Human Resources Management Implications in Tesco - Case Study Example

Future Scenario of Tesco PLC- HRM Implications May 15, 2007 Introduction In 1929, Jack Cohen started the first store of Tesco PLC, which has since then, become the largest British retailer by both, domestic market share and global sales. This international grocery is the world's fourth-largest retailer, and now also specializes in consumer electronics, discount clothes, consumer financial services, , internet service, consumer telecoms and selling and renting out DVDs etc. Key features of Tesco PLC Until 1973, under the chairmanship of Jack Cohen, the strategy of Tesco was based on 'pile it high, sell it cheap'. However, this strategy was not working well, and so after his resignation, an 'Operation Checkout' was launched which saw the abandonment of this the former strategy. Since then, Tesco has come a long way and has faced many changes in its corporate strategy. There are certain features of Tesco PLC which help in its differentiation from other retail giants. First is its 'inclusive offer' which has helped Tesco to appeal to all segments of markets thereby attracting customers from all groups of incomes- upper, medium and low and hence make it a one-stop shop for a an array of commodities. Second, Tesco has propagated use of its 'own-brand products' and thereby made the best of efforts to overcome reluctance faced by customer in purchasing own-brands, as they are considered to garner more profits for a supermarket. Thirdly, one of the key features of Tesco's policy is 'Customer Focus' which is put into effect by shifting focus from 'maximization of shareholder value' to have an unambiguous focus on customer service as the top aim of the company, thereby also making higher profits. Finally, another very important key feature of Tesco PLC is that of 'Diversification' under which the company has a four-pronged strategy which is to focus on:- Home Market- Tesco focuses on the core UK business which involves grocery retailing in its home market. It is also looking at expanding by making a move into the convenience-store sector which is an idea otherwise shunned by supermarkets. Non-food business- In 2006, Tesco had successfully managed to become the largest non-food retailer in the UK. This was considered as a major competitive threat to retailers in other sectors such as clothing, consumer electronics, and health and beauty products. Retailing services- Going one step further, Tesco is also into services like personal finance, telecoms, and other utilities. It has managed to fight competition in these fields by entering into joint ventures with the big players thereby increasing its customer base and brand strength. International - In 1994, Tesco started to expand internationally and by February 2006 nearly a quarter of its sales were a result of its international operations. Its major developing markets are present in Central Europe, Far East and the United States. Future Scenario-1 The centre point of this future scenario is based on the assumption that Asda, the second biggest retail store in U.K. and a subsidiary of Wal-Mart, the world's biggest retail store, takes over Tesco. At present Tesco is the lading retail store in U.K. with a market share of about 30.6%, more than double as that of its closest competitor Asda. Supermarket Market Share (%) Tesco 30.6 Asda 16.6 Sainsbury's 16.3 Morrison's 11.1 Somerfield 5.4 Waitrose 3.7 Iceland 1.8 Source: TNS (2006) If Tesco looses out its market share to Asda ,owing to critical policy changes by Asda then in the face of such competition, Tesco would have to critically examine its priorities and hold on to its customer base. According to extrapolation of the current scenario, the probability of such a case to take place is very less. However, if Wal-mart focuses more on the functioning of Asda giving out its necessary skills and experience, this could happen in a matter of 5-7 years. HRM implications This would mean critical changes in the HR management of Tesco. It would have to undertake various measures in order to fight the competition faced and become the leading retail store again. On a strategic perspective, Tesco would have to change its objectives from 'increasing sales revenue' to 'maintaining customer base'. Once this is done, it should look at achieving higher profits alongside. In terms of employees' development, it would have to increase its staff capacity and ensure that the staff is highly qualified and technical, armed with good skills and experience. They would have to do away with their conventional beliefs of underestimated potential of an older employee considering them as economically unviable (Taylor and Urwin, 1999). Tesco would have to embrace rapid technological changes such as the Tesco in-store Tablets (IFTF, 2004). Also, the older employees would have to be more open to technological changes as against the common belief (Taylor, 2001). Next, under financial management, Tesco would have to change its policies and manage the budget for its various HRM functions and add value to the organisation by demonstrating a sound understanding of the complexity of business. Since such a situation would lead to an increased competition in the market, it would also lead to a situation of zero-profit wherein the prices of commodities are driven by buyer power. Hence, for supermarkets this would lead to a disciplined approach for setting prices. Due to this, Tesco would have to set the prices of groceries according to the market competition such that it does not loose out on its existing customer base. Tesco would have to change its existing