Name: Gela Mocanu

Module: Financial Decision Making

Tutor: Raman Grewal

Submission Date: June 13, 2016

Word Count: 2480

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Tescos Steering Wheel

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Tescos Steering Wheel

Introduction.

The author will try thru this paper to critically analyse how Tesco used their

Balanced Scorecard (BSC) in order to measure management performance and will

try to advise how will be possible to improve future business performance (FBP)

having also relation with Key Performance Indicators and Organizational goals

A critically analyse of how Tesco is using The steering Wheel (TSW) will be also

revealed on the second part of the paper work, the goal of the author being the

identification of weak and strong points related with their activity.

TESCO Organizational Background

Tesco has been registered in UK since 1919 and from that time it was considered as

important retailer for food and grocery. Tesco was reporting to have 510,444

employees on 2014 managing over 6,000 stores in different markets (Tesco report,

2015).

The company performed excellent until 2012, having annual sales growth of 7,4

percent and with 5,5 percent growth in profits (Tesco, 2015).Unfortunately, starting

2013 they faced 23,5 percent drop in profits (Clark, 2013,BBC, 2013).

However, in 2014, Tesco was involved in the biggest account scandal and that

makes them more vulnerable in front of their competitors, Aldi and Lidle. Tesco tried

to obtain more benefits in front of other rivals by offering attractive discounted prices
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Tescos Steering Wheel

for food products but their strategy did not succeed facing more loss and being

controversially involved in organisational fraud (Rupert, 2014).

The Steering Wheel of Tesco was based on five levels of audit, considering

Customers, People, Community, Operations and Finance (Tesco report , 2012).

In order to satisfy their own organisational needs, Tesco was using the concept of

BSC and the author will try to elaborate on this paper the principles which are the

framework of the BSC .

Balanced Score Card of Tesco

Introduced as theory in 1992 by Kaplan and Norton, the BSC was further on

transformed in one strategic managerial instrument which allowed organisations to

analyse, compare and manage their performance and also to develop new

strategies for future development (Kaplan and Norton, 2002, 2007).

However, the BSC is still popular with organisations ,giving them guidance in order

to meeting organisational goals (McLaney & Antrill, 2014).

Pro and contra opinions are still surrounding the BSCs efficiency as a strategic

framework for management (Kaplan and Norton, 2007, Witcher and Chau, 2008).

In one hand, scholars are arguing that BSC it is a powerful instrument which will

allow any organisation to introduce and complete business strategies and PM

(Nirven, 2002). On the other hand is perceived as difficult to be used because of the

KPI that can be misused or misrepresented and can lead to organisational failure

(Marr, 2010).One more point to be considered is that BSC should be updated

permanently (Kaplan and Norton, 2007) and this is a time consuming process .

If some organizations are still using the terms introduced in 1992 by scholars
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Tescos Steering Wheel

Norton and Kaplan , others tried to adapt them and re- name it in accordance with

their specific area of interest (Atrill and McLaney, 2014)or they added new

categories(Horngren et al, 2014). Having the example of Tesco, they are calling

BSC as Steering Wheel, with five categories included in it. However ,for BSC there

is a strong relation between all these categories (Horngren et al, 2014) which mean

that any decline or improvement for one objective will cascade a cause-effect

relationship with another one (Atrill and McLaney, 2014).

As illustrated in Figure 1 Steering Wheel in Tesco case has five components:

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Tescos Steering Wheel

Figure 1 ,TESCO SW,Source: Tesco PLC, 2013.

Customers, People, Operations, Finance and Community.

Tesco vision is focused on client and main stakeholders satisfaction in order to have

increased FBP. However, they have included to the SW the community factor,

having as principal objective CSR involvement for their strategy (Leahy, 2009). They

re-arranged the presentation of their SW introducing Operations and People

factors ,fact which allowed them to be perceived as more consumer-focused.

(Leahy,2009)

The author will analyse how Tesco need to implement changes for accomplishment

of all five targets in order to assure FBP success.

1.Financial Performance Level

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Tescos Steering Wheel

In order to prove the efficiency of any organization Profit must be considered.

(Dechow, 1994)

However, the theory has many pro and contra arguments of many scholars arguing

that managers are more focused on maximizing their organizational profit (Blodget,

2012, Glunk, 2008; Wallander, 1999) but the real great organizations are considering

as the center of their activity the full process of serving the customer ,their own

employees and consequently the society.

The author believes that Tesco should adapt their strategy to this principle, providing

their clients with qualitative and affordable services and also in same time taking

care of their own employees wellbeing.

Disclosure in media about Tesco financial scandal brought in front of the public the

dilemma of trusting again such an organization. Because of this distorted image,

they need to adopt urgent transparency when it comes to their financial status report

Having as example Skandia, the Swedish insurance company who managed to

increase their profit and to build a solid relation with their stakeholders by making

public their financial report (Skandia Report Model, 2001).

