The Retirement of Terry Leahy's from Tesco - Case Study Example

Change Management Implications: The Retirement of Terry Leahys (Chief Executive) from Tesco Introduction Tesco has remained one of the biggest and the most profitable supermarket chain in Britain. It was founded in year 1924 by John Edward Cohen who started it as market stall. Tesco and some of its rivals have been criticized of misusing their monopoly leading to major environmental and social problems facing the current society. The supermarket was the first to introduce the use of company loyalty card. This idea was initiated by Terry Leah who was the Deputy managing Director of those days. Since its conception, Tesco has taken advantage and tackled major changes which have contributed to its success. Many changes facing the organization involve entrance of more women in the workplace, big disposable income, advent of weekly shop and the cheap food policy which was adopted in Britain after Second World War. The Origins and Development of Change in Financial Management The change in the financial growth of Tesco originates from e-commerce business activities which started in 2000 according to Finch (p184). Tesco concentrated more on its non-food business including the e-commerce business. Since then the company’s market shares have rapidly and impressively improved in the twenty first century. The management of Tesco since in history has been using technology for effective change. Tesco came up with a project known as Prospect to establish the areas in which technology could improve operational performance. The supermarket has indulged in a store-opening programmer for maintaining its position as the leading supermarket in the UK. The departure of a chief executive from any company attracts huge expectations in as far as changes in management are concerned as suggested by Toni and Tonchia (p947). The change can positive or even unsetting one depending on the leaving chief executive influence. The retired chief executive officer of Tesco spent his career developing the organization to be the biggest grocer in Britain. However his successor Phillip Clarke, will face the challenge of either maintaining the position or braking the company. The retailer has a wide range of products ranging from food to furniture as well mortgages and motor scooters. It has several outlets including its headquarters in Cheshunt and its branches in china. Tesco customers include buyers of high-quality goods and of low-cost goods while stores range from mega-stores to corner shops. One of the major changes that have been encountered by the retailer since the retirement of Leahy is the financial management. Since the set up of a joint venture with Royal bank which was done Leahy’s predecessor, Tesco has been offering financial services. According to Anon (69), this section has rapidly grown offering services such as loans, insurance and credit cards. One of the financial changes includes the now fully owned Tesco Bank which is aiming at becoming a great competitor to other banks. So far Tesco is selling its financial products to almost six million customers. Last year, the retailer launched a range of mortgages and savings account while in the current year Tesco is planning to launch a current account. The retail organization also intends to capitalize the discontent of customers through their current jobs. A focus by Liz Hartley who is principle consultant indicates that Tesco Bank will be among the top ten best banks in the country within the next five years. However the growth of the bank is likely to cause more changes in the organization since banks are valued in a very different way compared to retailer. Key Implications of the Change to the Organization The change in financial management of Tesco has brought with it different implications. These implications include: The implication of balancing the current cost of managerial time with the new suppliers benefits as well as how to cope with the existing suppliers. With the retirement of Leahy, Tesco financial management will have to find the means of coping with this financial implication since the new CEO relies on them to get the limelight of financial operation as suggested by Graiser and Scott (p12). The supplier always expects the usual irrespective of any managerial changes, therefore to maintain the behavior of the supplier; the financial management team is bound to integrate the new CEO in all aspects of their operation. This implication is also considered in as far as the welfare of the employee is concerned as it is important to maintain their benefits despite any financial management changes. The implication of maintaining and demonstrating loyalty as depicted by the former CEO: This involves balancing of managerial time by use of the benefits which arise from persuading the supplier to cope with the changes may result from change of management. However the costs of this may have extended for a longer period than expected by the company as suggested by Yip (p20). To avoid any disadvantage on the side of the company the financial management team will have to calculate the cost time benefits to the organization in as far as change management is concerned. This implication requires the management should also put into consideration the welfare of employees in as far as financial change is concerned. This is because any financial management change will affect their salaries either negatively or positively. The implications of maintaining the objectives of the previous management in the same ‘voice’ successfully. The financial management team has to calculate the cost of time of the management used with no achievement of companies objectives. The management has to be keen when managing any financial change so that it may not engage in unsuccessful negations which may cost the management a lot in terms of finances and time. Failure to manage this implications may lead to the company losing suppliers or customers and hence business failure according to Walters (p24). This implication may also affect the employees since the change of companies objective will lead to change of employees’ behavior. The implication of the exit of supplier as a result of disagreement with the new management: This implication involves the incurred the cost of finding an alternative supplier or trying to convince the exiting supplier of no problem with the changes. The time cost of convincing the existing supplier or customer may be