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Tesco PLC - Balance Score Card for the Year -2013

posted 5 Feb 2013, 14:12 by Manish Abraham   [ updated 17 Jul 2014, 04:50 ]
tesco logo colour
Tesco is an impressive company. The British-based international grocery and general merchandising retail group operates 6351 stores across 3 continents, employs 470,000 people, and in 2012 generated £72.035bn in sales. Tesco is the largest private sector employer in the United Kingdom, and is currently the third largest global retailer based on revenue and the second largest based on profit. Over the years the company has been transformed from a ‘pile it high, sell it cheap’ market trader to a world-leading retail group.We have tried to make a balance score card for Tesco Plc for the year 2013. This was done as part of a project of controlling by Manish Abraham, Ganesh Subramaniam, Shakh Alauddin, Cristian Gîdea, & Darya Zuyeva  at the University of Applied Sciences Upper Austria. Please like my Facebook page and also reference this article in case you use it:

Manish Abraham, Ganesh Subramaniam, Shakh Alauddin, Cristian Gîdea & Darya Zuyeva  "Tesco’s Balance Card for the year 2013", available: http://www.manishabraham.com/documents/ controlling/tescoplc-balancescorecardfortheyear-2013 [accessed put today's date ]

Introduction to the Balanced Scorecard

The balanced scorecard was initiated by two researchers from Harvard Business School by Robert. S. Kaplan and David. P. Norton in the early 1990’s. It was designed and developed for measuring strategic performance and management structure of an organization. Kaplan and Norton define balanced scorecard as:

“The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation" (Harvard business review)

At present balanced scorecards is being used as an organizational performance measuring tool which measures the company from four different perspectives to transform the strategy in to action in the critical divisions of a company.

Kaplan and Norton’s balanced scorecard helps people to view the organization in to four different perspectives:

  • Financial perspective
  • Customer perspective
  • Internal business process perspective
  • Learning and Growth perspective 

“These perspectives are interlinked and layered: so that financial results are determined by customer satisfaction, which are in turn determined by internal processes and, underneath these three layers, is the foundation of the learning and growth perspective” by Marr and Adams (2004) who developed the  Balanced scorecard for strategic performance measurement. They also proved and said that the relationships between these 4 perspectives can be visualized in strategy maps.

“The Balanced scorecard is like the dials in an airplane cockpit; it gives managers complex information at a glance” by Robert. S. Kaplan and David. P. Norton. Many managers and academic researchers have tried to remedy the inadequacies of current performance measurement systems by focusing on making financial measures more relevant. Others have said “Forget the financial measures. Improve operational measures like cycle time and defect rates; the financial results will follow.”

 When managers finding a hard situation of what choose between financial and operational measures, Kaplan and Norton observed and worked with many companies and found that senior executives don’t rely on one set of measures to the exclusion of the other. This also helped them realize that no single measure can provide a clear performance target or focus attention on the critical areas of the business. Managers needed a balanced form of financial and operational performance measures. This made Kaplan and Norton to devise balanced scorecard that helped the managers have a fast but comprehensive view of their business.

However, according to Marr and Adams (2004) a major weakness in the balanced scorecard is the learning and growth perspective. The researchers Marr and Adams (2004) believe that this latest attempt to evolve the balanced scorecard by Kaplan and Norton might have had an adverse effect. Marr and Adams outline how Kaplan and Norton failed to acknowledge the large body of writing on intangible assets and, therefore, produced an inconsistent, incomplete, and potentially very confusing classification of intangible assets.

The scorecard tracks the objectives, measures, targets and initiatives of a company. But it is not a cure at all, especially for the companies with bad financial situations and which has no time to implement the plan. It also involves a high initial investment to educate and train their employees to work for the new strategy. The advancement in technologies have also created software for creating balanced scorecard by just giving inputs. But this is very expensive and also a wrong balanced scorecard software or one wrong input can set back the company’s ability to evaluate their employees and performance.


