Background of Tesco, Strength & Weakness - Case Study Example

Finance Report Table of Contents Background of TESCO 2 Products 2 Competitors 3 Policy 3 Process 4 Review of Management Accounting 4 Analysis 5 Strength & Weakness of the Analysis 10 ABC (Activity Based Costing) 10 MAIS (Management Accounting Information System) 11 Conclusion 12 12 Background of TESCO Tesco plc was established in the year 1919 by Mr. Jack Cohen in the United Kingdom. The stores of Tesco vigorously expanded and almost hundred stores were opened in the UK market during the beginning of the Second World War (Instituto de Empresa, “Tesco: Every Little Helps”). Products Tesco’s major product line is grocery. The company started with grocery and gradually introduced other product categories in the store. They started private level brands along with other brands to be sold in their stores. Tesco deals in different categories. Presently, the company is dealing in groceries, wine, clothing, entertainment and books, phone shop, banking and insurance, Tesco magazine, flower market and online business of shopping from their stores. There is a wide range of products and services that Tesco deals in through renowned brands and their own private level brands (Tesco PLC, “TESCO”). Tesco’s products and services also include: Store offerings: Food and non-food retailing, petrol stations, and home lining range. Personal Finance: Life, home, travel, pet and motor insurance, savings account, personal loans, secure investment bonds and online mortgage finder (Datamonitor, “Tesco PLC”). Competitors The top competitors of Tesco are as follows: ASDA Group Limited, BP Plc, The Big Food Group Plc, J. Sainsbury plc, Marks and Spencer Group plc, Carrefour S.A., ExxonMobil Corporation, Royal Dutch/Shell Group, Safeway Inc, Safeway plc, Booker Cash & Carry Limited, Somerfield, Wm Morrison Supermarkets PLC, ALDI Group, SPAR Handels-Aktiengesellschaft, The Boots Group PLC, The Carphone Warehouse Group PLC and John Lewis Partnership plc (Datamonitor, “Tesco PLC”). Policy Tesco has a policy of gratifying experience and talent and stimulates motivations in terms of incentives for offering greater development and high returns for shareholders (Tesco PLC, “Summary Report of the Directors on Remuneration”). The group has a five-year progressing business plan to sustain the delivery of its approach of long-term expansion and income for shareholders. Tesco functions with a balanced scorecard approach that is acknowledged within the Tesco group. This connects the group’s resources regarding operations, community, finance and consumers (Tesco PLC, “Internal Control & Risk Management”). Process The business processes of Tesco and systems that are utilized for in-store planning in the UK are selected and decided by the Tesco executives as a part of global standardisation program. The operations and business processes that are in other countries are structured by the developers. The business requirements are drafted by Tesco UK and other stores of Tesco need to implement it (Computer Weekly, “Tesco's IT Standardisation Paves Way for Global Expansion”). Review of Management Accounting To plan and control the activities of the organisation, management accounting provides information in an appropriate way that helps the company management to take favourable and sound decisions (Li, “Management Accounting”). From the viewpoint of management accounting, the main objective is to make decisions related to finance, production and marketing. Every elements of the financial statement is a crucial aspect for decision making (Micro Business Publications, “Management Accounting and Decision-Making”). Management accounting is future oriented that helps in decision making towards the future perspective of the business operations. Whatever information the manager or the management feels as necessary are utilised as a tool in deciding the strategy towards the future course of action. It helps in measuring costs, revenues, assets and helps in choosing the best among several alternatives. The tools and techniques that are commonly applied in management accounting are budgeting, variance analysis, inventory management, CVP analysis, activity based costing and enterprise cost management (Somerville, “Management Accounting”). Analysis (Yahoo Inc, “Finance”). By evaluating the three year information of Tesco Plc from the above exhibited table, it can be inferred that there has been decline in the cost of revenue due to decrease in the turnover. As compared to 2007 and 2008, the cost of revenue of the company is not seen in a positive way in the year 2009. The retail organisation can gain back its stranglehold only if it is able to increase the turnover of the investments. This will help in increasing the profit and reducing the cost of revenue. ABC Tool & Technique The technique that is recommended in the study for Tesco in applying the decision making through management accounting is that of Activity Based Costing (ABC) tool. The ABC tool is an alternative of the traditional method. It will help Tesco Plc in identifying the cost pools and assigning costs to products and services that are based upon different activities. The ABC model will allow the managers to decide the ways to maximise the shareholders’ value and improve the corporate performance (Value Based Management, “Activity Based Costing Method ABC Methodology”). During recent competition it is not advisable to reduce the pricing as that will affect the revenue and cost of revenue. It is wise to identify the cost based activity to reduce the costing that will generate increase in the revenue and help in shareholders’ value addition (Value Based Management. “Activity Based Costing Method ABC Methodology”). Working Technique The ABC model will help in detection of the least profitable consumers, channels and products and strategies can be developed. It allows in finding out the true contributors and detractors of the financial performance (Value Based Management. “Activity Based Costing Method ABC Methodology”). It accurately predicts the costs, the resources, the profits prerequisites that are associated with resource costs, organisational structure along with production costs. It can be utilised for detecting the true root cause of deprived financial activities and equip management with cost intelligence to encourage improvements and facilitate better marketing mix (Value Based Management. “Activity Based Costing Method ABC Methodology”). Decision Making Since Tesco applies the balance scorecard technique in driving the business and performance of the organisation, the ABC model will help Tesco to increase their efficiency and diminish the cost without forfeiting the value of the consumers. It will assist in