strategies of expansion and focus more on maintaining its existing market share and customer base. It would also have to be careful about the legal and social implication of causing too much harm to the smaller retailer thereby hampering their growth and subsequent end. Future Scenario- 2 The centre point of this future scenario is based on the assumption that Tesco forms a large number of alliances with leading companies mainly in those fields where Tesco is not doing so well. This would help Tesco in getting the customer base and the expertise required to overtake leaders in these sectors as well. This will help Tesco in getting access to such locations where its reach was difficult otherwise and thereby help in reaching out to its customers. Currently, Tesco has a very remarkable record of 14.6% of sales growth in the first quarter of its financial year according to Chief executive Sir Terry Leahy. Also, due to a monopoly situation, it has been able to control its prices with a reduction of 1.5% in the overall prices compared to those of a year ago. HRM implications Due to expansion, there would be certain changes in its policy that it would have to take care of. On a strategic perspective, first, Tesco would have to change its strategy to 'increasing sales revenue' by 'increasing customer base'. Due to expansion it should look at increasing its customer base and hence widen the gap that exists in the market share of its closest competitor. This will be possible as Tesco being the market leader would not face threats of substitutes. This would give it an opportunity to keep competent prices for groceries thereby attracting more customers. Due to an increased size, Tesco would be able to enjoy bulk-buying and thereby gain from the benefits of economies of scale. Finally, this too would give it the power to lower the prices as and when they want to so that they can keep their prices attractive and give a tougher competition to other market leaders such as Sainsburys and Asda. Tesco would have to take great leaps in term of technological advancements and should be the first one to come up with innovative offers. An example would be that of the latest greetings card containing a miniature bottle of alcohol of which Tesco was the first customer (CEN, 2007). Such attractive products would help Tesco in increasing its existing customer base and hence its sales revenue. Since Tesco has expanded greatly, it would lead to a huge span of control which would be difficult to maintain. For this, on the employees' maintenance front, Tesco would require to change its policies in order to accommodate a larger and highly qualified staff. It would have to give proper training for the development of its employees so that they can match up to the required level of competition. For this, it would have to give out a carefully structured training and development program to its employees in order to gear them up to fight the competition faced by other market players. On an administrative front, Tesco would have to ensure that it supplies to its customers, products offering value for money, with great convenience. Tesco would have to improve its personnel functioning in order to match up to the amount of flexibility required to do well in so many fields. For example, with the help of forming alliance with a certain market player in bookstore service, Tesco will give competition to Waterstones and hence should have the necessary qualified staff to perform in such a situation. Finally, Tesco would have to change its policies in order to suit its long term objectives of increasing its profits. Hence it should develop a carefully planned strategy in which it follows the particular plan of action: Increase Customer Base Increase Sales Revenue Increase Market Share Conclusion Tesco PLC is the world's fourth-largest retailer, and now also specializes in consumer electronics, discount clothes, consumer financial services, internet service, consumer telecoms and selling and renting out DVDs etc. There are certain features of Tesco PLC, which help in its differentiation from other retail giants. The foremost of all is its 'inclusive offer', apart from propagating use of its 'own-brand products'. Tesco is a "customer focused" company, which gives it an edge over the rest. Tesco advocates 'Diversification' that follows four-pronged strategy, addressing Home Market, Non-food business, Retailing services, and International. On the future front, Tesco's strategy is based on the assumption that Asda, the second biggest retail store in U.K. and a subsidiary of Wal-Mart, the world's biggest retail store, that Tesco takes over. If Tesco looses out its market share to Asda, owing to critical policy changes by Asda then in the face of such competition, Tesco would have to critically examine its priorities and hold on to its customer base. This would mean critical changes in the HR management of Tesco. It would have to undertake various measures in order to fight the competition faced and become the leading retail store again. Bibliography: 1. MarketingProfs (2005) (http://www.marketingprofs.com/ea/qst_question.aspqstid=11294) 2. Tesco (2007) (http://en.wikipedia.org/wiki/Tesco) 3. Carleton University The case for older workers at Tesco (http://www.carleton.ca/sppa/Publication/WP%2053%20Stoney.pdf) 4. IFTF Tesco In-store tablets (2004) (http://www.carleton.ca/sppa/Publication/WP%2053%20Stoney.pdf) Taylor and Urwin Ageing and the Transition to Retirement (1999) CEN Ben's mixer gets warm greeting from Tesco (2007) (http://www.cambridge-news.co.uk/business/news/2007/05/15/b200dcee-c95e-4d26-a91d-ab873a026aa8.lpf) Read More