expensive but it is important as it does not adversely affect the company. However the financial management may balance between the two options and consider that which benefits the company most. On the part of the employees, it may take time to cope with the change of suppliers and this may affect the financial gains of the company as suggested by Rowley (p195). The implications of customer relations where by the current management should take care of customer satisfaction as it has been with the previous management. This entails implementation of changes brought by the new executive which may affect the needs of the customer. The change in financial management may imply that there will be increase in prices of products, therefore affecting the customer negatively accoeding to Palmer (p26). This implication may cost the management a lot if it is not taken care of at the right time since the customer may not take time to move somewhere else. The implication of reduced loyalty to the customer by the new executive: It arises from the management focusing on other areas of work and not meeting the financial needs of the customer. The implication of this change implies that the financial management has to calculate the cost of management and time taken in attending to customer and explaining the reason for any changes. The implication of the customer exiting as a result of change especially in price of commodities: The new management under the new executive has to find better means of maximizing on profits to avoid negative attitude on the side of the customer according to Merriden (p18). An attempt to interfere with the financial management by the new executive dictates that there is likelihood of changing commodity prices which may have negative impact. The exit of the customer leads to subsequent loss of revenue for some time and also affects the supplier indirectly. In examining these implications it is noted that interaction situation between the new executive, supplier, customer and the employee is very important to the financial management of the Tesco. The underlying view is that financial stability is one of the major driving forces in any business. The interactive situation is therefore determined by the assessment of implications in the financial management change in Tesco as suggested by Bartlett and Ghoshal (p125). For instance the new executive may consider the implication of satisfying customer’s needs over that of allowing them to exit. This means that the new Tesco executive will take time to invest changes in the organization. Preparation for Change The executive management implements and maintains the required control systems including integrating a newly elected Chief executive officer. This is necessary as it ensures that the CEO is made familiar with the current affairs of Tesco to avoid unnecessary changes. According to Turner (p112), managers and employees in Tesco have prepared to take the challenge of change in different ways given the fact that Leahy was a charismatic leader. For instance, Tesco has an Internal controls, Information Systems and Risk Management Committee which takes care of financial maters of the organization. It is the mandate of the committee to review the application of internal control procedures. The committee also ensures the management of information systems and enquires from external auditors on management change risks that may impact on financial statements. This committee also monitors changes in Tesco’s financial reporting controls. In this context it overseas and approves any change in financial management likely to affect the internal controls and financial reporting. Tesco has an internal audit committee which evaluates the financial conditions of the company and advices the management accordingly. As suggested by Shajahan (p47), the committee also plays the part of incorporating the newly elected chief executive of the company into the financial system to avoid uncontrolled changes. Tesco has been prepared for change through expanding its communication strategy through the creation of online address that is Tesco.com. The website allows customers and suppliers to communicate effectively and freely about their needs with the management. Consumers are capable of making online enquiry of products and this is a more efficient transaction. This ensures customer maintenance and hence financial stability irrespective of management changes in the organization. Tesco management provides for a compliance committee which includes members of senior management and three executive directors. This committee oversees the management of the whole organization and their response to changes. It ensures that all departments including the department of finance comply with the regulations to avoid adverse changes of negative effect. The finance committee of the company comprises of financial expertise and it is usually chaired by the CEO. Therefore, the new CEO stands a better position in understanding the previous management better. In preparation for any changes, Tesco focuses on the implication from internal influence of the organization according to Fernie (25). These influences include labor union demands which may force Tesco to change the working condition of employees. The senior management has to guide the rest of the management on the Tesco’s employee’s demands. The improved communication technology systems have also been useful in as far change management is concerned. This is because an organization like Tesco where the communication system is efficient makes the management always aware of changes. At the same time ways of mitigating a change are efficient where the means of communication is also efficient. For instance the reporting of the retirement of thee former CEO in time placed the organization in a better position to prepare for the change. The financial management also benefits from the communication technology. For instance any information on change of use of funds including retirement benefits requires to be communicated earlier so as to be budgeted for. A change in the financial management resulting from a change in top management of an organization may affect both its internal and external environment. For instance the retirement of Leahy in TESCO may affect its relations with the external environment. The external environment consists of the industrial opportunities that may include the supplier. The external environment may fail to agree with this kind