Tesco PLC: An overview of performance and strategy

Tesco logo 2013
Tesco is an impressive company. The British-based international grocery and general merchandising retail group operates 6351 stores across 3 continents, employs 470,000 people, and in 2012 generated £72.035bn in sales. Tesco is the largest private sector employer in the United Kingdom, and is currently the third largest global retailer based on revenue and the second largest based on profit. Over the years the company has been transformed from a ‘pile it high, sell it cheap’ market trader to a world-leading retail group. While it originally specialized in food and drink, it now offers a wide range of products including clothing and consumer electronics and offers an increasing range of services such as telecoms, health, Internet, insurance and financial services. In addition to its stores, Tesco has created a very successful online supermarket offering among other things groceries, home retailing, and music downloads. Even amidst the current global recession Tesco is performing extremely well with a 7.4% growth in annual sales and a 5.3% growth in profits as per Tesco annual report -2012, p.).

What is leading to Tesco’s global success is that it gives customers what they want. Sir Terry Leahy, Tesco’s Chief Executive, puts it in simple terms 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.” Tesco makes it very clear that its philosophy, which is captured in the phrase ‘Every Little Helps’ is more than just words or a marketing slogan.

 

In May 2011 the new CEO of Tesco PLC, Mr. Philip Clarke set a seven part strategy for the company’s growth and vision towards the future.

They are:

1.  To Grow the UK core:

UK is the largest business in the group and a key driver of sales and profit. This involves making a financial commitment of £1billion to improve the shopping experience of the customers which will involve significant revenue and capital investment. This will consequently deliver performance for shareholders.

 2.  To be an outstanding International retailer in stores and online:

In 1997 the international businesses of Tesco made 1.8% of the group profits. But in 2010/2011 they represent 30% of te group’s profit. They are either number one or number two in 8/12 markets outside UK which means they are working to be an ‘Outstanding International Retailer in stores and online’.

3.   To be as strong in everything we sell as we are in food:

As the business has grown and still growing they are offering even wider variety of products to their customers in coming years. They now aim ‘To be as strong in everything we sell as we are in food.’

4.  To Grow Retail services in all our markets:

Tesco Bank is a key part of potential in growing retail services in all the markets. Tesco Bank generated £1billion revenue in 2011.

5.  To put our responsibilities to the communities we serve at the heart of what we do:

In 2007, Tesco added a fifth element in their strategy to attach their commitment to communities and environment. They updated this objective slightly in 2011 by emphasizing their responsibilities in these areas. Their goal is ‘To put our responsibilities to the communities we serve at the heart of what we do.’

6.  To be a creator of highly valued brands:

The brand has evolved from a logo above many stores in UK to wide range of products and service brands across the world. This appeal to diverse customer needs, providing them with the quality products they are looking for at competitive prices. Their objective is ‘To be a creator of highly valued brands’.

7.  To build our team so that we create more value:

Their final goal is ‘To build our team so that we create more value.’ As the business continues to grow and diversify Tesco need more leaders to run the many substantial businesses and support functions within the group. Tesco’s important asset will always be its people because the leaders not only have an important role today; but also have the responsibility to build a bigger and better team for the future. They live with the values to do the very best for the customers.

Financial Perspective

 

Referring to the “7 part” strategy of Tesco, the first 4 parts affect the financial perspective of the Balance Scorecard.

 

  1. To grow the UK core

Strategic Objective

Measures

Target

Improve Sales

Revenue

Achieve £ 43bn revenue, in UK market

Obtain/maintain profit

Profit

>0% increase in profit

Return on capital employed

ROCE

14,6% by 2014/15


  1. To be an outstanding international retailer in stores and online.

Strategic Objective

Measures

Target

Increase international market sales

Revenue

Achieve £ 30bn revenue in international markets

Obtain/maintain profit

Profit

5% growth


  1. To grow retail services in all our markets (Tesco Bank)

 

Strategic Objective

Measures

Target

Achieve return on investment (ROI)

ROI

At least 10% ROI

Increase project revenue

Revenue, margin

15% revenue expansion

 

 

  1. To be a creator of highly valued brands. 
      

Strategic Objective

Measures

Target

Growth in underlying diluted earnings

 

EPS, TSR

Maintain >2% earnings per share.

