Evaluation of the impact external factors could have on Tesco Plc for future Prospects (D1)

Planning ahead is an important aspect of every businesses survival and success. External factors can greatly influence upon how a business performs and the restrictions it can have within different sectors of the business. In this task I will analyse the various impacts upon each of the listed points below, make judgement upon these affects within good reason and how important these are likely to be to Tesco Plc.

Activities Strategy Internal Structures Functional Activities Stakeholders

Tesco at a Glance (2010)

This shows some of the current statistics for Tesco and their achievements. This would have been previous targets however, now from the achievement of these targets the business has now excelled into improving upon these achievements to reach much higher targets. The environment as already mentioned can greatly implement upon the reputation, aesthetical appearance of the stores and the custom in which is incurred. It is important that stakeholders are largely considered within these aspects as change in the business

Buying and selling our products EnvironmentCommunities Healthy Choices

environment can greatly affect the attitude of each stakeholder reflected towards the business. This means disagreement occurs very often and coming to a settlement can be prolonged and sometimes may never be resolved therefore decisions are vitally important.

Future Yearly Predictions

Communities Environment Healthy Choices Buying and Selling our Products responsibly

Hungary – launch Community Champions in ten stores

Poland – organise 550 events for local communities

South Korea – reach one million Extended Education Academy members

UK – double the number of Community Champions in the UK to 250 and run 100 successful Community Fairs

UK – open six

Regeneration Partnerships in the UK and create at least 600 jobs for people who have been long-term unemployed

Ireland – 100% of waste diverted from landfill by

2011

Japan – reduce carrier bag use by 20%

South Korea – 76,000 children in the eParan Green Leaders Programme

Thailand – plant 950,000 trees

Turkey – run an

education programme on climate change for 12,000 children

UK – increase the number of products with a carbon label to 500, and increase customer awareness of the label

UK – reduce carrier bag use by 70% in the UK by the end of 2010 (compared to 2006)

China – roll out

technical support for suppliers to improve food safety and quality

Malaysia – launch 50 Lite Choices lines

UK – expand FA Skills Programme to reach a total of 4.5 million 5–11-year-olds by 2014

Czech Republic/Slovakia – create opportunities for local suppliers through supplier engagement events

Malaysia – increase sales of products from

small businesses by RM630 million

Poland – run training for 50 regional suppliers

UK – 10% of our tinned tuna will be caught by pole and line by the end of 2010

Target for future prospects

As a global business Tesco have an important role to help minimise climate change. To achieve this, in 2009 the business has committed towards:

becoming a zero-carbon business by 2050 reducing the emissions of the products sold by 30% by 2020

helping customers to reduce their carbon footprint by 50% by 2020

halve emissions from the 2006/7 baseline portfolio of buildings by 2020

building new stores between 2007 and 2020 to emit half the CO2 of a 2006 new store

reducing emissions per case delivered by 50% by 2012

Above are some of the aims in which Tesco are striving to achieve within the upcoming years however, their will be factors concerned around the achievement of these targets. Nowadays the environment is the largest problem in which the business world revolves around and how will this problem be resolved for long-term prospects. As there are many pieces of legislation from political factors, the business will have to adhere to these when attempting to achieve the above stated targets.

Creation of new organisations

Nowadays with the current economic climate many businesses suffer from inevitably all factors and many tend not to survive and if do, struggle for future prospects. With more legislation being enforced this means businesses have to control all activities within the business in so they conform to these legislations. Many of these pieces of legislation revolve around environmental aspects and the carbon emissions produced by the business. With the environment becoming a large issue with ever increasing carbon emissions and global warming this has introduced a large number of new organisations to prevent and promote a healthier sum of emissions produced by large international businesses such as Tesco. This means more pressure groups exerting pressures on Tesco Plc to become greener and environmentally friendly. On the other hand with the social trends in society changing and people being encouraged to exercise more and eat friendly this has helped Tesco boost their sales income through the implementation of its ‘Healthy Living’ range in 1985, which still continues to this present day. This could be an important of the businesses selling point for present and future predictions however, it should be consistently monitored to deem whether or not it is in fact proving successful and sustainable to continue offering to the market.

