Understanding Organizational Performance
The focus of this paper will be on investigating an organization, their performance management system and our recommendations for the future. Historically performance management is defined as evaluation a firm through metrics such as return on investment and economic value added. Our analysis will cover not only the financial performance of our chosen firm, but also their values in behaviors as well as their objectives. Thus, we will ascertain if the current system of performance management held by the firm is aligned with their objectives and appropriate for their situation.
1.1 – Why is strategic performance management important?
Strategic performance management is a process where an organization develops its objectives, mission, and strategy, and measures and guides itself through management of key performance indicators or other success factors. Czarnecki (1999), states that measuring your organizations performance through each of the areas of most impact is essential for thoroughly assessing your performance. Thus when a firm like TESCO is preparing to make decisions they need to analyze a relevant data which can be converted into actionable information on their performance objectives. 1.2 – Describe the structure and plan of the investigation The structure of this investigation will be to first discuss the organization and its activities in the sector. Secondly, we will discuss the history of performance management of the organization and the relation between their systems and the actual performance. Finally, we conclude with highlighting any areas of improvement and making recommendations for senior management.
2.0 – Performance Management in TESCO
TESCO has employed a system called the TESCO steering wheel to handle performance measurement. This process is similar to the balanced scorecard created by Norton and Kaplan. The TESCO steering wheel was implemented in the late 1990’s and served as part of the critical expansion that the firm underwent as they explored innovative retail formats, product lines, and geographic areas. It can be attributed to their newfound success.
2.1 – Introduction to TESCO
The organization that we will be investigating will be TESCO. TESCO is one of the largest retailers in the world and an organization which has shown success in utilizing strategic performance management. There are several styles of performance management which range from Porter’s five forces, to lean management, to the chaos model. The model which was discovered in 1996 and has been one of the most popular is the balanced scorecard. This model which was discovered by Norton and Kaplan has been used by ¾ of European and Fortune 500 organizations (Balanced Scorecard, 2010). TESCO is unique in that it has implemented this model successfully. In 1995, Tesco surpassed its competitors Sainsbury’s as the top superstore in the United Kingdom. This catapulted its market shares from 15.4% in 1988 to about 29% in 2004.
Acquisitions include the famed convenience superstore, T&S plc and almost 900 stores around the UK. TESCO has a 30% market share in the United Kingdom and is dominating the market over its competitors. 2.2 – Why are they in business (Stakeholder or Shareholder?) TESCO is in business and highly successful because their founder was a driving force in setting up a foundation of a thriving market in the UK early on. He believed in piling products high and selling them at a cheap price. Since, the company has gone public they have placed close attention to the desires of the shareholders and places the fifth perspective of the steering wheel (financial) as a big component in the performance of their executives. Spitzer (2007) stated that holistic performance measurement enables management to continually assess the fruits of their labor with conducting a review.
2.3 – Strategic performance management of TESCO
In regard to investing in their workforce, TESCO believes strongly that human capital is one of their most precious resources. The organization has their “options programme” which is designed to focus on long-term strategic goals for employees. They also have on job training, which is a cost effective way to ensure that their staff is capable of performing well. Tesco Leadership Framework is directed at three key themes to guide behavior in all employees. These behaviors link to nine critical success factors. The critical success factors can be segmented in several levels of assessment. This aids management in selecting the staff with the capacity to become high performing contributors to organisations. As part of the long term strategy of the corporation, discovering future leaders is of the utmost importance. TESCO states that they will select leaders wherever they can be found in the organization for advancement. Promotions are a regular occurrence as over 2,900 managers were promoted internally in the United Kingdom and literally thousands more in international locations.
The Options programme is a more infrequently used as only 1 in 30 employees are enrolled while basic training and development happens about every 1 in 10 members of TESCO. Before beginning their development plan, each member of the TESCO staff selects gaps in their skills and competencies. The Personal Development Plan has a section where they can select this information for their line managers to check on in the future. 2.4 – What is strategic performance management? Who says so? The balanced scorecard is the most widely used standard for performance management. As mentioned before, performance management is defined as reaching objectives which can be quantified financially. Performance most times is just simply put as achieving success in your business operations.
Therefore, performance means process and manner of functioning to attain beforehand objectives which you set out to achieve. Therefore, behavior must be tied to a result which will be judge throughout the fiscal year of operations for the firm. The balanced scorecard is an excellent tool to keep the organization planning and strategizing forward rather than assessing their operation based on past results. Performance management in many organizations is conducted and reported by line managers who are continuously overseeing employees and operations and giving a formal review at designated times. The values, mission, and objectives of the organizations are intertwined with the financial value added so that the process is flexible and requires less dialogue unless a major event occurs.
2.5 – Is performance management evident at a strategic level in TESCO? On the executive level of the firm compensation is closely tied to the performance of the firm which is common for most public firms. Earlier in 2012 it was found that performance bonuses were slashed to 16.9 per cent of the maximum. This was due to the fact that TESCO was behind its competitors in the UK in terms of sales in 2011 and the top 5,000 managers felt the pain of the company’s shortcomings.