Maintain >2% total shareholder return

 

 

Customer Perspective

 

“In customer perspective of Balanced Scorecard, managers identify the customer and market segments in which the business unit will compete and the measures of the business unit’s performance in these segments” (Kaplan and Norton 1996, p.26). According to Kaplan and Norton (1996) the customer and community perspectives, if it’s applied correctly, should gain successful results such as customer satisfaction, customer profitability, market share in targeted parts, customer conservation and new customer attainment. This can empower companies to identify and measure the value proportions (price, relationship, functionality, service, availability etc.) that they already offered and will offer to targeted customers and market segments (Kaplan and Norton 1996). For this goal, companies should define their market targets in their existing and possible performance and then they should identify which segment they will go for.

According to Tesco Corporate Responsibility Review 2012 Tesco has built its strategy as a global business based on seven main aspects: to grow the UK core, to be an outstanding international retailer in stores and online, to be as strong in everything they sell as they are in food, to grow retail services in all their markets, to put their responsibilities to the communities they serve at the heart of what they do, to be a creator of highly valued brands, to build their team so that they create more value. (Tesco Corporate Responsibility Review 2012,p.1) Tesco manage their business using the “Steering Wheel” which helps them to appeal to all targeted segments instead of focusing on certain market segments. 

“We always want to provide our customers with the best shopping experience and set the standard in the UK. Focusing on food first, we are making £ 1 billion commitment in the things that matter for customers – service, range, quality, price, availability and the store environment” (Tesco annual Report-2012, p. 11). According to this strategy Tesco implemented following ideas:

·         more staff, better service

One of the largest elements of company’s investment (over £ 200 million), which provides the idea with trainings and equipment for key departments in existing stores;

·         creating more jobs and careers

Creation of 20 000 new jobs to deliver new levels of excellence in customer service;

·         the fruit and Veg team

With the additional investment in staffing, training and equipment, it can focus on fresh produce, improving product availability and presentation for customers;

 ·         quality and innovation

Reviewing and refreshing the entire range of over 8000 Tesco brand products, the pace of innovation with the new Venture Brand exclusive products – such as chokoblok ice cream, Parioli authentic Italian ranges and the Latham’s range of premium pet food;

·         the Big Price Drop

it was launched in September 2011, investing more than £ 500 million to reduce the prices of over 3 000 everyday products, the main current goal is to get blend right on price, promotions, couponing and loyalty.

Another one of the Tesco strategic priorities is the growing online businesses in all their markets that show how the company is adapting to its customers’ changing needs. Stores are still play the most significant role, but the main current aim for the company is to become a multi-channel retailer in all market segments.  Online grocery, Tesco direct website, click & collect system ( the connection  between stores and distribution networks which helps customers to pick up their products whenever it is more comfortable for them from over 770 stores), social media and international online groceries are the main lines of development which help Tesco to “win locally, applying their skills globally”. (Tesco annual report -2012, p.12)

Since the mid-1990s, Tesco has built an international business of more than 3200 stores, which delivered more than £ 1 billion trading profit for the first time of 2012. As the company strives to become an outstanding international retailer, they are drawing on Tesco’s skill and scale to move into the next phase of growth. (Tesco annual report-2012, p.13).

Internal Business Process Perspective

 

In the internal business process perspective, managers identify the important internal processes that the business must succeed in, in order to implement its strategy (Drury 2004). Metrics based on this perspective let managers measure how successful their organization is doing and whether its goods and services conform to customer needs (Papenhausen 2006). The internal business process measures should focus on the internal processes, which the organization will need to achieve its customer and financial objectives (Drury 2004). According to Chavan (2009) a “well-oiled machinery” of internal processes is important in any business, and may not always correlate with external perceptions. Internal business processes are identified by three principal processes which are:  innovation processes, operation processes and post-service processes (Drury 2004).

