The Business Environment of Tesco Plc - Case Study Example

Running Head: THE BUSINESS ENVIRONMENT OF TESCO PLC The Business Environment of Tesco Plc in Harvard Style by University From its foundation by John Cohen as a one-man business, Tesco PLC has ascended to the world retail industry becoming the largest British retailer based on both global and local shares. In its early years of operation, the UK-based international retailer specializes only in the distribution of food products but as it gained more market and its performance strengthened, it enhanced its portfolio by augmenting other goods and services to which ranges from clothing to consumer electronics to consumer financial services to internet services to internet service and consumer telecom. The phenomenal success of Tesco as a retailer is recognised even in the global arena. The company is named the world's third largest retailer lags behind Wal-mart in terms of global sales while staying ahead of other retail giants like Carrefour, and Home Depot (Tesco Plc 2008). Mission, Values, and Key Objectives In its website, Tesco Plc clearly identifies its mission by the statement "Our core purpose is to create value for customers to earn their lifetime loyalty" (Tesco Plc 2008) This statement is in recognition that the success of the giant retailer is highly dependent on two key identified stakeholders-"the people who shop with us and the people who work with us" (Tesco Plc 2008). Thus, the company also expresses its two core values which are focused on the satisfaction of these two groups of stakeholders. For customers, Tesco maintains that in their stores "No-one tries harder for customers," (Tesco Plc 2008) while for its employees, it stresses that it would "Treat people as we like to be treated" (Tesco Plc 2008). This analysis will focus on three stakeholders of Tesco Plc, two of which are already identified above as its customers and employees. It should be noted that the success of the business organization is dependent on the customers' decision to purchase in the retail store. This in part is attainable only through the direct cooperation and effort of its employees to pursue its overall strategy of providing good products, excellent service, creation of a convenient shopping atmosphere and making shopping as enjoyable as possible. The mission of Tesco to retain loyal people both its customers and employees is created in recognition to this fact. Since the mission statement revolves around customers and employees, the company's values are also geared towards the satisfaction of these stakeholders. Tesco further expounds on how it satisfies its customers by identifying the direct ways on how to boost customer value: "Customers have told us what they want-clear aisles, to be able to get what they want at a good price, no queues and great staff. We call this our Every Little Helps Shopping Trip for customers and use it every day to ensure we are always working hard to make Tesco a better place to shop, at home and abroad" (Tesco Plc 2008). The identification of customers as key stakeholders of Tesco becomes a primary importance when it formulated its values. For its employees, Tesco Plc is committed in making the company a "great place to work" by listening to what its workforce wants: "Our staff have told us what is important to them - to be treated with respect, having a manager who helps them, having an interesting job and an opportunity to get on. Helping achieve what is important to our staff will help us to deliver an Every Little Helps Shopping Trip for our customers" (Tesco Plc 2008). Recognizing that Tesco's customers can be satisfied by its staff, the retailer also focuses on the satisfaction of its people to look after and deliver value to its customers. The four pronged objectives of Tesco Plc together with the identified mission and values altogether work for the maximization of the wealth of its other key stakeholders-its shareholders. Every business organization pursues the same goal and that is to be able to generate a sizable profit for its owners. The retailer notes that it can only adequately gain profit by making sure that customers choose Tesco as the place to shop and having the right people to take care of these customers in order to ensure repeat purchases. At the end, the strategic objectives of the company are identified as follows: "to grow the UK business; to become a successful international retailer; to be as strong in non-food as in food; and to develop retailing services such as Tesco Personal Finance, Telecoms and tesco.com" (Tesco Plc 2008). It should be noted that all these strategies are geared to satisfying its profit objective and is highly influenced by its stockholders. Towards Meeting the Objectives Customers, Employees, and Stockholders The assessment whether Tesco Plc is satisfying its stakeholders is indicated by the amount of customers spend on its stores. It should be noted that as the business environment becomes more hypercompetitive, customers now have bargaining power because they have a lot of choices on where to spend their money. As recognized in Emerging Thinking (2007), "As consumers become more aware of costs that may be associated with the current arrangements for the provision of groceries, they may choose to exercise their choice of