Tesco Case Solution

5/21/2018 Tesco Case Solution

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Tesco, PLC from Mouse to

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In Online Grocery Retailing

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Tesco at a glance:

Tesco is a small organization that sold groceries to Londons East Endmarkets. It wasnt until 1929 that Tesco opened its first store in Burnt Oak,Edgware. Until then, all of its activities were primarily focused on selling to theretail trade. The company grew over the years and in 1947 was listed on theStock Exchange as Tesco Stores (Holdings) attracting a share price of 75p.As of early 2000 the company operated 225 superstores, 220 supermarkets,

48 neighborhood stores, 42 Metro stores, and 21 Express stores in the U.K.

It had maintained an unflagging focus on delivering the best value possible toits customers while Tescos strategy had taken various forms over the years.Taking a leaf from the successful grocery supermarkets that evolved in theUnited States in the 1930s, Mr. Cohen instituted a set of core principles thathad served the company well. Tesco introduced a variety of innovativepractices that have increased efficiency and reduced operating cost over theyears.

Tescos experience with the regulatory labyrinth in the retail sector in the U.K.gave it some important experience benefits. Blanketing the entire country withsuperstores was therefore a pipe dream. Instead, Tesco used novel formatsthat were tailored to fit area-specific regulation. After 1998 it considerablyslowed down building new stores in the U.K., betting on the growth of itsonline endeavors to help sustain growth.

The company grew over the years and in 1947was listed on the Stock Exchange as TescoStores (Holdings) attracting a share price of 75p.As of early 2000 the company operated 225superstores, 220 supermarkets, 48neighborhood stores, 42 Metro stores, and 21Express stores in the U.K. It also had operationsin Ireland, the Czech Republic, Poland, Hungary,Slovakia, and Thailand.


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In 1919 Sir Jack Cohen founded Tesco as a small organization that soldgroceries to Londons East End markets. Tescos experience with the

regulatory labyrinth in the retail sector in the U.K. gave it some importantexperience benefits. For example, the regulatory hurdles that made it difficultto establish large stores drove its multiple format growth strategy. Blanketingthe entire country with superstores was therefore a pipe dream.

Tescos Move into Online Shopping:

It had always prided itself on an excellent information technology (IT) supportnetwork and had leveraged its IT skills to enhance efficiencies in its traditionalbrick and mortar stores for quite some time. This emphasis had given the

company a leg up in terms of the experience curve, having provided it theopportunity to get its internal house in order while meeting the challenges ofconducting business digitally. Although Europe by the turn of the century waslagging behind the U.S. in all areas of electronic retailing, it did have asignificant lead in one categoryonline groceries.

Tescos IT Prowess

It operated a tri-level architecture anchored by mainframes and assisted bymiddle system servers and PC client front-ends. Its private digital networkconnected all its stores in real time. The company had integrated its IT skillsinto multiple areas spanning both front office operations as well as thebackroom operations. At the customer end, the companys IT infrastructureprovided the backbone for customer service and support operations.

Similar to a frequent flier program, the scheme awarded points to enrolledcustomers for purchases made. The awards could then be exchanged forproducts. Managing such a large customer base required significant ITexpertise. IT played a key role in the acquisition of scanner data, integration of

the data with the inventory control system, customer accounts, and generatingorders for supplies as needed at the front-end. When a customers purchaseswere scanned at the point of sale, the transaction recorded the price on thebill, relayed the information to inventory control making changes to inventorylevels in real time, and triggered an ordering process with a distributionrequest based on current inventory levels sent directly to forklift operators onthe floor of Tescos warehouses.

Dist ribu t ion Acumen:


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The distribution system was integrated with a supplier extranet that Tesco hadbuilt in partnership with GE Information Services. Called the Tesco

Information Exchange, this system was first introduced for a small set of largesuppliers such as Procter & Gamble (P&G) and Nestle but had since beenexpanded to cover a wider range of smaller suppliers as well. It encompassed400 suppliers and over 2,500 users. Intended as a complement to the EDIsystem already in use, TIE was linked to a number of Tescos key systems togive suppliers access to relevant and up-to-date information such asElectronic Point of Sale data to track sales and inventory. TIE promisednumerous benefits for participating suppliers as well.

Tescos distribution network was an integral part of its success story. Itoperated 13 strategically located warehouses or distribution centersthroughout the country. Contractors operated an additional six such centerson behalf of Tesco.

The exchange was designed to facilitate trading between suppliers, retailers,partners, and distributors. Participating companies anticipated that theinteraction on the WRE would be more efficient due to standardized iteminformation. It also included an auction facility and other features designed todovetail with the ERP (Enterprise Resource Planning) systems of participating

retailers aimed at reducing supply chain costs.

Moving into Digi tal Commerce:

The company had developed two Web sites6 that customers could accesseasily. The corporate website provided relevant information regarding onlineshopping, specials and promotions as well as corporate information. It had acomparison-shopping engine that was quite powerful in that it offered real-time comparisons of prices on selectitems including fresh produce. Tescoused on the-ground market intelligence toprovide comparisons with keycompetitors such as Sainsburys, Asda,and Iceland. The corporate Web site waslinked to the dedicated shopping site aswell.

Tesco Direct, where most online shoppers entered, consisted of a set ofsimple, easily navigable pages that offered pertinent information such as

nutrition, use instructions, and recipes to the time-conscious shopper. Overfour years, the offerings at this site increased significantly. By mid-2000 the


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company offered much more than fresh produce and groceries. Customerscould shop for music, books, videos, kitchen equipment, office supplies,

computers, and a host of other products. Unlike grocery sales, which wererestricted to a specific geographic region due to distribution constraints, non-food products such as kitchen equipment and bed linen were available forsales throughout the country.