of change in fear of losing their opportunity of the venture. For instance, a bank may threaten to withdraw its shares from the organization if it changes its management. Tesco has prepared for this through establishing its own banking system and other investments thus it may not server a lot from financial crisis. In preparation for any changes that may affect the company whether financial of not, Tesco is becoming more aggressive in change management whether financial management changes or not. According To Palmer (p1075), on the part of preparing for financial management change, the company has increased on its market share. This means that the company is focusing on building on its management system to be able to counter changes in the financial department. Another aspect which has been applied by the company in preparation for financial defects is by maintaining club card loyalty scheme and the launch of Club card plus debit card. Through maintaining these two strategies, the company is able to maintain its financial income despite the changes that may face the department. This is because the se cards enable the retailer to understand their customers better and thus they era able to handle them better in times of change according to Datamonitor (p30). On the same issue of change management, Tesco has come up with customer attraction and retention techniques such as the increased sharing of the customers’ total expenditure which is taken to relevant products and services. This enables the company to maintain its market despite the major financial breakdowns which may face company. This company has also initiated a customer relationship management which uses a technology capable of tracking the purchase activities of the customer and the sales of the company. This technology has proofed to be useful to the company as the management is able to account for its financial use and be able to predict change in future. The customer relationship management system gives the organization an opportunity to increase the profits of their customer interaction and personalizing them as suggested by Wilson, Street and Bruce (p98). Through this Tesco has been able to predict their customer needs and thus able to meet them avoiding unintentional changes in management. Another important strategy applied by TESCO in change management is through the use of sales and market share measures. Through this, the company is able of predicting any changes in the market likely to affect their financial income and expenditure. Effects of Adopting Formal Project Management Methodology at the Beginning of the Change Initiative The process of change and its management depends on the strategy used to manage it. The best way for TESCO to manage its change after the retirement of Terry Leahy is through the application of formal project management approach. Formal project management focuses on the issue of generation and execution of change in all perspectives. According to Fernie (p120), it involves activities such as project planning and project control. In project planning the change management team in Tesco is able to establish the following: the tasks to be executed, which to complete first, skills needed, who to execute the tasks, when and for how long. Project control in formal project management involves identifying the site for project, when it initiates, capital needed, program of events and who is responsible for the execution of the project. By using the formal project management methodology described above, Tesco would place it in a better position for overcoming the financial management change that had to face the organization. This methodology would benefit the organization in different ways including the following: Solving change faster and cheaply: The advantage with this is that once the project has been put in use, the organization can reapply it in case of the same problem occurs again. According to Cook, Macaulay and Coldicott (p89), this methodology does not only apply in managing financial changes but the Tesco can apply it in other projects. In using this methodology Tesco would save their cash, time and resources as well. Predictability: The formal project methodology will be helpful to Tesco since it will enable them to predict their achievement and thus be able to avoid similar changes in the financial system. As suggested by Leathy (p67), this is because frequent changes in the financial sector may lead to bankruptcy which is a threat that can be predicted using this methodology. Time and cost effective: formal project management approach saves time in that before the activities are executed there has to be a time plan. Tesco is an already grown company with a good reputation For it to maintain the reputation it is important that it uses this methodology as save their time hence save their reputation according to (p156). Though Tesco has already maximized on its profits this project methodology will save its funds and avoid going behold the budget which would bring more financial change management. Fast in solving problems: This is through the use of project plan and control methods. Since Tesco is an international organization which is still growing in some countries using this methodology would enable it to continue with its activities as it does not take long. It saves the time taken by the management and the employees to resolve the financial change. Effective communication: the methodology allows efficient communication during its implementation and thus enabling a chance for more opinions. This is an advantage to Tesco since its huge management needs effective communication to make all activities operational. Managing a change in financial management requires proper coordination from the top management to workers since the changes affects everyone in the organization. Therefore this methodology provides for proper communication to all workers in Tesco as suggested by Humby, Hunt and Phillips (p78). Improved financial management: any project whether managing financial changes or not is aimed at improving the financial status of the organization. Therefore if Tesco applies this methodology in its financial management it stands a better chance because the methodology itself is cash saving. Improved work environment: Tesco is huge organization with many branches worldwide and thus needs project which maintains it conducive environment of work both internally and externally. According to Thompson and Martin (p85), thus this methodology allows for this as it does not interfere with the internal operations of the organization. However despite the methodology being the best for Tesco there are certain circumstances under which the application of the methodology may adversely affect the organization. For instance under following circumstances Tesco may not be favored by formal project management approach: Failure to invest enough time and efforts to the project: since Tesco is a large organization it may difficult for the top management to focus on the project. The result is that the financial management will suffer more changes which in turn affect the development of the organization. According to Czerniawska and May (p56), administering change requires time and dedication of which may also affect other activities taking place in Tesco because of its wide range of operations. In some circumstances, the management may dedicate their time to a project but failure to incorporate the commitment of others necessary for its implementation may render the whole event unsuccessful. For instance e, Tesco is huge organization with a lot of staff and failure to coordinate their participation may lead to more poor financial management. Lack of the necessary skills: since the Tesco makes a lot of profit despite the change in its financial management, the organization may not be selective on the best project managers. This may lead to them choosing individuals with poor skills. Hence this brings more financial problems as there will be impulse budgeting caused by hiring another management for the project. The benefits gained by the top management may affect the execution of the project using experts. This is because managers may fear to lose their posts if they proof unable to deal with the financial change. Therefore they may end up making more changes affecting the financial management so as to secure their position. A big organization like Tesco will suffer greatly from its poor management in terms of financial crisis because of the many branches managed by one top management. Conclusion Despite the major changes resulting from the retirement of the former Chief executive officer Leahy, the Company has shown success in all aspects of business activities. The company has the best branding and service delivery mechanism in the country hence its good reputation to their customers. As suggested by Grundy and Brown (p134), Terry Leahy has built the company’s reputation to higher degree compared to his predecessors and so his successor with whom they have almost similar background seems to be the best option for the company. The company has engaged in several strategies that are aimed at mitigating the negative effects of change so as to avoid major drawbacks. Since the company has to adapt to the fast changing business circumstances, Tesco has adopted a continuous strategy formulation for changes especially those affecting the financial sector. In responding to changes, Tesco should exploit the internal strengths of the company and at the same time minimize work on its weaknesses company. This way the company stands a better chance to focus on their upcoming changes and concentrate on their management. Reference list: Anon (2004) Case study IV: Tesco implements the business engine network to gain full control of its IT project portfolio, Journal of Database Marketing & Customer StrategyManagement, Vol. 12 Issue 1, pp.66-73; Bartlett, C. & Ghoshal, S. (1998) Managing Across Borders: The transnational corporation. New York, NY: Random House Berndt,R. (1998). Unternehmen im Wandel - change management. New York, NY: Springer. Cook,S, Macaulay,S. & Coldicott, H. (2004). Change management excellence: using the four intelligences for successful organizational change. London: Kogan Page Publishers. Czerniawska, F. & May, P. (2006). Management consulting in practice: award-winning international case studies. London: Kogan Page Publishers. Datamonitor (2004) ‘Company Spotlight: Scottish Power’, MarketWatch: Energy, July 2004, Vol. 3 Issue 7, p31, 5p De Toni, A. &Tonchia, S. (2003) Strategic planning and firms competencies: Traditional approaches and new perspectives, International Journal of Operations & Production Management, Vol. 23 Issue 9, pp.947-976; Finch P. (2004) Supply chain risk management, Supply Chain Management: An International Journal, Vol. 9 Issue 2, pp.183-196; Fernie,J. (2005). International retailing, Volume 33. Emerald Group Publishing Fernie,J. (2004). Logistics and retail management: insights into current practice and trends from leading experts. London: Kogan Page Publishers Graiser, A. & Scott, T. (2004) Understanding the Dynamics of the Supermarket Sector, The Secured Lender, Vol. 60 Issue 6, November/December, pp.10-14; Grundy, T. & Brown, L. (2003). Value-based human resource strategy: developing your consultancy role. Oxford: Butterworth-Heinemann Humby, C, Hunt, T. & Phillips, T. (2007). Scoring points: how Tesco continues to win customer loyalty. London: Kogan Page Publishers Leathy T. (2004) Tesco and what customers really want, Brand Strategy, Issue 185, p.15; Merriden, T. (1999) Europe’s Privatized STARS, Management Review; Jun99, Vol. 88 Issue 6, p16, 8p Palmer M. (2004) International retail restructuring and divestment: the experience of Tesco, Journal of Marketing Management, November, Vol. 20 Issue 9/10, pp.1075-1101; Palmer M. (2005) Retail multinational learning: a case study of Tesco, International Journal of Retail & Distribution Management, Vol. 33 Issue 1, pp.23-48; Rowley J. (2005) Building brand webs: Customer relationship management through the Tesco Clubcard loyalty scheme, International Journal of Retail & Distribution Management, Vol. 33 Issue 3, pp.194-206; Shajahan,S. (2007). Management Information Systems. India: New Age International Thompson, J. & Martin, F. (2005). Strategic management: awareness and change. Auckland, NZ: Cengage Learning.  Turner, J. (2009). The handbook of project-based management: leading strategic change in organizations. New York, NY: McGraw-Hill Professional. Walters D. (1994) The Impact of the Recession on Retailing Management Decisions and Performance, International Journal of Retail & Distribution Management, Vol. 22 Issue 4, pp.20-31; Wilson, H, Street, R. & Bruce, L. (2008). The Multichannel Challenge. Oxford: Butterworth-Heinemann. Yip G. (2004) Using Strategy in Change Your Business Model, Business Strategy Review, Summer, Vol. 15 Issue 12, pp. 17-24; Read More