product or grocery outlet in a way that better reflects a balance between access to cheap, convenient groceries in large quantities and other factors that they value." This, in order to satisfy customers, it becomes the responsibility of Tesco to put in place strategies which will make it a top choice for shopping experience. It then indicates that customer satisfaction is mirrored on the level of sales that the company generates relative to its competitors. In its 2007 Annual Report, Tesco Plc announced a total annual turnover of 46.661 billion and reported a pre-tax profit of 2.653 billion. It is estimated that in every 8 UK retail sales, 1 is spent on Tesco. These figures are above the reported earnings of the large grocery chains in the United Kingdom which are considered direct competitors of the retailer making it the most preferred grocery outlet in the market where it operates. It is reported that the combined sales of its two largest competitors Asda and Sainsbury are approximately equal to its market share (Tesco 2008). The choice of customers to shop at Tesco indicates their satisfaction in the products and services being offered by the company. It should be noted that as competition becomes more intense in the UK retail market, the decision of customers to stick with this retailer is a good indication that it is able to attract and retain customers through the strategies that it employ. Tesco Plc's main strategy in fulfilling its responsibility to its customers is its effort of introducing innovation in order to suit the client's changing needs. In order to serve customer better Tesco has already ventured into other businesses like financial services, clothes, consumer electronics, selling and rental of CDs and DVDs, compact discs, music downloads, and internet service and computer telecoms. The company is also able to lower price through efficient value chain management and continues to attract more buyers because of its different store concepts. Tesco has also been keen in delivering value through the RFID technology and opening up an online store to maximize shopping convenience among others (Tesco 2008). The assessment of whether Tesco's aim of satisfying the needs of its staff has been sufficiently is mirrored in the company's employee retention rate. The retailer reports that in 2007, its employee retention rate which measures the percentage of its staff which stayed in its operations for more than one year jumped from 83% in 2006 to 84% (Annual Report 2007). This increase in employee retention rate communicates the ability of the company to fulfill its responsibility to this stakeholder as employee satisfaction is often measured by the willingness of the staff to pursue career growth within a business organization. The main strategy of Tesco Plc in retaining its employee is through the utilization of above industry compensation package which includes monetary and non-monetary rewards. The retailer offers a base compensation to its employees which is at par with the industry. In order for the staff to feel that he is a part of the company's success, Tesco also opted to offer employee share schemes. In its 2007 annual report, that 165 thousand out of 400 thousand of its people have a personal stake in Tesco. The company is also active in aligning its workforce to its overall strategy by conducting training and development programs which are geared in harnessing the full potential of the employees making them more capable in the fulfillment of their tasks. This way, Tesco does not only allow its staff to make a living but is also fulfilling its responsibility of pursuing their personal growth and development. Tesco Plc's aim of maximizing shareholder value can is indicated by the ability of the company to make profit and generate a high return in their investment. The primary responsibility of Tesco to its stockholders is to make sure that its stock provides the largest incentive to them to invest their funds. Thus, the assessment on this will largely be mirrored by the company's financial position. As mentioned in Emerging Thinking, it has been stressed that Tesco Plc rise above its competitors not just in the generation of revenue but also in efficient cost management through its higher than industry operating profit margin and net income. The year 2007 highlights the ability of the retailer to increase turnover by 8.1% while significantly boosting its profit before tax by 18.7% compared to the previous year. The company also reports earnings per share of 22.36p while declaring a dividend of 9.64p. All the figures mentioned are significant improvements from the performance in 2006 (Annual Report 2007). It should also be noted that aside from the internal earnings, stockholders are also maximizing their investment through capital gains as the price of Tesco's stock continuously appreciate. References Annual Report 2007, Retrieved 07 January 2008, from http://www.tescocorporate.com/images/TESCO_FULL%20low.pdf Emerging Thinking 2007, Competition Commission, Retrieved 07 January 2007 from http://www.competition-commission.org.uk/inquiries/ref2006/grocery/pdf/emerging_thinking.pdf Tesco 2008, Retrieved 07 January 2008, from http://en.wikipedia.org/wiki/Tesco Tesco Plc 2008, Retrieved 07 January 2008, from http://www.tescocorporate.com Read More