The Way it Worked:

Once the product was picked, it had to be scanned to ensure a match withthe order and for capturing pricing information before it went into the trolley.Once the picking was completed, the trolley was sent to the delivery van

directly. While all of this seemed to be well orchestrated, there were veryimportant issues that arose during execution.Thats the strategy TESCOuses. When an order was received at Tesco Direct, it was routed to acomputer located in the store that was nearest to the physical location of thecustomer. The incoming order was assigned to a delivery van at the localstore and then forwarded to a picking trolley manned by store personnel.

The personal shopper who was responsible for picking the order had tocompete with regular, in-store shoppers since the order was to be fulfilled

within a store environment and not a warehouse. Hence, one often saw storepersonnel jostling shoppers as they raced to fill orders for delivery within thetwo-hour window that Tesco promised. This system of using local stores todeliver online orders imposed some strain in terms of scheduling, especiallysince all the stores in the geographic region required a fleet of vans ready todeliver. These vans had to be equipped with refrigeration units to ensure thatchilled and frozen products were delivered fresh.

Tesco maintained that its customers could not get any fresher food even ifthey went to the store themselves. He delivery fee hardly made up for thededicated vans and in-store picking personnel. Further, since most of theideal target audience for the service, time-conscious shoppers, were seldomavailable at home during the day to receive deliveries, a large bulk of theorders had to be fulfilled in the evening hours. This meant that the store was alot more crowded with regular shoppers, creating delays. All this added up tohigher sales per customer in the form of books, CDs, videos, and housewares. However, most of Tescos online customers seemed to use TescoDirect more for food items, specifically fresh food, than other products. In fact,they tended to buy more fresh food than they would normally do when theyvisited the store. The company reported that 50% of the online sales were

incremental (25% new customers plus 25% higher sales from current


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customers), while the other 50% was cannibalization of current customerpurchases moving online from offline.

The Comp et it ive Landsc ape:

The picture was quite bleak but encouraging at the same time in terms ofdigital preparedness. While this could be interpreted as a sign of untappedpotential, it also signaled the steep climb that lay ahead for online retailing.Despite the disparity between the U.S. and most of Europe, all accountspointed to a leveling of online populations and even an acceleration ofEuropean online retailing sales in the near future. Sainsburys was the storiedgranddaddy among U.K.s grocery chains, known for its attention to detail and

quality of produce. It connoted more of an upscale shopping experience thaneither Tesco or Asda. The company had recently acquired Shaws, a chain ofgrocery stores in Massachusetts, U.S. It had also been dabbling in onlinesales for some time. It started with an experimental contract to provideemployees of Hewlett Packards Bracknell plant the option of buying theirgroceries online. They could place orders during the day and the goods wouldbe delivered to their offices in time for their drive home.

The delivery area that the company initially supported was quite small in

comparison to Tesco and that, according to Sainsburys, was by design. Thecompany believed that Tescos model of clicks and mortar would not besuccessful in the long term as demand exploded. Intent on eliminating theinefficiencies that were endemic to the pick-in-the-store system, Sainsburyshad been building warehouses dedicated to supporting online shopping.

Online customers, weve found, are less tolerant, and fulfillment of orders hasto be perfect. Thats difficult in-store because of the high out-of-stocksituations. Service levels will always be compromised.

Wal-Mart Company, Asda had been offering a serviceit called asda@home for 5,000 lines of productsmanaged from two picking centers in Croydon andWatford. It was building two more warehouses in theLondon area in mid-2000 to increase the scope of itsonline retailing offerings. Asda represented one endof the fulfillment continuum, having chosen to relyexclusively on warehouses, unlike Tesco that wasusing its stores, or Sainsburys that was using in-storepicking and warehouses. It was quite possible that it had chosen thewarehouse route simply because its store network was quite sparse and didnot correspond to high growth online market regions.


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The fourth largest grocery chain in the U.K, Safeway, was betting on acompletely different approach. It offered neither online ordering nor home

delivery. Customers could either fax their orders or call in their orders aheadof time and drive to the nearest store to pick up their purchases. Waitrose,another grocery chain of national repute, offered delivery of groceries with atwist. It would deliver only to offices but not homes! It ran a fairly successfulWaitrose at Workscheme for the purpose.

Across the Pond:

The poor rate of converts was blamed on a variety of factors including theinability of companies to offer a fail-proof delivery system, the sprawl into

suburbia that required complex math to figure out delivery routes, and thegeneral lack of a fulfillment infrastructure. However, some of the larger playerswere betting that things would change soon. Mr. George Shaheen, whoheaded Andersen Consulting before joining Webvan, ran the company. Itprided itself on its customer service and had been rated among the bestonline grocers by Gomez.com, an independent e-ratings company.

Peapod was the oldest online grocery retailer in the U.S., having startedoperations in 1989 in Skokie, Illinois. Royal Ahold of the Netherlands acquired

a significant interest in Peapod, thus opening up the possibility of leveragingAholds U.S. holdings in the form of the Stop and Shop chain of stores thatwere widely popular especially in the Northeastern U.S. Peapod also usedcentralized warehouses to deliver produce and food items to well-definedgeographic markets. It also had local agreements with smaller chains tofunction as picking centers.

Netgrocer, a fairly early entrant to the online grocery business, shipped a

wide range of groceries other than perishables such as milk and fruitthroughout the 48 contiguous states from a warehouse in New Jersey. Itteamed up with Federal Express to offer a shipping service that ensuredfulfillment of orders within 1-4 days.

Streamlinewas probably the closest to offering its customers a very attractivepackage of goods and services targeted at addressing day-to-day needs suchas dry cleaning, clothing repair, film processing, and prescription drug pickupin addition to fresh produce and groceries. It also installed a keyless entrysystem to the garage so that orderscould be delivered even if the


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customers were not home, an important convenience to working customers.

While many of the U.S.-based online grocers were pure plays, Tesco wouldpossibly enter with a clicks and mortar approach built around store-basedfulfillment. This approach was only now being attempted in isolated U.S.markets and that, too, only as a substitute for telephone-based orderingprocesses. Some analysts believed that population density was a keyperformance driver in fulfillment.