Revision of Strategic plans

"We have continued to make strong progress with all four parts of our strategy - a strong UK core business, non-food, retailing services and international - by keeping our focus on trying to improve what we do for customers:

making their shopping trip as easy as possible constantly seeking to reduce our prices to help them spend less offering the convenience of either large or small stores bringing simplicity and value to complicated markets"

Currently this is the strategic plan of Tesco to strengthen their relations with customers into returning to purchase again from the business, by becoming more market orientated through becoming as popular in non-food products e.g. electrical appliances such as; microwaves, mobile phones, televisions etc. It is important that these strategic plans change accordingly to best suit the economic climate and needs of the business and those involved within its doings. As already mentioned pressure groups will be aiming to pressure Tesco Plc into reducing carbon emissions produced. As a method of doing so Tesco have managed logistics in order to reduce the number of unnecessary routes taken, purchased goods in bulk in order to reduce the number of delivery vans on the road which in turn helps to reduce the businesses carbon emissions therefore pleasing the pressure groups. However, it must be examined that in doing so smaller business such as those that supply goods in demand to Tesco may be unsatisfied with these changes. One of the main aims for Tesco is their desire to be market leader and so expansion is a big possible option which would largely influence the strategic plans of the business. Currently China is the biggest market in which

Tesco aims to make an appearance within the fore-coming years. With the decision in mind to do so or not could lead to the achievement of this massive target or an unforeseeable downfall. Many expenses will have to be made for recruiting and also training staff to manage departments and co-ordinate resources effectively to achieve meeting the needs of this new market. If all goes to plan the business could achieve larger profit margins, greater reputation which in turn would have different affects on the stakeholders both internally and externally. It is a decision that accounts great responsibility for the CEO, BOD etc. to make and so minor steps should be taken to gradually enter the market rather than jump to conclusions of large investments therefore the business will be able to opt out from the market if all does not go according to plan.

Stakeholder Implications

Stakeholders all have a key area of interest within the performance and doings of Tesco Plc. They must be considered greatly in decision making and the differences each stakeholder can have if they aren’t quite in acceptance of the decisions made. Here are some of the interests which stakeholders would have within Tesco;

Customers - want healthier, more environmentally friendly products. Pressure groups – aim to reduce carbon emissions and the threat posed to smaller organisations

from much larger organisations such as Tesco. They will use the media in order to address their points of view.

Government – enforces regulations in order to provoke the production of excess greenhouse gases as it has become more aware of the environments impact.

Shareholders – know that the business will only be profitable if customers are convinced that the business is environmentally friendly and health conscious.

Employees – wish to work for Tesco knowing that it is directed towards maintaining good environmental health and records.

Within the current economic climate many will be concerned of their job position within the business and whether they will be employed within Tesco for future purposes. Many will also have concerns for judgements made upon the business for its environmental welfare and how it makes those working in the business look and feel. As previously mentioned Tesco are aiming to expand throughout the Chinese market by introducing more stores in the southern of China. By aiming to sell goods and services towards a larger population with lower prices and larger facilities, Tesco should be able to boost their income as shown from their previous yearly results in the table and become a world market leader; however there could be some implications. Language barriers are always problems in the business world and so the culture of the market must be considered. Food within the UK will be much different to that of China and so large funding will need to be indorsed within product images. Vast amounts of funding will need invested within Human Resources to recruit staff however, again due to the scale of population; Tesco could however, afford to pay their perspective employees just the minimum wage as demand for jobs would be greater therefore reducing the costs of the business. It again needs to be considered how workers will feel as stakeholders in the business and whether or not agree with their working conditions this could lead to further complications arising with Trade union groups. As mentioned alike all other leading supermarkets technology has helped reduce the requirement for a large level of staff, this however, does not mean that many will lose jobs but it could mean that the likeliness of re-training would be required to operate, fix and configure the machinery when needed; and so if Tesco is to introduce these EPOS’s in their stores this could be a costly procedure and even though it reduces human error and can improve efficiency though cost

  2001 2002 2003 2004 2005

Turnover (£m) 20,800 23,400 26,004 30,814 33,974

Number of stores 907 979 2,291 2,318 2,365

Selling space (000 sq ft) 28,362 32,491 39,944 45,402 51,772

“One of our core values is to treat people how we like to be treated, and we want to show this in our

relationships with suppliers of all sizes. We listen to suppliers to make sure we understand their views, and

share customer views with them so they fully understand the market for their products.”