Tesos business model for customers 2013

At the core of Tesco’s business model is the CUSTOMER. All business processes are intended to enhance customer perspective by retailing qualitative products at a fair price as well as providing other services in order to win their loyalty and create customer value.       

By focusing the business model on the customer, the company is able to provide a wide range of products and services at great prices, sold in shops in convenient locations as well as in online stores. A wide range of offers drives to a better understanding of customer needs by constantly evaluate and receive feedback, and therefore it leads to a constant improvement of quality.  An increase in sales brings mutual benefits for the company, suppliers and customers: creating headroom for investments and for lowering the final retail price of the products and services. 

Operations Management Processes

            On the international scene, Tesco manages retailing operations on a local business basis. Collaborating with local business and people it also has an social impact: offering jobs and services as well as getting close to the people.

For maintaining a high quality of food products they have teams of experts that verify and implement their “Livestock Codes of Practice”. These regulations cover all aspects of farming, good environmental practice as well as food safety.

Tesco also works with private teams of experts to ensure a continuous improvement and make sure that the suppliers follow their codes. These codes are applied wherever they have the suppliers located, regardless of country origin. Tesco’s teams of experts also spend time with farmers and suppliers to improve standards and communication throughout the entire supply chain, as well as developing new products and systems.

Customer Management Processes

The international trading profit grew up from 946m in 2011 up to 1113m in 2012. This means that the profit grew with 18% despite the difficult economic conditions. Growth in international online sales is about 40% , meaning that the operating costs are reduced due to a better inventory management as well as supply chain management.

Tesco sales growth for 2013

As a result of customer management processes TESCO acquired great customer satisfaction, the proportion of customers that declared themselves satisfied with the shopping experience is greater than 95%. This is also a result of continuous improvement of the system following the customer feedback and market trend.

By creating highly valuable brands TESCO has been placed 1st or 2nd in 9 international markets. This means that more than 50% of the customers are shopping from TESCO a single retailer. As a result of customer satisfaction the Tesco own-labeled products grew up to 38%. Tesco performance review.

Innovation

They are mainly focusing on innovating their offerings for their customers. In previous year they committed to improve their business through innovation, they continue their same strategy in the year 2012. In this consequence they have introduced new way of shopping - “Self-service checkouts” (Annual report 2012 Page 27).  It can offer customers a new way of shopping, as with Click & Collect grocery or their virtual stores in South Korea. They also added some innovative business models. One of them is the Tesco bank by which they manage their financial activities on their own. Other service is the online shopping which has grown 40% in the last year.

 Product Safety

 Product safety is the one of the measure in Tesco because of serving the consumer goods. In this point of view they are very strict and have a significant amount of effort to product safety.

Key control factor for the safety is below for Tesco,

     Detailed, established procedures, operating globally, to ensure product integrity

     Strict trading law and technical safety testing regime with regular reporting; Group Compliance Committee reviews compliance with laws and policies

     Partnering with suppliers for mutual understanding of required standards

     Monitoring of developments to respond to changing customer trends and legislation such as labeling and dietary responsibilities

     Clear and tested crisis management processes

From previous years it is clear that their policy or strategy of product policy is not changed and they are now same position as they were in previous year.

Community development

 For developing the community they have taken several strategies.

 Firstly, they had a strategy to reduce the greenhouse gas emission. They have decreased this emission by 5% in last year and cumulatively they have reduced 26% from 2006. 

Co2 emmission reduction plan by tesco

Secondly, strategy for community development is the supplier viewpoint. They are asked some questionnaires about how Tesco treat with them and they are giving some rating about the Tesco. In 2012 they are targeted to achieve 70% of positive rating and they achieved 74%. So, they did better than what they expected.

Thirdly, they committed to pay in charities some amount and they fixed it 1% of their profit before tax and they paid 1.9% of their profit before tax and its figure was 74.5 million pound. They did better than their target.