The Future Looms :

Mr. Tim Mason settled down to take stock of the days priorities and thetelephone rang incessantly. Mr. Leahy was on the line with significant news.He had just confirmed plans with the Board that Tesco Direct would be spunoff as an autonomous entity consolidating all the e-commerce and Web-basedactivities of the company. The Board felt quite strongly that Mr. Mason shouldbe given the opportunity to head up the new division as its Chairman since hehad done well in nurturing Tesco Direct. Mr. Mason needed some time tocollect his thoughts about the offer and told Mr. Leahy that he would reflect onthe proposition over the weekend.

Mr. Mason had a lot to think about in terms of future strategy. Given thecurrent popularity of Tesco in grocery retailing, would it make sense to launcha pan-Euro-peen offering to encompass regions where Tesco had a bricksand mortar base (e.g., Ireland, Slovakia, Czech Republic, Poland, Hungary),or would it help to first shore up the U.K. market by expanding within thecountry? Of course, the larger question was really whether Tesco shouldcontinue its foray into non-food products or at least emphasize it much more.


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Tesco has been losing to their competitors after the company started theironline shopping and put emphasis on e-commerce. Even though the companywas making a lot of profit out of their hybrid bricks-and-clicks offerings, thecompany was being faced with complaints from some of their customersregarding the inordinate delays in accessing web pages at certain times of theday. While one of their competitors Sainsburys was using dedicatedwarehouses just for their online shopping, Tesco was relying only on theirregular stores and using those stores as the backbone for its online efforts. Sounlike Tesco, for Sainsburys, it was no longer a hybrid bricks-and-clicksoffering but a structure that had separate facilities for online operations. Afterlaunching online grocery shopping Tesco promised its customers makinghome delivery within 2 hours after the order being received. Even though theentire process is automated from picking up the products to send the productsto the delivery van the entire management system was struggling against timedue to their inadequate number of employees. Moreover, many critics pointedthat the equipment the company used was quite outdated and did not offer thecapacity to scale upwards even though Tesco achieved the name of big

spender due to their huge investments in technologies.


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What Strategy should be taken by HR department of Tesco to recruit theappropriate employees to solve the problem with online operation and comeup with innovative ideas that can meet customers expectation and competewith the direct and indirect rivals to have more market share and becomemarket leader in the industry?


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STRENGTH

Tesco held the largest market share over the brick and mortar grocery

chain in UK and provided services to tw elve dif ferent markets.

Relatedness:

At the middle of the 90s Tesco overtook their main competitor, Sainsbury whowere the market leader since 1800. Tesco recorded a high sales volume atthe year of 2000, and the after tax profit was 1 billion pound. Their operationwas not only circulated in the south and southeast of UK, but they also servedat Ireland, Czech Republic, Poland, Hungry, Slovakia & Thailand.

Justification:The company, Tesco overtook such a company which was there in the marketas a market leader for nearly a hundred year. To accomplish such objective,they definitely had the operational efficiency and managerial skills. As a result,they held the highest market share in the retail grocery industry which wasalso diversified as they had business in other neighbor countries.

Tesco had a p lanned electronic venture that was ini t iated in September

1996 and they fol lowed the go od w ork by entering into th e cyberspace.

Relatedness:

The Tesco Company used a conventional telesales mail order service whichwas followed by a shop-at-home alternative, built on a CD-ROM basedcatalog. After that, they went for the direct internet based service and wassuccessful to attract 500,000 online customers through 100 of its onlinestores.

Justification:As the success story of the company began in the 90s and at that verymoment they introduced the technological staffs in their service providingchain, so it is pretty obvious that the electronic venture reached its initialobjective and the company was on their way up to become one of the marketleader in the online grocery business not only in the UK but alsointernationally.


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Tesco had the onl ine compet i t ive advantage, which w as only centered to

their core service of grocery produ cts.

Relatedness:

The E-commerce director Mr. Mason was knowledgeable about the fact thatthe company got the competitive advantage through the IT department. AsTesco showed a tremendous progress by launching a website on a shoestringbudget with a group of Dell servers and standard; they were looking for thescalability of their system where there would be no complain from theconsumer perspective.

Justification:The golden time period for the company was the middle of the 90s, wherethey not only earned a good amount of profit, but also become the marketleader in their specific business arena removing one of the biggest of all timefrom their way. It was only possible by bringing something new strategically,and that was their relative competitive advantage as they were the mostadvance company in the technological perception.

The part icular com pany had the best distr ibut ion network at that t ime

and it was o ne of their integral part toward the suc cess story .

Relatedness:

The internal environment of the company was effective enough to keep theiremployees motivated and in a process they delivered the best distributionalnetwork at that time. They operated 13 strategically located warehousesthroughout the country, where a typical warehouse was good enough to cover300,000 square feet and handle approximately 50 million units a year.

Justification:

The distribution channel is one of the most important thing in a operational

company among the supply chain management. And the case providedevidence that the employees and the mid level management were effectiveenough to bring out the best and provide the customers with the deservingservice in compare to the charges that they asked from the consumers.Because of the effective distribution channel, they were successful in theonline delivery procedures which eventually boosted their performance ofbecoming the market leader.


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WEAKNESS

Tesco had a disburs ement issue where there f inance prof i t was

imp acted by b ad debt from c redit card users and too many discreet

insu rance claim.

Relatedness:Despite the promise of convenience and the fertile landscape of a highlyconnected target audience in the UK, many of the companies were facingserious financial troubles including Tesco, as they were facing a lot ofallowances for doubtful accounts, which was happening because of the credit

card services as people were providing bills with loans taken from variousbanks and it was not at all a good practice on behalf of the company.