I am from Poland Logo.I am from Poland Logo.

Shareholders are keen knowing the value of their shares is increasing, thus can be interpreted from the business turnover.

Shareholders are keen knowing the value of their shares is increasing, thus can be interpreted from the business turnover.

should be compared both for short term and long term periods. Even though the business in the UK revolves around English products, nowadays Tesco supply products in the desire of Polish immigrants, this would boost the overall reputation of the business within the polish community and again could improve the sales generated in return. Polish products are listed with the “I am from Poland” logo. For advertising prospects, as some products may remain the same and are sold throughout the retail outlets, Tesco would only need to have the one advertisement for one or several products at a time and could just change the language used to communicate to the target audience this would cut down on excess costs rather than creating advertisements for every different country origin. Through expanding into larger markets this would too lead to a greater number of suppliers and stock for Tesco to sell, and so suppliers as stakeholders within the business would be boosting their income making them content through trading with Tesco. Obtaining suppliers would be deemed by Tesco’s reputation, as it is an international business and due to the current economic recession the business should be able to obtain a vast amount of suppliers to produce their products quite rapidly which can then be sold onto customers. As Tesco is heavily known as a leading age supermarket throughout the current markets and countries this will encourage previous customers to purchase from the business again. For example; if UK citizens where to visit China then they could recognize the house colours (blue, white and red) of Tesco and feel more comfort to shop within it rather than a corner shop, as they may be unsure of the goods quality they purchase. It is important that as stakeholders customers are satisfied through these means in order to help boost the sales incurred and publicity of the business that is spread mostly through word-of-mouth. With larger facilities and more employees to recruit this will mean larger tax funding the government will gain improving their satisfaction with the business, however as previously mentioned dissatisfaction from many pressure groups for the Government and Tesco to work in co-operation with.

Internal Structure

The structure of the organisation currently formats as arranged by functional departments as effective as this may be it could become difficult when exploring larger markets such as that of china as there will likely be a large majority of stores. To manage these stores their will be many levels within the hierarchal structure due to ratio of market population compared to the facilities size required and so meaning greater number of employees, finance officers, administration officers etc. to improve communication between departments this must be flattened at best possible in order to delegate authority effectively when required. It may be seen to continue the expansion of growth through metro stores at best possible in order to maintain a flatter structure therefore enabling better management, but to also reduce the pressure exerted on Tesco due to maintaining much larger stores (those creating large amounts of carbon emissions) from pressure groups, as with smaller the business will likely pollute less. Alternative methods may be perhaps investing within environmental officers to examine the premises and to help manage the businesses resources more effectively to reduce emissions and also to present an image to pressure groups that Tesco is working towards more environmentally healthy standards. For the present moment in time the business will have to take minor steps and funding must be controlled carefully when considering expansion as many banks and building societies are strict for applications regarding sources of finance. What I mean by this is that is the interest rates have plunged for savings and risen for borrowing and so if perhaps as mentioned self checkouts were to be purchased the business would be expending a large proportion of funding over a minor period of time, as well as it must be paid back hastily the cost for borrowing could be double what was originally expended and depending upon whether or not customers prefer self checkouts to ordinary human scanning at tills this could reflect in the income negatively meaning more trouble for the business. On the other hand if sales generated fluctuate quickly this could enable the number of employees to be reduced, therefore cutting costs and improving Tesco’s profit margin and also help improve management due to a smaller span of control under each manager within the organisational structure. If the structure were to be de-centralised this would enable decisions to be made by those of a lower rank in the business feel more equal to even those at the top this can boost moral and the overall performance of Tesco’s workforce. However, on the other hand if the business is centralised this would mean control from those at the top of the business e.g. CEO (Sir Terry Leahy), BOD and managers over all sub-ordinates below; even though this could de-motivate the workers below, in times of hardship such as now within the current economic climate basing decisions on those opinionated from workers of less technical knowledge could cause potential problems. Therefore by only having a key individual to make decisions this would

