How the structure and culture of Tesco contribute to its organizational performance
Write an essay that describes the structure and culture of the organisation you have been involved with this semester. Analyse how these factors contribute to the organisation’s performance. Your essay should refer to relevant theories and models of organisational design and culture.
Tesco PLC is a company engaged in the business of retailing that started in 1919 at the East End of London. It sits its headquarters at Welwyn Garden City, United Kingdom with over 6,800 hypermarket/ supercenter/ superstores all around the world and an online presence (Tesco PLC, 2020). According to the Deloitte Global Powers of Retailing 2018, the company was ranked the eleventh largest retailer in the world with a revenue of $72,390 million revenue in the financial year 2016 (Deloitte, 2018). It is a market leader of groceries in the UK and its growth has been attributed to its organizational structure and culture.
Tesco's organizational structure
Mullins, (2016) explains the purpose of organizational structure as the basis for division of work among members in the business, and the co-ordination of these activities so that they are aimed at achieving the goals and objectives of the entity. Structure then is defined as the pattern of relationships among positions in the organization and among the members involved. Nwagbara, (2010) argues that the leadership strategy of Tesco under a hierarchical structure, is what has led to its success as a company. The company has two structures: one for the company as a whole (headed by the Board of Directors and top management) and another that is commonly used within each of the Tesco stores across the globe with the managers as the heads (Yusufzai, 2011). In June 2010, Terry Leahy, the Chief Executive Officer of Tesco retired after transforming the multinational business into the world’s fourth biggest retailer and top retailer in the United Kingdom (Deloitte, 2008). He became the global chain’s CEO in 1997 after working as a marketing executive for the company since 1976.
According to (Armstrong and Taylor, 2017), leadership is important and unless you know where you are going, you will never know the route to take in order to get there or even know when you have arrived. Armstrong (2009) contends that leadership is not just being in charge but it is a process that involves inspiring people to do their best and achieve the desired and common result.
Mullins (2016) agrees with Armstrong and continues to emphasize that leadership is all about motivating, inspiring, and influencing people to achieve the goals and vision of the organization through the activities that they carry out. During Leahy’s regime, the only variable that his leadership made a difference was when Tesco transformed and became much more successful than when he first worked for it as a leader (Useem, 2001). He recognized the importance of every employee and as leader ensured that he did the right things to push the company forward. Erkutlu, (2008) defines transformational leadership as where a leader in an organization moves the employees beyond self-interests through charisma, inspiration, individualized consideration, or intellectual stimulation.
Gomes, (2014) agrees that this form of leadership influences major changes in the attitudes, beliefs, and values of the followers to the extent that the vision of the company is internalized and the employees now achieve performances beyond expectation. Notably, this is the pattern that Leahy hinged on. As a leader, he focused on communication and making sure that the issues of the customers were made part of the re-engineering process of Tesco. The views of the customers and there general feedback was very important and not taken lightly. He negotiated with the people for best solutions, he put into place effective conflict resolution among staff members and showed general concern for the welfare of his people.
According to (Bryant, 2013), the former CEO believed in leadership that is down to earth, participative and close to customers and having great concern for welfare of the workers. He ensured that the products and services were low-priced but not cheap in quality. Nwagbara, (2010) asserts that the leadership technique involved sharing the vision with all stakeholders and empowering employees through involving them in change processes by giving them tasks to perform.
In addition, the managers at the different Tesco stores have been trained to work at “Every little helps” which is the company’s mission statement. It is their role to motivate the teams that work under them to deliver the company’s promise to its clients (Tesco Plc., 2020). The management believes that when they maintain a happy work force then they are able to deliver their best to the growth of the entity. Therefore their main role is motivating the large team and seeing to their welfare.
Huczynski and Buchanan, (2013) suggest that since the world has become a global village, managers are important in organizations to get the work done through people. They take on direct orders from the top leadership and follow through with the employees. The managers allocate the resources, take decisions at their level, motivate workers, and direct the activities of the employees. Prabha, (2014) agrees with the author and concludes that managers have the role to deal with employees, deal with diversity, improve quality and productivity, improve customer service, train the team and improve their people skills, and create a positive work environment.
The author’s argument is logical and with supporting evidence therefore it is correct. Notably this is because the transformation leadership model that former CEO Leahy introduced led to the success of Tesco and placed it among the top 10 best retailers in the world (Deloitte, 2008). It was due to employee and customer involvement in the various processes of the company that led to its growth. As of 2018, the company ranks 11th after change of CEO which implies that the leadership is up to the task (Deloitte, 2018). The company remains the leading retailer under the new leadership of Dave Lewis who was appointed in 2014 (Sabanoglu, 2020: Evans, 2014). The company in the financial year 2017/2018 had annual sales of approximately 39 billion pounds ranking at the very top of UK’s supermarket chains. In conclusion, Tesco under the leadership of CEO Terry Leahy introduced the mode of transformational leadership which grew the company to the success that it is today. The mode is still being used by the current leadership and managers and the company continues to thrive. Therefore, leadership is key in transforming a company and making it a success.