Justification:As it is mentioned in the case that, when Tesco was looking for capturing theUS market, they were initiating opportunity for the local customer to makepayment over the credit card, as a result, the on credit sale were forcing thecompany to hold a significant amount of allowances for bad debt and thecollection method was ineffective. So financially the company was losingprofit on uncollected accounts receivable.

Tesco was trying to g et new markets and custom ers over the At lant ic,

throug h other non-food prod uct wh ere they were facing obstacle from

other specia l izing companies l ike Amazon.

Relatedness:As Tesco were trying to go beyond the limit of domestic market, one of themajor invested markets was the US market. On the process, they were in adirect competition with such a company which was already specialized in thatparticular sector. The non-food services were the target that Tesco were

looking for, and which was the competitive advantage for another marketleader, Amazon; and that was one of the major weaknesses of the companyin the operational strategy.

Justification:Amazon was the market leader in selling non food products, which was not azone of specialization for the company, Tesco. As a result, it was astrategically war between two giants in the market, where Tesco was trying tostabilize and initiate business competing with Amazon. This strategicallyoriented decision was not well thought and it could be considered as one ofthe major weaknesses of the company.


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OPPORTUNITY

Becom ing the best in the onl ine sel l ing sector of gro cery produc ts

wo uld be an opportunity for the company, as they could emph asize

mo re into the exist ing strategy and create an enormous value towards

their custom er.

Relatedness:Jupiter Communications, a respected Internet consulting firm, reported thatonline grocery shopping alone would grow to 2.5 billion by 2004 in the U.K.,accounting for 19% of all online purchases. This created an even greatersense of urgency among the leading companies to introduce new online

models or risk obsolescence fairly soon.

Justification:Statistically, the evidence was leading to a believe for the company that if theystuck to the current business strategy and continue to modify it for thebetterment of it, the market share wont fall and it will a significant amount ofprofit up to next certain years. It is prove that, this could be an opportunity forthe company to continue what their competitive advantage was and they maybuild onto that to become one of the superior in the grocery online retailingmarket.

Tesco could target the bigger side of the globe to expand their bus iness

on the basis of their core service and b ecome one of the largest

mu lt inat ional brand.

Relatedness:In terms of digital preparedness, the picture was quite bleak but encouragingat the same time. The Economist Intelligence Unit (EIU) reported that only30% of the U.K. population was online compared to nearly 50% in the U.S.While this could be interpreted as a sign of untapped potential, it also signaledthe steep climb that lay ahead for online retailing. Technology Observatory,

although Europe accounted for only 1/8 of all worldwide online sales in 1998,it was expected to generate 2/3 of the total by 2002.

Justification:As the materiality level of potential customer was higher in the western side ofthe globe, it was a clear indication for Tesco that if they could accomplish toestablish their business in US, they would be able to penetrate 20% morecustomer geographically. Not only that, as it was the significant data of all, butthey also could target the Asian countries, as Amazon was the only onlineshopping option at that very moment.


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THREATBeing the number one at that t ime period cou ld be the threat for Tesco,

as every comp et itor in th e market would n aturally target the succ essfulbrand in the indus try.

Relatedness:Sainsburys was the storied granddaddy among U.K.s grocery chains, knownfor its attention to detail and quality of produce. It connoted more of anupscale shopping experience than either Tesco or Asda (the Walmartcompany). The company had recently acquired Shaws, a chain of grocerystores in Massachusetts, U.S. It had also been dabbling in online sales forsome time. It started with an experimental contract to provide employees ofHewlett Packards Bracknell plant the option of buying their groceries online.

Justification:The new comers will always look towards the trade efficiency of the mosteffective company with the best competitive advantage. Based on the case,Tesco was the number one in the online grocery selling service and in thedistribution of the goods towards the customers. That could make themvulnerable to competition and many of the other companies in the industrycould enforce them to commit business failure.

People most ly kn ew Tesco for their service of fresh grocery items that

they sold to the cus tomers in retai ls and also v ia onl ine shopping

stores; this may con gested their operat ions to gro cery items o nly

com pare to other non-food items.

Relatedness:

U.K. Retail consultants, Management Horizons Europe and Nelson Sofres,reported findings from a survey of a large sample of U.K. online shoppers thatshowed more than 30% of those surveyed reported that their last purchasewas from Amazon, 3.7% from Bertelsmann, and only 3% from Tesco. Besidesthat, Mr. Mason had seen recent sales figures showing that his online

customers shopped at Tesco mostly for fresh food.

Justification:As the stats represents that, though the Tesco company was on top in thegrocery market, but the growth of their sales through online shopping siteswere falling as Amazon was the overall best in selling products worldwide.Wal-Mart was there to get the market via the retail store. So, the threat forTesco was there that the company may become congested only to groceryproducts as their market and product development may face problems. Theemployees may lose their motivation in the process.


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Forecasting DemandConsiderations

Product/Service Demand

De f i n i t i o n

Service/ product demand refers to the willingness and the ability of thecustomer to purchase the service or product. From an economists point ofview demand is the relationship between the quantities of a good or serviceconsumers will purchase and the price charged for that specific good orservice.The term demand signifies the ability or the willingness to buy aparticular commodity at a given point of time.Businesses often spend aconsiderable amount of money in order to determine the amount

of demand that the public has for its products and services.

J u s t i f i c a t i o n

Tesco PLC is a British multinational grocery and general merchandise retailerheadquartered in Cheshunt, Hertfordshire, United Kingdom. In addition, theyare the largest grocery internet retailer in the world. Tesco, being rated aslowest cost supermarket for food by maintaining an unflagging focus ondelivering the best value possible to its customers makes the demand forTesco visible among customers.

Technology

De f i n i t i o n

Technology refers to the development of machineries by using scientificknowledge. Technology takes place when a person puts his scientificknowledge into practical use to solve problems or to invent useful things.Companies use the application of science integrated with the company goalsto create a suitable technology for them. The term can either be appliedgenerally or to specific areas: examples include construction

technology, medical technology, and information technology.

