SWOT Analysis
It is an analysis tool that can be used to analyze the organizational environment of Tesco in order to point out its strengths, weaknesses, opportunities and threats. The company is going through a rough patch, and the new boss needs to initiate change in the organization to turn its fortunes around. Given that he is new and probably unfamiliar with much of the company and the retail industry, SWOT analysis will be an effective tool to show Mr. Dave Lewis, the strengths of the company. He should capitalize on those strengths to move it in the right direction (Campbell and Craig 45). Alongside strengths, the tool also reveals the weaknesses that the company has and need to work hard in other areas in order to compensate for those weaknesses as it seeks to eliminate them. The first two elements of the tool, Strengths, and Weaknesses analyze the internal environment of the business and will reveal the internal causes of the poor performance of Mr. Clarke’s leadership.
The last two elements of the analysis tool, Opportunities, and Threats will analyze the external environment of the business (Campbell and Craig 46). The new boss together with the top leadership will have a clear picture of the opportunities that exist in the industry that the company can exploit in order to reclaim its position in the industry. The opportunities will arise from the weaknesses of the competitors and any niches that exist in the industry (Campbell and Craig 46). Apart from the opportunities, the analysis will also reveal the threats that the company is facing in the industry. Some of these threats will include the “hard discounters” that are taking away the company’s customers due to the squeeze on real wages. SWOT analysis is, therefore, the most suitable tool to use in analyzing the organizational environment of Tesco.
PESTLE Framework
PESTLE analysis is essential for an organization of Tesco's magnitude. The company has its presence in several nations around the world and, therefore, faces several macro business environmental factors that affect its operation either positively or negatively. It is important for the potential impacts of such factors to be known so that the management can plan on how to cope with them (Harrison 127).
Political Factors
Tesco is ranked the second largest retail business in the world based on sales. Considering that the retailer deals mostly on food stuff, it is obvious that it has many legal obligations to contend with. It has to meet various health standards set by various governmental jurisdictions in which the company owns a store. For instance, when the company has a store in a predominantly Muslim country like Turkey, it has to abide by the halal regulations in such countries (Campbell and Craig 87). The company, therefore, faces the prospects of having rules and regulations affecting its business changed in any of the countries it operates in including the UK. As the business environment changes, several countries are also instituting regulations intended to protect its industries and citizens. For Tesco, operating in different countries exposes to possible changes in labor regulations that might require it to pay higher salaries or to attain certain operational standards. Such changes have an impact on the profitability of the company and should be taken into account.
Economic Factors
Economic factors such as the demand for a product, product prices, and profits for Tesco are influenced by interest rates and inflation which are external factors for Tesco. The levels of unemployment in the economy also dictate the consumers' purchasing power and thus, the revenues that a business like Tesco can post in a financial period (Baye 78). Any unfavorable changes in any of these factors would affect Tesco adversely. Increased inflation would reduce the purchasing power of consumers and some segments of the Tesco’s business such as that selling clothing would be adversely affected (Baye 78). The food stuff segment would have a minimal effect since food is a basic commodity. The economic conditions in the UK are particularly important to Tesco considering that almost 75% of its business operations are in the UK.
Social Factors
These are factors that relate to demographics and the lifestyles of the population that Tesco is serving. The company should monitor demographic trends in the markets it ventures in so that it can predict possible future demand changes and plan for it. Tesco is in the food business and currently most consumers are inclined into eating healthy foods. According to Campbell and Craig, (88), it is incumbent upon a company to identify these lifestyle trends and adapt its stocking of food stuff according to customer preferences. Tesco has once responded to the social changes in its external environment and included non-food stuff in its stores.
Technological Factors
Technology is changing on a daily basis. Technological advancements have presented new ways of doing business and interacting with customers. The continued advancement in technology is influencing the manner in which customers want to do business. For instance, an increased number of customers are turning to online shopping as an efficient and time-saving means of shopping (Campbell and Craig 93). Businesses that do not embrace such technological advancements will lose some of their clients to competitors. Tesco has in the past responded to such technological changes by introducing electronic shelf labeling, electronic points of sale, electronic self-check-out systems among others. It is, therefore, important for Tesco to monitor such technological changes and implement those that will make shopping efficient and interesting to its current and potential customers.
Legal Factors and Environmental Factors
Legal factors that may impact on Tesco's operations include the imposition of price ceiling in some countries where the company operates its stores. Legal implications on Tesco can also be in the form of operational regulations set by local authorities (Baye 79). Environmental factors on the other hand, are those relating to the conservation of the environment in which Tesco operates. Some laws can be enacted by governments to help in conserving the environment. Such laws may affect the operation of Tesco. For instance, laws banning of polythene bags will affect Tesco because it uses the bags for wrapping in some countries (Campbell and Craig 93).
Balanced scorecard: advantages and disadvantages
A balanced scorecard is a performance evaluation tool that appraises the performance of an organization on the basis of four perspectives (Chai 81). The four perspectives include financial, learning and growth, internal processes and customer satisfaction. It is an improvement of the traditional tools that only focused on the financial aspect of an organization.
Advantages
The balanced scorecard gives a wider picture of the performance of an organization as it does not concentrate only of financial perspectives. By taking the four perspectives into consideration, the tool ensures that the stakeholders get a wider view of the firm’s performance. In addition, the tool aligns performance evaluation to the strategy of the organization. It breaks down the firm’s strategic goals into measurable targets. It also encourages a long-term approach to organizational performance. The learning and growth perspective relates to the long-term performance of the organization (Chai 83). Finally, the tool enhances stakeholder acceptance since it incorporates all the stakeholders of entity. Shareholders are catered for in the financial perspective, employees and customers in the learning and growth perspective and customer satisfaction perspectives respectively.