Armstrong and Taylor, (2017) define culture in an organization as the pattern of values, beliefs, norms, assumptions, and attitudes that may or may not have been articulated but shape the way people in the organization behave and do things. The authors further highlight values as what is believed to be important about how people behave, while norms are the unwritten rules of behavior. Izuogu, (2015) simply put culture as the “way we do things here”.
Yusufzai, (2011) argues that the “one stop shop” culture of Tesco is what has led to its success. When the business started, the culture was to provide cheap and affordable products. The Founder Sir Jack Cohen bought products in bulk at wholesale prices and sold them rather cheaply. He ensured that these products were of good quality to capture customers and have them being loyal to the entity. Over the years, the company has grown to offer three kinds of quality products. Organic products that are the most expensive, the middle group of products, usually a collection of Tesco and company branded products and the third group of the cheapest products such as ready meals, toilet rolls and bin liners.
Tesco’s desire to be a one stop shop led it offer its customers more products such as clothes, electrical goods, furniture and not just groceries. Dimitrova, Rosenbloom, and Andras (2016) explains that the importance of one-stop shops is to create more customer centric services where they can access multiple services. The model provides convenience and efficiency to clients thus gaining loyalty as well as revenue.
Pardalis, Mainali, and Krushna, (2018) explain that it is inevitable for the business adopting such a model not to expand. The organization is pushed to add more products and services in their stores and therefore expands as a business. The author’s argument is logical but lacks solid evidence. There isn’t enough evidence to support the hypothesis that the ‘one-stop-shop’ culture is what has increased the success of Tesco. Having a one-stop store increases revenue but there are more cultural factors that contribute to the success of an entity than just this one.
On the contrary, the company has been able to grow through the culture of innovation (Winterman, 2013). Tesco has evolved over the years from selling dry goods and Tesco-branded tea in the 1920s to having the first self-service store in 1948 to having a Green shield reward scheme in the 1960s. It was a scheme where shoppers were rewarded with stamps that could be used to buy gifts from any affiliated retailer. However, the scheme was phased out in 1977.
Regardless, the business continued to expand by adding more superstores, more branches on petrol stations, and high street shops in UK initially and eventually all around the globe. Wood (2012) highlights that in 1993, the company introduced the value range as a down-to-earth option that provides cheaper products that taste better, look better and are so much healthier. Tesco negotiates the best prices and bargains with the manufacturers and that is how it is able to have goods that are relatively cheaper than other retailers.
Sir Terry Leahy, the former CEO explained that the single most factor in the success of the company was the adoption of the loyalty scheme because one year after it was released in 1995, the supermarket become UK’s best retailer.
Karakas, Oz, and Rasit, (2017) define innovation as the introduction of new products, ideas, new methods, or modifying the old to create the new after a business compiles relevant data that pushes them towards growth. The authors explain that innovation is the most important competition method for any establishment. In a Forbes Magazine article, Wasik, (2016) speaks of how Apple, the world’s top technology company continues to excel because of its innovation. Certainly the culture of innovation is also a competitive advantage. An entity only has to find out the needs of the customers and innovate products and services that keep them interested in coming back.
At Tesco, they treat people how they want to be treated, every little help makes a difference as they interact with their customers on a day to day basis and they try so hard to satisfy their customers (Tesco Plc, 2020). Notably, this is what births constant innovation and it has become their competitive advantage over the other retailers. Emond, (2015) agrees that Tesco focuses on innovation in order to grow as a business. More than ever, the company predicts that the way that customers shop and pay for their purchase will change more over the next few years and the business is striving to be at the fore front of this change.
The author concludes that the company is customer-centric, they value the customer and go all the way for them. Over the years, the company has changed its processes and way of doing things in order to attract more customers and gain loyalty with the existing ones. The ‘one-stop-shop’ culture by (Yusufzai, 2011) is a subsection of the innovation techniques that Tesco has employed. The company is geared towards being above its competitors by collecting data and closely analyzing the needs and market trends of its market and creating ideas that keep their customers hooked to their products and services.
Tesco PLC is UK’s top retailer and the eleventh largest retailer in the world with a revenue of $ 72,390 million in the financial year 2016 and over 6,800 stores all around the world. The company has a hierarchical structure with two sub structures. One is for the whole company headed by the Board of Directors and Top management while the second is for the individual stores across the globe that has managers at its top with various ranked employees below. The former CEO Terry Leahy introduced the transformational leadership mode which drew the company to the success that it is today. It is a form of leadership where the leaders motivate and inspire followers to do their best in achieving company goals. The culture of innovation that revolves around the customer based principle of the business has also contributed massively to the growth of the company.
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