J u s t i f i c a t i o n Technology is critical in the success of Tesco PLC as the largest onlinegrocery store with a possession of superior IT support network. Its debut entryinto the world of cyber retailing in providing the internet based service can beconsidered as a revolutionary step towards the triumph. It has its ownInternet Service Provider (ISP) and a transactional Web site where customerscould log in to a central system to purchase groceries online.


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Financial Resources

De f i n i t i o n Financial resources are the cash funds generated by the company internallyand externally to fill up the deficiencies. In simple words, it is the monetaryamount that is available for a person or organization to spend in the time ofnecessities. Financial resources can be in the form of cash, liquid securities orcredit lines. Before going into business,an entrepreneur needs to secure sufficient financial resources in order tobe able to operate efficiently and sufficiently well to promote success.

J u s t i f i c a t i o n Tesco PLC is affluent financially which has led them to take innovativepractices into account. It spent between 130 and 150 million every year tostay abreast with advances in IT. In addition to the financial investment itsinnovative practices also focus on increased efficiency as well as reducedoperating cost simultaneously.

Organizational Growth

De f i n i t i o n Organizational growth means different things to different organizations.Indeed, there are many parameters a company can select to measure itsgrowth. The ultimate goal of most companies is profit, so net profit, revenue,and other financial data are often utilized as "bottom-line" indications ofgrowth. Organizational growth has the potential to provide small businesseswith a myriad of benefits, including things like greater efficiencies fromeconomies of scale, increased power, a greater ability to withstand marketfluctuations, an increased survival rate, greater profits, and increased prestigefor organizational members.

Justification

Tesco had grown from stride to stride to become the largest brick and mortargrocery chain in the U.K. and the growth still continues as the largest onlinegrocery retailer. In 2000, with sales of 18.7 billion and net income of 1billion, an increase of 11% shows the growth of Tesco in five years. However,a control over 15% of the fragmented grocery industry in U.K also indicatesthe hold of Tesco in recent days.


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Management Philosophy

De f i n i t i o n A truly effective management philosophy is a belief system that defines whatis truly important to everyone within an organization, particularly how peoplewithin the organization should be treated in pursuit of best business practices.An organizations management philosophy is the glue that joins everyone inan organization together so that they can all focus their attention on theattainment of excellence. The key differentiator is that a managementphilosophy isnt a set of specific business tasks or methods subject toimprovement. Instead its all about how people will be treated, not becausesomeone dictates it, but because thats the right way.

J u s t i f i c a t i o n

The management philosophy of Tesco comprises the innovative use oftechnology by the employees for sake of organizations success. However,Tesco concentrates more on leveraging its IT skills to increase efficiency indelivering customers. This emphasis had given the company a leg up in termsof the experience curve, having provided it the opportunity to get its internalhouse in order while meeting the challenges of conducting business digitally.

Forecasting Demand- Techniques

Trend Analysis

Definition:

Trend analysis in Human Resource is analyzing the current practices of HRaccording to industry standards. There could be various trends with respect to

number of practices of HR for instance trend analysis of compensation andbenefits in order to have an edge over other organizations or rather to becompetitive in industry. However, a staffing trend analysis is a critical aspectof developing a work force planning strategy to meet the objectives of acompany. Analyzing staff trends helps the business owner to identify issuesaffecting employee turnover, their impact on the company, the qualificationsand experience of staff attracted to the firm, and measures required to ensurethat the companys future staffing needs are met.

Justification:In 1919 Sir Jack Cohen founded Tesco as a small organization that sold

groceries to Londons East End markets and it was not until 1929 that Tescoopened its first store in Burnt Oak, Edgware and until then, all of its activities


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were primarily focused on selling to the retail trade. After 1998 it considerablyslowed down building new stores in the U.K. and specifically from 1996,

Tesco concentrated on its online endeavors with the help of differenttechnologies. Moreover, Tesco expanded its product line through offering bothfood and non-food items in order to become an end-to-end solution providerfor all the customers needs.

Managerial Estimates

Definition:Managerial estimates arethe opinions (judgments) of supervisors, departmentmanagers, experts, or others knowledgeable about the organizations future

employment needs. Whether any company is in the position of employeesurplus or shortage it is decided by managerial estimation. Opinions of theexperienced or higher level employees are being taken. It is done forconstructing proper human resource planning model.

Justification:After launching online grocery shopping Tesco promised its customersmaking home delivery within 2 hours after the order being received. Eventhough the entire process is automated from picking up the products to sendthe products to the delivery van the entire management system was strugglingagainst time. Therefore it was estimated that recruitment of additional 7000

employees would solve the problem.

Forecasting Supply-Techniques

Succession Planning

Definition:Succession planning is a process for identifying and developing internalpeople with the potential to fill key business leadership positions in the

company. Succession planning increases the availability of experienced andcapable employees that are prepared to assume these roles as they becomeavailable. It can also be stated that succession planning is a process wherebyan organization ensures that employees are recruited and developed to filleach key role within the company. Through the succession planning process,you recruit superior employees, develop their knowledge, skills, and abilities,and prepare them for advancement orpromotion into ever more challengingroles.

Justification:Initially Mr. Tim Mason was the e-commerce Director for Tesco. But after theconfirmation from the board of directors, Mr. Leahy informed that Mr. Mason
http://humanresources.about.com/od/glossaryp/g/promotion.htmhttp://humanresources.about.com/od/glossaryp/g/promotion.htm


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should be given the opportunity to head up the new division of Tesco as itsChairman since he had done well in nurturing Tesco Direct. Moreover, Tesco

Direct would be spun off as an autonomous entity consolidating all the e-commerce and web-basedactivities of the company.

Forecasting Supply- External Considerations

Government Policies

Definition:The word government policy refers to the decisions that are taken by theelected politicians. These are basically the plans and course of actions thatare being taken by the government of a country in order to ensure a betterstate of the country. The policies are also made for the ways of working or anyorganization. In other words, government policies are basically what agovernment decides.

