 2008). The company need to have a good communication with its internal and external stakeholders.
Internal stakeholders are people or groups inside the organisation include employees, managers and owners, which can help to create positive impact especially to employees when they are demotivated and start to see or listen bad things about the company. It is important for Tesco to create an open and honest conversations between each other. In the last month they are trying to open a discussion about how this company is directed internally and focus more on face to face communication to list all employees voice and to be sure that everyone will be listen (Tesco, 2015).
Customer are external stakeholders and they can affects running the business even though don’t work inside the business. Tesco is trying more and more to listen customer for their opinion and complains. They work hard to respond issue and the plan for the business is created according to customer feedback (Tesco, 2015).
As discussed in previous chapter Tesco always is focused on efficiency or effectiveness, to have quality in product and services and to introduce new strategy or products from customer request. Also, they have specialised team to supervise quality improvement for loyal customers. Tesco has two methods to control quality: testing and inspecting products. Another focus of Tesco is maintained quality relationship with employees and suppliers service by making employees aware of workplace (Goetsch and Davis 2014).
According to Mackie (2008), risk is defining a combination of case and consequence in positive and negative ways. If the risk is in good management hands allows stakeholders to increase confidence for organisation’s governance.
Source:(Tesco PLC Annual Report and Financial Statements, 2017)
Tesco structure to manage risk is support from board of directors and executive committee. Executive is a board where risk is managed weekly and daily to control and maintenance. Responses and mechanism to control is responsible by line managers and internal audit which may offer to advice line managers for deficiency or improvement. Tesco method to categorise risks is traffic light and when is red means that committee need to have attention (Woods, 2008).
The result in financial document is the outcome of business activities for one-year period and help employees to show the result of all decision in previous year and what can they change in next year. The most important part for a lot of business is to have return for shareholders who have a special interest if the company have good performance (Bourne and Bourne, 2011). Tesco use steering wheel to measure financial and performance perspective (Marr, 2018).
To monitor and measure financial performance Tesco have annual report (2018) show below. The income statement has an increase of 2.7 percent in the total revenue for the year ended 24 February 2018 compare to the year 2017. However, almost all other expenses gone up but still made record operating profit of £1387 million.
Source: (Tesco, 2019)
Source: (Tesco, 2019)
Source: (Tesco, 2019)
To measure the performance in financial part will show a comparison of different ratios from 2017 to 2018.
Profitability ratio help a business to measure efficiency or performance in one year. This ratio gives the business information is are making profit or not, compare with costs (Adewuyi, 2016).
Return on capital employed and operating profits are increasing respectively 8.31% and 7.9%.
Efficiency ratios is how an organisation use resources to generate income. They measure numbers of days that one products held in store before selling. If the days are lower means that the costs of the company are lower (Adewuyi, 2016). The table below shows that Tesco need 15.25 days to convert inventory into cash, less time than 2017. Also, receivable turnover has decrease by 0.2 days. All the ratios show that Tesco efficiency has reduced slightly.
This ratio shows if the company have ability to meet short term debt before the due date and in the same time meet unexpected cash needs. If a company have good liquidity, they obtain funds easily. They compare liqudity every year because Tesco need to make decisions for the future (Adewuyi, 2016). There is a significant decrease in Tesco current ratio but still below 1 which is unfavourable.
This ratio is for long term debt to total capital, if is more than 50% is consider highly geared (Adewuyi, 2016). Gearing ratio is decreasing from 2017 to 2018, means that have financial stability.
Customers are the life of business to continue (Bourne and Bourne, 2011). And this is the reason why Tesco invest more in that sector (Tesco, 2019). Tesco to measure customer and client with local steering wheel and shopping list to engage people in performance and gives them responsibility (Marr, 2009). This framework includes market share, customer acquisition, retention, satisfaction and profitability.
Tesco’s managers do different thinks to attract and satisfy customers and is clearly explain in marketing mix, called different fourp.
Tesco strategy consist in cost leadership means to develop strategy price to compete with other companies. The want to reduce purchases and operational costs. Tesco have economy, psychological, product and geographic pricing (Dudovskiy, 2016).
Tesco offer different products such as food, clothes and banking service. Express shops have least variety products and extra shops have wide range of products. Also, they have banking products like credit cards, loans and saving (Dudovskiy, 2016).
Tesco is the only retail brand hire a lot of people. They are selecting according special process and requirement. This company has over 480,000 employees in all the world. Employees are encouraged to help and support each other. Also, they give the opportunities for training and progress (Dudovskiy, 2016).
This point is connected customers with location to buy products. Tesco has two channels to sell products and services, online or offline. During 2014-2015 online shops were increasing even though Tesco has financial problem (Dudovskiy, 2016).
People are fundamental in performance organisation despite sector or size. Managers write the strategy and the process, but employees develop and set in real life all that are written in paper. If people are not organised and motivated, they cannot work properly (Bourne and Bourne, 2011). Tesco has steering wheel framework for people. The employees can find an opportunity to get on, interesting and a job to treat with respect (Marr, 2018). First all people need to apply online and if they pass with success this part, they have interview with manager store. If all requirements are completed, they win the job. In all the process they give the opportunity in training and progressing. Also, they have benefits such as 10% discount in Tesco’s shop, voucher and share schemes (Tesco career, 2018).
Tesco always tried to have low price strategy and in one case has proved to be ideal but in other hand has bad precipitation from high strata society that low price is poor quality and affect to lose share in the market. To have excellent quality Tesco develop total quality management system where all employees start from senior manager to manufacturing workers give ideas and in that case middle manager feel unimportant (Zink, 2012). However, implementation and development of this system was not easy. One issue is lack of commitment from middle managers in quality of services.
In this part I will give recommendation for improvements:
- In total quality management middle manager is not taking part to check the quality of services. Also, they should improve more relationship between department in business.
- Liquidity ratio is decreasing from 2017 to 2018 means that they don’t have enough money to pay debt or unexpected cases. They need to have more current assets.
- They have strategy for lower price, but they have a lot of competitors like Aldi, Lidl with lower price than Tesco and they need to find another strategy with prices to attract clients.
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