3.0 – TESCO’s Activities and Environment
TESCO is a global organization with facilities in over 14 nations and their headquarters being in the United Kingdom with 260 million plus as clients available at their hub. Their outlets have several different types of styles from hypermarket, to non-food item stores, to membership clubs. If one would take into consideration the enormous size of TESCO, it is easy to see that they would require a strategic performance management system which is flexible and nimble. Jones (2012) states that global organization need to have a holistic approach towards managing their operations and not a segmented method. This is crucial in the retail market. The retail market is nonetheless a competitive industry with commoditized stores and international competition in many of the markets the TESCO operates in. Therefore, TESCO has chosen the balanced scorecard approach which has given them success.
3.1 – What activities does TESCO engage in and in what sector? TESCO is a global grocery and merchandise corporation which was founded in the United Kingdom. The organization started IN 1919 with the retail sale of groceries and has diversified its product mix to include electronics, furniture, clothing, and books. Therefore, the company operates in multiple sectors and has a presence on every continent. The company used the aggressive strategy and approach of Jack Cohen to become one of the largest retail outlets on the planet behind only Carrefour and Wal-Mart. Sectors include: Groceries, electronics, financial services, petrol, telecommunications, clothing, music downloads
3.2 – What context does TESCO’s performance management fit in?
Organizational performance can be viewed from a number of perspectives. We see that through the eyes of the customer TESCO was perceived as supplying excellent value and service. This perception was sufficient to place them as the top brand when they surpassed Sainsbury. Organizational performance can also be evaluated through financial, social, and environmental perspectives. This is where performance management at TESCO fits in. The TESCO steering wheel is a model internally shows that the firm has a holistic view towards management (Paul, 2008). This relationship exemplifies the relationship with decision making and performance where executives place emphasis on making decisions based on how far reaching the impactions are.
3.3 – Are TESCO’s performance measurements appropriate to that context? Yes, their performance measurements are actively aligned with the core assets which are integral to the success of their organization.
4.0 – Managing Performance to Improve Decision-making: Specific example in IT Services The British retailer recently implemented a programme called Step Change, to advance its IT efficiency. Tesco placed a large amount of capital in information technology across its operations in the hopes it will keep up with the 21st century trends which lead to more mobile payments, ecommerce and efficiency gains through IT. In the earlier part of 2008, food sales over the internet made large gains of 49% higher in the last financial year, which lead to even more investment.
4.1 – What type of strategy does TESCO adopt?
TESCO implements the balanced scorecard through the TESCO steering wheel. The steering wheel has 5 perspectives which cover different areas. The corporate vision and strategy of TESCO is motivated by its customer base, products, services, and the industry that it operates in. Upper management understands that margins can be slim in an industry where competition is tight and becoming a strong brand with heterogeneous image is important. Corporate strategy is inherently focused on financial gain which can be problematic of other objectives are not met (Graham, 2005).
The component has lent itself back to business school basics by relying on the teachings of Porter’s five forces model. The model teaches that bargaining power of suppliers, customers, substitutes, buyers, and competitors are working against at any one moment in time. ASDA and Sainsbury due pose threats to TESCO domestically in the UK as they are established have developed brands which are perceived to have equal or greater value in the eye of the customer. Nevertheless, the threats of suppliers moving to their competitors are slimmer as TESCO has made great strides in infrastructure. The Perspectives
Customer – Being an affordable and friendly retailer is crucial for TESCO. The customer is seen as the focus as competing products and sales channels can be seen more frequently with technology. Internal – Operations which are run smoothly with excellent customer service leads to keeping costs low and clients happy. TESCO is proactive in this area by offering club cards, and loyalty program with discounts and rewards. Learning – This perspective is seen through training, learning and focused supervision on employees so that they are nurtured to achieve their potential. Financial – Increasing sales, optimizing investments, and keeping the shareholders happy are the focus of this perspective. Community – Corporate social responsibility is a key word as it relates to this perspective. TESCO was known to have a high carbon footprint, and it has strived to not only reinvest in the community, but reinvest it operates so that there is a keen interest in having a positive social impact.
4.2 – How does TESCO formulate its strategy?
TESCO formulates its strategy based on the desires of the customer. According to Terry Leahy, Tesco’s Chief Executive, he states this clearly when he says “Let me tell you a secret, the secret of successful retailing. It’s this: never stop listening to your customers and giving them what they want.” This is the methodology which makes the organization one of the most successful in the world as every little contribution counts as long as it is helping build the bond between TESCO and its consumer base. This is the rationale behind the corporate strategy which is measured by the TESCO steering wheel. Axson (2010) stated that long term decision making is more soundly aligned with a balance array of operational strengths. This supports the decision which management has made it this firm. 4.3 – What are TESCO’s performance objectives?