Justification:In the pursuit of establishing brick-and-mortar growth strategies, Tesco had todeal with certain government rules and regulations. In the U.K., town councilsandmunicipalities had a very strong position of power and in many cases held

the final say on where stores were built, how long they would stay open, andhow big they would be. Therefore, Tesco used novel formats that weretailored to fit area-specific regulation.

Balancing Supply and Demand- (Shortage) Recruitment

Full-time

Definition:A person who works a full scheduled as defined by the company is known as

a full time employee. Actually this is a matter generally to be determined bythe employer as the duration of the working hours varies from one company toanother company. A full time employee earns more that a part time employee.Moreover, a full time employee is able to contribute more to any organization.

Justification:After launching online grocery shopping Tesco promised its customersmaking home delivery within 2 hours after the order being received. Eventhough the entire process is automated from picking up the products to sendthe products to the delivery van the entire management system was strugglingagainst time. Therefore, Tesco announced that it would employ additional

7000 employees to man its stores.


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Forecasting DemandConsiderations

Product/Service Demand (Strength

5 + Opportunity

5Justification

Tesco PLC possesses a very high demand among its customers due to theaccessibility of grocery store online where both fresh food and non-food itemsare available. Being the largest online grocery business, it has a highopportunity of capturing the market for non-grocery products abruptly. Forinstance, 500,000 customers got attracted towards Tescos online serviceduring the debut of the service indicating high demand of it and for this reasontheir service demand is ranked as 5 for both strength and opportunity.

Technology (Strength -5 + Opportunity

5)

Justification

Technology is ranked as 5 for strength because it is the biggest strength ofTesco in the form of advanced and superior IT operations due to whichInformation Week ranked Tesco as the best among British supermarkets interms of its IT operations. Tescos IT plays a key role in the acquisition ofscanner data, integration of the data with the inventory control system,customer accounts, and generating orders for supplies as needed. However,the success lies solely into the Tesco Direct a shopping site by Tesco IT

expertise which helps in strengthening its position in the industry as well asopens the door for future growth opportunities.

Financial Resources (Strength 5)

Justification

Financial resources for any company are considered as one of its strengthsand it is of no different for Tesco. Tescos financial resources are generatedmainly from its sales, alternatively profit. However, its reduction in operating

cost and growth in sales let the company gather enough financial resourcesfor investing in IT sector for upgrading the practices and for this reasonfinancial resource is considered as its strength with a ranking of 5.

Organizational Growth (Strength 5 + Opportunity 5)

Justification

With an increase in net sales from 12.09 billion to 18.7 billion and increase innet income to 1 billion, Tesco shows a tremendous organizational growth in

five years from 1996 to 2000. In addition, as of early 2000 the companyoperated 225 superstores, 220 supermarkets, 48 neighborhood stores, 42


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Metro stores, and 21 Express stores in the U.K. and also had operations inIreland, the Czech Republic, Poland, Hungary, Slovakia, and Thailand. The

financial escalation as well as the geographic expansion jointly strengthen theposition of Tesco and offer opportunities for future.

Management Philosophy (Strength 3 + Weakness 3)

Justification

The management philosophy of Tesco is ranked neutral and it proposes acontradictory position in indentifying and ranking SWOT. However, thephilosophy of sticking into leveraging the IT skills has been proved positive for

Tesco generating a high growth and income in the field of online grocerybusiness and thus ranked as strength-3. On the contrary, focusing intodeveloping only IT skills and not other management skills limits the abilities ofemployees and management itself and due to this the inflexible philosophy isalso considered as Tescos weakness with a rank of 3 again.

Forecasting Demand- Techniques

Trend Analysis- (Strength-5 + Threat-5)

Justification:

After moving into online shopping Tesco achieved a great success with thehelp of different technologies, even, A.C. Nielson, a market research companyrated Tesco as the lowest cost supermarket for food in al Europe in 2000 dueto their technological advancements. That was a major strength for thecompany and thus rated 5. However, customers started to complain regardingdifferent issues which eventually became a major threat for the company andthus rated 5.

Managerial Estimates- (Strength-5 + Threat-5)

Justification:After establishing the company as online grocery shopping, Tesco promisedits customers making home delivery within 2 hours after the order beingreceived but even though the entire process is automated from picking up theproducts to send the products to the delivery van the entire managementsystem was struggling against time and therefore it was estimated thatrecruitment of additional 7000 employees would solve the problem. However, itremained to be seen whether the additional manpower would solve the problem but itcan be a major strength if the company succeeds and a major threat for the companyit fails. Therefore, it is ranked as strength 5 and threat 5.


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Forecasting Supply-Techniques

Succession Planning- (Opportunity-5)Initially Mr. Tim Mason was the e-commerce Director for Tesco. But after theconfirmation from the board of directors, Mr. Leahy informed that Mr. Masonshould be given the opportunity to head up the new division of Tesco as itsChairman since he had done well in nurturing Tesco Direct. However, Masondid not approve of the proposal yet and if he does approve it would give amajor opportunity for the company to do well in the future and thus it wasranked 5.

Forecasting Supply- External Considerations

Government Policies-(Weakness 5 + Threat-5)Justification:In the pursuit of establishing brick-and-mortar growth strategies, Tesco had todeal with certain government rules and regulations as in the U.K., towncouncils andmunicipalities had a very strong position of power and in manycases held the final say on where stores were built, how long they would stayopen, and how big they would be and therefore, Tesco used novel formatsthat were tailored to fit area-specific regulation. As due to government policiesit could not expand its business as anticipated and changes in thegovernment policies impose threat for any company, it is counted as both

weakness and threat. Therefore, government policies are ranked asweakness 5 and threat 5.