decision making in accordance to market need for enhanced quality merchandises at competitive prices. The model will also enable to recognise the factors that influence regarding the consumer profitability and product profitability. The ABC model acts as a continuous improvement process in the phrases of analysing the cost, eliminating or diminishing the non-value added activities and to accomplish an overall efficiency. Management Accounting Information System (MAIS) MAIS technique can be applied in Tesco that will allow the overall organisational planning, controlling and monitoring multifarious financial activities. This will permit managerial-level employees contact with advance reports and statistical analysis. This technique provides more information that helps in deciding the alternatives that will be best suited for the business activities to increase the efficiency (Xu, “Data Quality Issues for Accounting Information Systems Implementation: Systems, Stakeholders, and Organizational Factors”). MAIS provides various reports like budgets, variance reports, CVP reports, enterprise cost management report in an appropriate manner that is useful in understanding and deciding. At the managerial level in Tesco these reports will provide a clear understanding and will be helpful in quicker decisions making. The reports are generated with regards to interests of the stakeholders and it becomes easy to identify the actual areas of improvement. To generate the reports it is essential to determine the cost, accuracy and quality that will be required to take an efficient and effective decision. For the purpose of minimum cost with accuracy and quality, MAIS helps in generating such reports for the management. Tesco with MAIS technique will be able to acquire information that will be less costly, accurate and of better quality. This will help the company to generate various alternatives and decide the best option in order to maximise the level of performance (Xu, “Critical Success Factors for Accounting Information Systems Data Quality”). Trustworthy information is essential in decision making. The management accounting of Tesco reveals all realistic expenses and revenues; therefore the management has an unambiguous picture of the company operation. For decision making trustworthy information will be required, which will be possible through MAIS. MAIS will help Tesco in providing proficient management tool that will aid in improving the managerial discipline control and efficiency; and optimise the business processes that will automate the system of management control and execution of decisions. Strength & Weakness of the Analysis ABC (Activity Based Costing) Strength ABC provides more accurate costing of consumers, SKUs’ (stock keeping units), distribution channels and products and services. Better understanding of the overheads is easy. The office bearers in the management ranks can understand and interpret the data. Instead of total cost, it exploits unit costs. It is a continuous improvement program that rectifies the non-value added and waste entities and reduces or eliminates them. It facilitates scorecard system, performance management and benchmarking. Weakness ABC is more time consuming in collecting the data. There are certain costs associated with the procurement, implementing and maintaining ABC system. ABC identifies wastes and there are managers who don’t want their superiors to find the wastes that are raised by them. MAIS (Management Accounting Information System) Strength MAIS stores and displays huge source of information through summary report or detailed presentation that helps in effective analysis. It provides security and access through the ‘management information security & access distribution’ principle. There is less chance of errors and it helps in quality maintaining. It provides multiple choices of data that are required by different managers for decision making. It helps in improving efficiency and performance of the company. MAIS generates value for the business by providing quality information and increase in managerial performance that ultimately effects the business operation and generates value addition to the business. Weakness There is every possibility of fraud in management of data, if the security and control level is not correctly implemented. There is lack of standardisation as the management accounting managers do not have certain policies and procedures to be followed. Even if the data is accurate and of quality, the lack of standardisation might create inefficient decisions and the whole process might be in a haywire. Conclusion Management accounting is vital for business, especially for the private limited company. The management accounting with the information system helps in determining the profit and loss of the business and revenues and expenses with the overheads of expenditures. Through the application of ABC tool and MAIS technique, the management accounting technique will be upgraded and there will be different alternatives that will guide the potential choice of decision making. Tesco can achieve competitive advantage and also strive to acquire greater market share through the application of these two tools. References Computer Weekly. “Tesco's IT Standardisation Paves Way for Global Expansion”. December 22, 2010. Workflow Management, 2007. Datamonitor. “Tesco PLC”. December 22, 2010. Company Profile, 2004. Instituto de Empresa. “Tesco: Every Little Helps”. December 22, 2010. Tesco, 2001. Li, Gerry. “Management Accounting”. December 22, 2010. Hong Kong Institute of Accredited Accounting Technicians Limited, No Date. Micro Business Publications. “Management Accounting and Decision-Making”. December 22, 2010. Management Accounting, No Date. Somerville, Alan. “Management Accounting”. December 22, 2010. Bradford University School of Management, 2010. Tesco PLC. “TESCO”. December 22, 2010. Home, 2010. < http://www.tesco.com/> Tesco PLC. “Summary Report of the Directors on Remuneration”. December 22, 2010. Annual Reports and Reviews, 2010. Tesco PLC. “Internal Control & Risk Management”. December 22, 2010. Corporate Governance, 2010. < http://www.tescoplc.com/plc/ir/corpgorv/riskmanagement/> Value Based Management. “Activity Based Costing Method ABC Methodology”. December 22, 2010. Activity Based Costing (ABC), 2010. Xu, Hongjiang. “Data Quality Issues for Accounting Information Systems Implementation: Systems, Stakeholders, and Organizational Factors”. December 22, 2010. Journal of Technology Research, No Date. Xu, Hongjiang. “Critical Success Factors for Accounting Information Systems Data Quality”. December 22, 2010. University of Southern Queensland, 2003. Yahoo Inc. “Finance”. December 22, 2010. Tesco Corporation (TESO), 2010. Read More