During the first quarter of 2013 Tesco Profits fell around 23 percent so the need to

find out the correct strategy to regain the market it was mandatory. The author is

suggesting that having more realistic targets(for example 10 percent only) will be

more efficient.(Anexa 1)

Profitability can be as well Tesco objective. This can be evaluated using Return of

Capital Employed which it represents the link between the generated profit within a

limit of time and the capital which has been invested. (Atrill and McLaney, 2014).
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Tescos Steering Wheel

Observing that the ROCE value is considered as very important representation for

organization profit level being able to highlight the business performance ratio (Atrill

and McLaney, 2014) we can conclude that management should focus on actions

which will boost the value.

Shareholder Value is another important tool to measure the business performance

and it can be represented calculating the Economic Value Added (EVA).

EVA is the incremental difference in the rate of return over a company's capital cost

being used to measure the value a company will be able to generate from invested

capital. If EVA has a negative value, it means the company is not able to use

properly the investment while a positive one will prove profitability ,which is actually

the target for any solid business plan.

2. People Level

The People perspective is basically bringing in the centre of attention individual

wellbeing, considering here professional development and job satisfaction (Kaplan

and Norton, 1992).All these factors were proven as being very important for

increased productivity (Bass & Bass, 2008) because one happy employee is

considered loyal as well .Loyal employee will do his best to satisfy customers and

customer returning to same organizations means profit will be assured.

Important factor as well is the leadership style. According to different studies this can

nurture and boost creativity or can induce employee revolt (McManus et al,2008)

Considering Tesco case ,the employees trust and commitment for better solutions

need to be reinstalled (Bottom, Tripathi ,Chopra, 2015).They need to revise

organisational structure, implement ,analyse and supervise change management

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Tescos Steering Wheel

(Philippidou et al, 2008),to admit ,apologise and take responsibility for their action

which brought the organization to failure mode.

Staff should be trained and educated according to mission and vision of the

organization and having in mind at all time the KPI which should be followed and

accomplished. Even they will need to increase allocated budget for training, Tesco

should consider that a short term loss due to extra expenses will be compensated on

long run by well-trained teams which will be able to provide quality and efficiency in

return. (Jakupec and Garrick, 2000).

As reflection, from the Organizational culture point of view ,it can be considered like

a fail point for Tesco.According to Clegg (2011) Organizational culture can be

defined as the basic norms , assumptions and beliefs which are shared by

individuals in same organisation (Clegg et al, 2011). Employees at Tesco, should

learn and respect the organizational values and should be encouraged and

motivated to be a part of the culture because these pillars will be the one providing

the sense of appurtenance, stability and individual identity recognition. (Zwell, 2000).

Periodic appraisal-six months or yearly-is an important tool which will enhance the

communication between management and employees and will allow early detection

of training needs or prevention of escalating issues. All these factors will have

indirect action to enhance FBP. (Stiglitz, 2002)

Lastly, a competitive salary should be considered which will create motivation and

staff retention, an important factor if we are analyzing Tesco expansion project.

3. Customer level

In our contemporary world, Globalisation brought both, good and bad experiences to
8

Tescos Steering Wheel

international organizations (Bible et al ,2006).

Tesco focused on the expansion giving less importance with their direct relation with

their customers. (Weston, 2015)

As a profit organization, Tesco needs to place the clients needs, expectations and

requirements as their organizational Mission and Vision (Atrill and McLaney, 2014).

Stating this, the Customers opinion and feedback should be considered priority for a

wealthy business (Kaplan and Norton, 1992).

From the customers side, the reasons for Tesco fell were pointed as: high products

price, poor customer experience, reduced quality, and unfriendly ambiance.

The author advise that Tesco management will start implementing

a culture of excellent customer relationship , fact which will boost the market share

and conversely this step will increase organizational profit (Dibb et al, 2012).

This perspective could be achieved by assessing the training needs of the

employees and according to the results to provide adequate training to staff involved

in direct contact with clients. Involved in active communications and listening to its

customers or participating in mystery shoppers programs, paying attention for

customers complaints and learning from previous mistakes are few only solutions for

enhanced services

Considering the huge amount of data collected by Tesco from his customers it was

expected that this will bring a good base for their marketing purposes.