Balancing Supply and Demand- (Shortage) Recruitment

Full-time- (Strength-5 + Threat-5)Justification:After launching online grocery shopping Tesco promised its customersmaking home delivery within 2 hours after the order being received. Eventhough the entire process is automated from picking up the products to sendthe products to the delivery van the entire management system was strugglingagainst time and therefore, Tesco announced that it would employ additional7000 employees to man its stores, but it was yet to figure out whether thisadditional employment would solve the problem or not. If this solves theproblem then can be counted as a major strength and if this does not do sothen would be counted as major threat. Thus recruitment of full timeemployees is ranked as strength 5 and threat 5.


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Problem 1

Even though Tescohad thousands of employees, it doesnot have a proper HRdepartment to maintain recruit, retain, training and development process.

Recommendation:

Tesco must have a proper HR department for monitoring all of their employees.

Justification:

Since Tesco was founded in 1924, the companyhas continually grown and developedas thefood retailing market has changed, respondingto new opportunities andpioneering many innovations.It needed an extreme good distribution channel which ithad and a lot of man power to monitor it. After starting the operation over internet theneed to execute distribution process was very necessary. So in order to do Tescomust have a Human Resource department to recruit the right person for the right joband execute the whole operation effectively and efficiently. If Tesco has a properHuman Resource Department monitoring all of their employees, then the deliveryprocess run more smoothly with the proper employee who has the proper skillset for

the job and increase the value of the company to the customers.

How it will be implemented:

In order to implement this recommendation Tesco needs to keep in mind their currentemployee. Depending on the number of employee, the size of the department ofHuman Resources should be determined. There can be several employees to assistthe HR head. They must recruit someone who has previous experience in HumanResource field. The head of HR must have vast knowledge about distribution channelat different location. He should also have the technical knowledge and familiar withthe online shopping operation. After developing the Human Resources Department,

the head of HR must start an evaluation process to find out how the currentemployees are performing. Since there are a lot of operations of Tesco, e.g.delivering the product after receiving the online order, maintaining the storehouseetc. the performance of the employee is very important. Also because of theexpansion of the operation into online, the requirement for recruiting and developingtheir skills is very important for the HR department.

Who will implement:

Mr. Leahy, the CEO of Tesco, should implement this recommendation. Also Mr. TimMason, e-commerce Director for Tesco must be present for the selection process for

the head of HR. So the Top Management is liable for establish an effective HumanResource Department.


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Where it will be implemented:

This should be implemented in Europe where the main operation is occurring. TheHR department must be flexible for the evaluation process as there is a massivedistribution process. The beginning of the process must start in U.K. and after that itshould be done in other country where the operation would be expanded.

When will be implemented:

This process must be implemented as soon as possible. The process should be startat U.K. after starting the operation in the internet. Then the same process should becarried on after expansion.


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Problem 2:

Even though Tesco had 500,000 online customers in their debut and even more

after, they did not have proper IT infrastructure and backdated technology which ledto complaining of the customer for delays in accessing Web pages of Tesco.

Recommendation:

Tesco should build up a strong IT infrastructure in order to serve the customer oninternet.

Justification:

Although Tesco had shown tremendous technological savvy in launching its Web siteon a shoestring budget with a group of Dell serversand standard, off-the-shelfsoftware packages,Just as soon as the site went online, some customers begancomplaining about the inordinate delays in accessing Web pages at certain times ofthe day. It was ruining the image of the company. The company was able to attract500,000 online customers, accepting online orders at 100 of its stores, after its debutin online shopping. Mostly the time conscious people shop over the internet. If theyfound delay in the server, it wastes their time as well as destroys the image of thecompany. So Tesco should build up a strong IT infrastructure in order to serve thecustomer on internet.


In order to establish an effective IT infrastructure, Tesco first need to invest moremoney into this sector. The Finance Department must consider the budget for thisdevelopment. The top level management of Tesco should take advice from theexperts in this field. Developing an effective and advance IT infrastructure requiresquite amount of time. During this period the Human Resources Department need torecruit new employees for operating the whole process. There are lot of graduatesand engineers in U.K. This job does not need that type of experience as the processitself would be latest one. So there has to be a training period for the new recruits.

The advertisement should be there in order to attract graduatesfrom the pool. Tescomust keep in mind that there are a lot of competitions going on in the online shoppingindustry. So they need to select and retain the best employees in their company.

Who will implement:

First, the decision has to be made by Mr. Tim Mason, e-commerce Director forTesco. After that, the Financial Department needs to allocate the budget forimproving the IT infrastructure. Finally, HR departments need to find the employeeswith the necessary skills to run the IT department.


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Where will be implemented:

This should be implemented in Europe where the main operation is occurring. The

server would be a cloud server so that location is not pinpointed. Then theinfrastructure should be developed in the warehouses and the stores.


This process must be implemented after allocating the budget. The experts opinionregarding this is also very important. After confirmation from every department, thisshould be implemented as soon as possible.


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Problem 3:

The competition was very high for Tesco and it was losing market share.

Recommendation:

Tesco should first shore up the U.K. market by expanding within the country byopening up more warehouses and increasing the number of vehicles to deliver theproducts to the customers.

Justification:

The competition in U.K.s grocery chains was very high. There were Sainburys,which was the storied granddaddy among U.K.s grocery cha ins, known for itsattention to detail and quality of produce.There was Asda, the Wal-Mart company,had been offering a service it called asda@home for 5,000 lines of productsmanaged from two picking centers in Croydon and Watford. There was Safeway, thefourth largest grocery chain in the U.K., which became the first grocery chain to offer2,750 lines over the Internet with free delivery throughout U.K.According to a reportfrom the European Information Technology Observatory, although Europe accountedfor only 1/8 of all worldwide online sales in 1998, it was expected to generate 2/3 ofthe total by 2002 In order to sustain in the market and capture market share Tescomust expand them to reach the customers more quickly and open up morewarehouses, increasing the number of vehicles to deliver the products to thecustomers.