help pull all departments as one in the same direction which would be essential for survival. Almost all factors will affect the internal structure of the organisation however by proportion I believe economic would be the largest dictator of how the structure will be managed. It is mentioned within their latest report for 2010 that each and every department will be assigned a financial manager to cover all aspects of financial analysis - such as investment appraisals, cost benefit analysis, developing targets and monitoring performance. This will help to keep track of costing; it is the economic climate that has likely caused this need for managers in each department as to identify where costs can be reduced and how to improve the efficiency of the business. This would have reflected in the structure of the business as many decisions regarding purchases would require the consent of each manager providing them with authority. Its questionable whether this will encourage the business to perform better especially within the structure or it may cause havoc amongst departments due to limited spending and so should be

carefully inspected to reduce any chance of unfairness. For example; R&D would require a majority of funding to identify the needs of the target audience and keep up-to-date with new innovative products within the Chinese market however, this may take funding away from the likes of H&R for recruiting and training personnel and thus conflict can arise. It could however boost motivation of employees to meet their aims with limited materials therefore resulting in an even more impressive achievement for Tesco; the balance must be concerned of whether this will be apparent and whether it’s too ambiguous.

Functional Activities

The biggest external factor in which I believe has largely influenced the development of Tesco over its years of business is the advancement of technology available. Nowadays more businesses gear towards using technology in order to improve the efficiency and effectiveness of offering customers the highest quality products and services at the lowest cost. Through the adaption of technology this has been made possible and will continue to improve throughout the years. With advancements in hardware and software this enables duties to be performed quicker and makes communication across departments simplistic which is essential in the running of such a large organization. If looked back upon the past the most common method of communication was performed through postal letters. This is however becoming less and less popular due to e-mail and its advantages. For example sending letters can cost whereas e-mail does not, time delays can occur for recipients to receive mail whereas e-mail is immediate and document attachments can be sent e.g. reports, pictures, videos, programmes etc. Advancements also include the use of EPOS (Electric Point of Sale) systems such as the self checkout scanners. In earlier years stock would require tracking by manual human review, the required stock would be listed and quantities would be listed these orders would then be forwarded to the supplier. Nowadays with the EPOS system each product barcode that is scanned is linked to a computer mainframe which identifies the scanned product and deducts it from the total quantity in stock. When the item reaches below a specified quantity the computer will automatically issue an order to the supplier rather than human interface therefore reducing the cost of employing more workers and thus reducing costs. In comparison with the previous method this is more simplistic and each of the necessary departments will receive feedback on the products performance. Not only in-store technology has contributed to the success of the business but also through the use of e-commerce (shopping online) through the Tesco website. By having an effective website that allows for easy interaction and understands the needs for customers the business has encouraged more customers to return and purchase. One of the many favorable features of the site is the ability for users to save their shopping cart as a default. This means whenever a customer returns to purchase the products online their most commonly purchases will be listed in order history meaning they will not have to search manually for them again to purchase them as they can select them from this history. So far many customers are unsatisfied with the idea of the new self checkout scanners, as they believe they are killing the checkout employee and this has endangered the loss of potential business sales for Tesco. Many customers complain that they are not up-to-date with the use of the technology and also believe that human conversation face-to-face is more comfortable and does not bring the frustration of trying to process their items themselves. It is important for Tesco to listen to these complains as currently the intentions of the business is to integrate most of these new machines into their stores to reduce the need for excessive amounts of employees.

“Tesco's self-checkout lanes on average process 19 percent of total transactions with an average basket size of 5 to14

items.”

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Customer service is the closest interface the business has of gaining its feedback from customers and so it may be deemed that this should be the businesses most important activity in order to prevent customer loss. Assistants are on foot in order to help show shoppers how to scan their goods and fix potential faults when they occur. This has been foreseen as a method of preventing the frustration customers have when purchasing their goods but could still be seen as an unsatisfactory measure taken by Tesco in the event of customer interest. It could be possible for stores to perhaps have a 50/50 balance of self service checkouts and the other half, manual checkout personnel. It is important for Tesco to identify the key factors affecting the businesses income; those good should be at best maintained and those that are reflecting poorly in the business, worked upon. In order to encourage a healthy performance for the business in years to come and help it reach the targets set the business solely needs to focus upon the environment and the economy as these are two major factors reflecting upon the current performance. Small steps should be taken so as not to cause any major impacts upon the businesses activities and functions, and customers should be listened to carefully as they are the key interest that continues the businesses survival.