Does performance match expectations? TESCO’s performance objectives are essentially its 5 perspectives which are different areas covered in the steering wheel. Because the steering wheel is like the balanced score card it has a method of leading to performance which addresses TESCO’s impact on the triple bottom line (people, planet, profit) and allows the company to match and exceed expectations in several areas. Lunger (2007) states that the 21st century problems facing each and every organization requires incorporation of corporate stewardship into your overall strategy.
4.4 – How does TESCO inform its decision-making through performance? What tool does it use? TESCO utilizes the Balanced Scorecard method which is closely aligned with its corporate strategy.
4.5 – Critical evaluate of the tool, its benefits, limitations and it’s appropriateness to TESCO’s strategy The benefits of the tool also stem into the fact as it became a symbol of cohesion and empowerment within the firm. TESCO’s leader, Sir Terry Leahy, stated that he did not want strategy to be the work of only an isolated few individuals in the firm but the work of all of his employees. That is when the company started using the steering wheel in all of their locations. Sir Terry Leahy ended up shutting down the strategy department completely (Jones, 2012). This was definitely seen as a controversial move as it meant that the executive level where not the sole contributor to what historically is the vision of the firm. The limitation of TESCO’s strategy here is that it is somewhat segmented in its approach as there will be no stores which are identical because they will all be run independently with their own steering wheels. This works against the model that many retailers have at claiming to offer the same experience at every location.
4.6 – Identify areas for improvement
A weakness for the company would be performance in the UK. Therefore development of Domestic operations is a major area of improvement for TESCO. The New CEO who succeeded Sir Leahy, Clarke, has vowed to make it an objective to have their profits in the UK become strong and growing. This is an admission of the company falling short of its expected performance for the most recent year. Part of the reasoning behind is the spectacular growth internationally of TESCO due its profits lent to underlying underperformance domestically as it has lost ground to ASDA and Sainsbury and the last three years. Crisis Management and Quality control falls under the community and customer perspective of the TESCO wheel (Marr, 2009). TESCO is reported to not have performed well in the backlash of a recent issue with suppliers and its grocery line. Recently, in early 2013, the media in the United Kingdom reported that horse meat had been found in some meat products sold by this organization, particularly burgers. The company was quick to state that this was unacceptable activity.
5.0 – Conclusion and Recommendations
5.1 – Review and summary of your investigative findings
The overall review of the findings of our report shows that TESCO is in good financial condition and its corporate strategy has achieved its objectives. The strategy has always been customer centric but it has been fruitful in economic value added and financial performance. Austerity has been a large issue in the European Union over the last few years and can bear the brunt of the blame in the lagging performance that TESCO has domestically in comparison to overseas. TESCO has seen strong growth in the United States as well as Asia. The dividend policy is forward looking at TESCO and the overall change in management still needs time for the market to evaluate. When Sir Terry Leahy left TESCO stock crashed but has recovered. Still, the defensive position in the UK which TESCO has built over the years is proving to be vital as they weather the forces of competition domestically.
5.2 – Recommendations for identifying areas for improvement In regard to operations management, I would recommend that Tesco continue their use of the TESCO Steering wheel and invest stronger in internationally markets like Asia. Tesco’s highest growth came in Asia where profits grew by 30% to £570m in 2011 (Hawke, 2011). The need to focus on the community and internal perspectives with innovations is what I see as the focus for the future. The opportunity to win back business from their competitors will require emerging a corporate citizen who cares about loyalty and the well-being of their consumer base will go a long way. This can be obtained by re-examining the performance management systems and not believing that their historical strength will continue to prove valuable in a competitive retail market.
TESCO recently invested 500 million GBP as a stimulus package called “Building a better TESCO” and it has shown lackluster results thus far (Hawke, 2011). In terms of corporate strategy, I believe that creating a performance management group which oversees the effectiveness of the steering wheels domestically would be a great next step. Hope (2012) argued that utilizing your performance management tools sometimes entails injecting the human element into the equation. TESCO uses steering wheels in all of its location and loyalty cards to keep customers feeling connected and appreciated. If TESCO invests in a performance management team which can monitor remotely the performance of the UK stores in community and financial perspectives they can consistently support growth in these locations where their performance is not as strong as overseas.
5.3 – Implementation plan for recommendations
Overall, TESCO’s use of strategic performance management has been successful and I would recommend keeping the steering wheel intact. The model fits naturally with their objectives and mission for the future. This has been instrumental in overcoming threats from other organizations as well as allowing them to focus on growth potential. Recommendation #1 is to invest in Asian markets more aggressively in 2013. This recommendation can be implemented by identifying areas for growth in existing markets where TESCO has a presence and building more stores. Establishing sales channels in these markets was a strategic investment which the company has already made and can be further utilized to extract and attract more profits. Recommendation #2 is to establish a performance management team to oversee domestic steering wheel systems for TESCO. The success of the corporation has been about measuring less with their tools and focuses more on customers. The focus of this team would be to provide more support to underperforming stores by supplementing by coaching them through their steering wheel templates and shopping lists.
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