Reality showed the opposite, because they were not able to find out on time which

are the items not used anymore by clients, or what is the new trend or preferences

for them. (Tesco,2014)

A closed monitory system regarding clients feedback and the relation with
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Tescos Steering Wheel

preferences and needs will prevent them from being one step back from their clients

movements towards new brands or new products. Keeping the clients updated about

sales, campaigns and new items promotions will make them more attracted to visit

and buy as long as they feel their opinion is counted and their voice is listened.(

Fairfield et al .2014)

Starting 2010 till 2013, Tesco KPI related with suppliers and customers satisfaction

survey did not reach the benchmark and this is one of the causes which affected the

overall decline of the organization (Tesco, 2013). As per Atrill arguments (2013),

non-financial indicators such as clients satisfaction, suppliers delivery schedule,

timely response for orders, are playing important roles in overall performance.

Nevertheless, other KPIs, like staff relations with clients, customers return

percentage, new markets opening can be considered. Globalization, as only target

for organization can pressurise the managers (Castells,1997) Therefore ,expansion

should always be carefully studied and in case is detrimental for the company to be

hold. Tesco supposed to concentrate on achieving high level of management

expertise on their current stores, to work more on staff retention and building staff

trust, and those steps will be having huge impact of clients satisfaction as well ,as

explained on previous paragraph.

One of Tesco initiative in 1994 was to introduce a loyalty scheme, like a membership

card which got the effect of customer loyalty for some time (Fairfield et al,2014).

However, the scheme was not maintained for long time and became no more agreed

by their clients because the company failed to monitor customers preferences and

needs and did not adapt to their rapid changes in preferences due to multiple other

options from competitors. (Marr, 2009).

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Tescos Steering Wheel

However, loyalty cards as system for attracting customers are effective practice all

over the world.(Atkinson,2006) ) and Tesco should as well continue this program but

only after a better management of their monitoring system regarding clients needs

and feedback. When clients voice is considered , the organisation will be able to

apply change according to market trend. By promoting positive, proactive attitude

and innovation, customer satisfaction will be assured. (Minkara, 2014) .

4. Community level

From this perspective we need to consider how Tesco is involved with society

wellbeing and how they participate to improve this process.

KPIs which should play important role at this level are related with environmental

impact, CSR and local community support. (Porter et al,2006)

With 74.5 million donation for community in 2012,and only 55 million in 2015

(Tesco, 2015) Tesco shown good performance on the community side of the SW

being involved in charity actions and donations for poor families. Being

environmental friendly and promoting bio degradable products as part of their CSR

program ,they will attract customers involved in go green actions and activities and

will rebuild the trust of their clients.(Blazovich,2013)

5. Operations level

Tescos failed for Operations level and the economic scandal showed that the

organization were not transparent on their financial records.

Even having the third party auditors ,which could sense easily the risk of financial

manipulation, their involvement with Tesco stopped them for a deeper investigation.
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Tescos Steering Wheel

(Willmott, 2014). The author consider that employees should be following strictly the

set of rules and regulations regarding financial reports and they should be strictly

monitored and observed against this policies in order to prevent any other future

events .Repetitive mistakes should be promptly corrected either by punitive actions

either by enhanced trainings ,according to the level of the mistakes occurred.

Conclusion

As it was discussed in this paper the author can conclude that BSC represent an

important tool which allow any company ,but in this particular case Tesco,to measure

performance and to be able to find out the gaps for future improvements, according

to their strategy.

Tesco was using with success the tool in the past, in order to achieve their goals,

but it shows to be not useful anymore in the new situation and competition.

Adjustment regarding organizational performance ,having clear objectives structured

on PDCA and SMART KPI, transparency and clear financial statements should help

the company to regain their previous position on the market and to obtain profit

which will allow them to claim authority between other competitors.

We can conclude that the current Steering Wheel having important number of

levels to be observed can create confusion and difficulties to be followed.

Although there is no strictly regulations about the way which should be followed for

an efficient score card (Atrill and McLaney, 2014), the author considered that the

proposed SW will be more efficient focused on the most important factors:

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Tescos Steering Wheel

Customers, People,Operations and Finance.

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Anexa 1-Author Proposal for New SW

Finance
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Tescos Steering Wheel

Objectives Measurements Targets

Increased Revenue Profit Growth 15%
Increased Profitability ROCE 10%
Stakeholders Value EVA Positive

Operations

Objectives Measurements Targets

Social responsibility Waste management 10% reduction
Customer Satisfaction Customers feedback 85%positive feedback
level surveys
Happy to be part of our Suppliers Satisfaction 90%
business surveys

Customers
Objectives Measurements Targets
Regain Market stability Market Share Positive Increase 15%
We are happy to hear from - Customers feedback 85% Satisfaction
customers surveys 15%decreased
- Number of Complains 85% Satisfaction on
- Mystery Shoppers surveys

We will provide you the Comparison for prices Margin of 0,04 %

Best Value with competitors

People

Staff continuous training Training according to the 15% increased budget

needs assessment allocated to training
Staff development Performance management 80% pass rate for new
program trainings and qualifications
People opinion Employees surveys 80% staff satisfaction
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Tescos Steering Wheel