Disadvantages
Adopting and implementing the balanced scorecard is expensive hence it may reduce the profits of the organization. Information on the other perspectives except the financial perspective is incomplete in most organizations. Furthermore, employees and other stakeholders may resist its implementation.
Using the balanced scorecard
Recommendations on appropriate measures
Financial perspective
The financial performance of Tesco can be measured through sales growth, market share and profits. An organization experiencing growth in quarterly or annual sales is performing well financially. In addition, profit is the main interest of shareholders and other stakeholders. A company can only be financially stable if its operations are profitability. The results of Tesco indicate that its financial performance is not at par with the stakeholders’ expectations. The company issued a profit warning to its shareholders showing that its profitability is declining. In addition, the decline in quarterly sales indicates that its financial performance has gone down. It experienced a decline in sales for three consecutive quarters. The drop in its market share also shows that its performance is declining. Worse still, the decline in market share is in Britain where the company derives two-thirds of its total revenue.
Customer perspective
This perspective measures how well Tesco satisfies its customers. Measures in this perspective include price relative to that of competitors, customers’ response to the Tesco’s new products and the number of repeat purchases. Tesco is not responding well to the needs of the customers. The company must charge fair prices in order to keep its customers. Apparently, Tesco charges about 5% more than its closest competitor, Adsa. This has led to many customers many of its customers shifting to the competitor. Furthermore, the online sales introduced by Philip Clarke failed to meet its goals. It is said that Philip Clarke did not understand the customers he purported to serve. Customers also prefer hard discounters to Tesco as the hard discounters’ store are more appealing hence the customers keep on coming back. Customers value either quality or low price or both. Under the watch of Philip Clarke, Tesco failed to show its identity on the two aspects.
Innovation and learning perspective
The measure in this perspective focuses on employee development. The number of employees promoted to executive positions shows how well the company is doing in developing employee skills. The successor to Philip Clarke, Dave Lewis is an outsider indicating that Tesco is not doing well in developing its own employees.
Internal business processes perspective
Measures under this perspective include unit cost, new product development and adaptation to changes in the market. Tesco charges higher prices than its competitors and this may be attributed to its high unit costs. Tesco also seems to be lagging behind in adapting to the revolution taking place in the market.
Change framework
The management of Tesco can use the Kurt Lewin’s approach of unfreezing, change and refreezing, to introduce and implement change in the company (Cummings and Worley 22). The company needs radical organization change since it is failing to adapt to changes in the market. The revolution is happening too fast, and a lot of things are changing at once. The appropriate change framework should start with the identification of forces for and those against change. The satisfaction of customers’ wants is a motivation to change Tesco’s processes. Stakeholders do not agree on the best way to transform Tesco, and this may be a barrier to the implementation of the strategy adopted by the new boss. Some are favoring the grouping of the stores into lower, middle and upper tiers with each level having a different pricing. Others recommend price wars. The process is challenging since Tesco must satisfy the needs of all stakeholders. The management should also identify the stakeholders and their interests as these interests are either driving forces or restraining forces.
After the identification of forces, the management should establish ways of unfreezing the restraining forces in order to allow smooth implementation of the proposed change. Unfreezing the forces may involve addressing the concerns of stakeholders and training employees to improve their skills in order to suit to the new roles, among other ways. For instance, a price cut may not go well with some shareholders who may argue that it will reduce profits. Furthermore, changes requiring considerable capital may not accepted by the shareholders. Unfreezing such forces would involve explaining to the shareholders the importance of the change and linking the change to the long-term profitability and growth of the Tesco (Cummings and Worley 22). Implementation follows after unfreezing restraining forces.
Kotter’s 8 – Step change model
The new boss of Tesco should create a sense of urgency for change by explaining to the stakeholders that company’s performance is declining, and that change is necessary before the competitors take over its control (Cummings and Worley). Secondly, he should form a coalition by rallying powerful stakeholders such as the directors to support his proposal. Thirdly, create a vision for the change by identifying what the change aims to achieve and strategies for achieving the vision. The vision will enable the stakeholders of Tesco to understand the need for change. He should then communicate the vision to all the stakeholders involved. The fifth step involves removing obstacles by unfreezing restraining forces as in the Lewin’s model. This can be done by involving stakeholders and holding meetings with resisting employees to convince them to support the process. The sixth step is to create short-term wins by celebrating small with employees (Cummings and Worley). The next step is to accelerate the change process by training and developing employees, promoting employees, among other ways. The eighth and final step is to institutionalize change by making it part of the organization culture.
Step 1: Create urgency for change
Step 2: Form a coalition of powerful people
Step 3: Create a vision for change and the strategy to achieve the vision
Step 4: Communicate the vision
Step 5: Remove obstacles
Step 6: Create short-term wins
Step 7: Accelerate the change
Step 8: Institutionalize change
Works Cited
Baye, Michael R. Managerial Economics & Business Strategy. Boston: Irwin/McGraw-Hill, 2000. Print.
Campbell, David J, and Tom Craig. Organisations And The Business Environment. Amsterdam: Elsevier Butterworth-Heinemann, 2005. Print.
Chai, Nan. Sustainability Performance Evaluation System In Government. Dordrecht: Springer, 2009. Print.
Cummings, Thomas G, and Christopher G Worley. Organization Development And Change. Mason, Ohio: Thomson/South-Western, 2014. Print.
Harrison, Andrew L. Business Environment In A Global Context. Oxford [England]: Oxford University Press, 2010. Print.
Van Tiem, Darlene M et al. Fundamentals Of Performance Improvement. San Francisco, CA: Pfeiffer, a Wiley imprint, 2012. Print.