There were 13 strategically located warehouses or distribution centers of Tescothroughout the country.In order to open up a new warehouse, top level managementshould first notify the operational manager to find the suitable location to open up thenew warehouses. Finding the perfect location is a big challenge. Since the deliveriesoccurred in waves depending on the nature of goods delivered there should morevehicles or vans in order to deliverthe product to the customers. TheFinance Department shouldallocate the budget for this process.For the non-food products delivery,such as linens, office products,tableware, or kitchen equipment, itcan be outsourced by other deliveryservices. That way the companycan spend their budget on vanswith the refrigerator to deliver thefresh food or groceries to thecustomers. Since the transportation

infrastructure around denselypopulated areas was not adequate,


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it also meant that Tesco drivers werefighting rush-hour traffic, all of which contributedto missed and delayed deliveries. If there were frequent physical warehouses andstore along with the vehicles, then Tesco could easily serve more customers withinthe country. The vans should be purchased in bulk in order to cut some of the cost.The CEO and director of Tesco should look over this whole process.

Who will implement:Mr. Leahy, the CEO of Tesco, should implement thisrecommendation.Also Mr. Tim Mason, e-commerce Director for Tesco mustwork withthe operational manger closely to implement the strategy. Beside that FinancialDepartment would look after the total investment of the budget.


This would be implemented in the suitable places in U.K. The new warehouses mustbe building up in such place from where it would be easier to deliver the product. Inevery warehouse there should be readied vans.


This has to be implemented after through market research. Opening up an effectivefacility is very challenging. In order to grow the Tesco should expand their operationas soon as possible.


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Problem 4:

USA was bigger market than UK and online store like Amazon, Peapod etc. was

already there; so how to penetrate the bigger market in USA.

Recommendation:

Tesco should only focus on groceries items first to the customers from the onlinewhich was their specialty in USA market and implement Total Quality Managementsystem.

Justification:

If Tesco wanted to sale its non-food business such as books, videos, music,computers, electronics in USA, it would have to prepare for a frontal assault onAmazon. Amazon, Netgrocer, Steamline was already in the online shoppingbusiness. The only way to penetrate the USA market is to focus on the strength ofthe Tesco which was delivery of the fresh foods on time. Beside that only 2.8 % ofU.S. consumers used the Internet to shop for groceries and it was due to the inabilityof the companies to offer a fail-proof delivery system. So it was great opportunity toprove their efficiency at USA to increase the customer and after building up theirbrands by providing the groceries service in USA, then they should focus ondelivering the non-food items to compete against Amazon.com.


In order to implement this recommendation, first the Mr. Tim Mason, e-commerceDirector for Tesco, must make the decision to expand their operation into USA anddiscuss it with the CEO. Then they should arrange the budget for this operation.Finance department must consider the budget and allocate the investment. In orderto open up Tescos operation at USA, firstly they need to have warehouses and Vanswith refrigerator to serve the customers. They need to open up stores but not thatfrequently as this is going to be focused mostly on online shopping. Again there hasto be an excellent IT infrastructure. The HR department should be there in order torecruit the employee locally for the process of the delivery of the goods. Tesco mustfocus on Total Quality Management system at USA. Building up their brands to thecustomers is a big challenge at the beginning. So Tesco must purchase a lot ofvehicles in order to deliver the product on time.

Who will implement:

Mr. Leahy, the CEO of Tesco and Mr. Tim Mason, e-commerce Director for Tescoshould implement this. Finance department should look after on allocating the budgetfor the whole new operation at USA and Human Resources Department should lookafter recruiting the new employees at USA. Operational Manager must find the best


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location to open up the warehouses and finally the IT department should focus onestablishing high end IT infrastructure.


The whole decision would be made in U.K. After that this would be implemented inUSA. In different states of America the service should be provided by Tesco.


This strategy has to be implemented after expanding the warehouses in U.K. Afterexpansion in Europe there would be enough capital to open up the operation in USA.

So after expanding at Europe the expansion at the USA should be start immediately.


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Problem 5:

After entering into market from Europe into USA or Asia how can Tesco build their

brand.

Recommendation:

Tesco must develop a marketing department with the help of HR department andpromote more toput themselves in a good position in the customers mind.

Justification:

The U.S. consumers had not really taken to online grocery shopping in quite thesame way as those inEurope, especially the U.K. According to Forrester Research,only 2.8% of U.S. consumers used theInternet to shop for groceries.The poor rate ofconverts was blamed on a variety of factors including the inability of companies tooffer a fail-proof delivery system, the sprawl into suburbia that required complexmathto figure out delivery routes, and the general lack of a fulfillment infrastructure. Tescohad great experience regarding this and since they are going to operate for the firsttime in USA market, they will be unknown to most of the potential customers.


First the director of Tesco needs to build up amarketing department at USA. The marketingdepartment should be responsible for promotionalcampaign. The HR department of Tesco shouldrecruit locally from USA for marketing department.For this purpose Tesco needs creative people.There are a lot of fresher from the art school in USA.The HR of Tesco should recruit them for crating theadvertisement. Beside that they can offer jobopportunity to the business graduate from USA. For

the promotional purposes they can do TVC,telemarketing, Outdoor marketing, online ad etc.Finance department needs to allocate budget for allof this. If they can expose their brand morefrequently to the customers then customers wouldbe interested about them and after that Tesco needsto show their performance to them.

Who will implement:

Mr. Leahy, the CEO of Tesco and Mr. Tim Mason, e-commerce Director for Tesco should build up theMarketing Department. The Human Resources


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Department needs to select and retain the finest marketer from USA. Finally, Financedepartment should look after on allocating the budget for the promotional purposes.


This will be implemented in the Tesco brunch at USA. The promotion will be carriedout different states of USA. Beside that the ads will be in the internet as well.


This has to be implemented immediately after opening up the operation at USA.

Promotional campaign should be always there in order to expose more of the Brandto the customers. So its a continuous process.

Tesco Case Solution

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