Learning and Growth Perspective

 

Intense global competition requires that companies are making improvements in their product and processes and should realize their core skill capabilities to introduce new products in the market. A company learns only when they launch new products and services and communicate more values for their customers. This continually improves operating efficiency and helps a company to penetrate in to new markets and thereby increasing their revenues and margins and also helps them cater different target groups in different market. Learning and Growth perspective measures the experience and growth gained by a company by their innovation business products and processes.

For Tesco PLC, the concept of innovation lies high in the customer service and convenience more than their products because they believe that’s their path for being an outstanding international retailer in this market. Their concept of “Shopping list” which highlights the key strategic objectives of the company reminds and always keeps each and every employee in stores of what their role is in the customer service. The “shopping list” also engages the staffs the stores. This strategy worked out well for Tesco giving them 100% implementation of their strategy in their processes.

For training their employees, Tesco organized what they call “Town hall” meetings where the staffs are explained about the strategy of the company and also the staffs can ask their questions directly to the Chief Executive which makes the meeting in an interactive way. This motivated the employees and also clearly explains the duty of individual in the organization. They have a different strategic wheel in each and every store in different countries in different languages which has a special section for the stores staff to fill out “What’s good/not good” and also one section for the Store manager where he indicates the main goal of that particular store. This gave the staffs the feel like working in their own store which also reflected in making the process and strategy effective.

Tesco’s controversial move of closing the strategy department served to be a good and innovative move because they believed in “Making Strategy Everyone’s Job”. They don’t want one leader for the whole strategy. They want a leader for the strategy in each and every store. This helped them to be flexible with the markets in different countries and developing and modifying their strategy is an ease for them. This also created confusions for the employees about the modifications of the strategy.

“Performance is not a duty; It is a culture” for Tesco. Instead of preaching the organization goals they made the employees responsible for the culture of the company. The employees are encouraged to come up with their ideas and are allowed to challenge and improve performance. According to API performance review 2009, this gave rise to many risk factors in following the ideas of staffs and their improvement. But the Chief executive of Tesco believes “‘people mustn’t hold in knowledge and need to share thoughts and information‘; he adds ‘...we have to take risks to be successful. This means we have to allow people to be wrong. We are not about box-ticking and being wrong with everyone else.”

Hayman and Lorman (2004) found that most graduates entered companies directly from further education and had a solid academic background. They made sure that the graduates training served the purpose of fulfilling the job role. Graduate training is different for each every graduate based on their academic background. Tesco provides special training for example in finance for providing them the CIMA qualification.

 

Strategic map for tesco for year 2013
Balance score card for tesco plc 2013


 Conclusion

“Although there are some criticisms concerning the balanced scorecard approach, many of these seem to represent problems of practical application rather than fundamental flaws” (Atkinson 2006).The ‘Steering Wheel’ strategy has assisted Tesco in accomplishing big goals by breaking them down into smaller, more achievable goals. Throughout the years , Tesco’s strategy has been supported financially. Last year had less impressive figures due to the financial crisis and additional investments however those investments have high return on investment (ROI).  While Tesco have achieved their targets for 2011, the manner in which they have done so can be considered to be slightly furtive, including demanding money from suppliers for shelf space in their shops.We also see that the growth of international online sales increased by 40 %. Tesco was ranked the first super market among the competitors in the UK.(Tesco annual report 2012, p 27)

Tesco’s retailing operations are done locally with the collaboration of local businesses and people; it does so to maintain high quality products. Tesco also regularly checks and trains its suppliers.  Tesco achieved high customer satisfaction and loyalty by improving their services based on customer feedback and based on their loyalty programme. They continue to improve the innovation in business process strongly. They have strong commitment not only to the product safety but also to community development. They have also tried to secure jobs for their employees.

Tesco as a Global brand of Commercial products and retail services has managed to efficiently run the business all over the world by just focusing towards “Customer satisfaction”. The strategy of implementing custom steering wheels in every store all around the world made them successful in getting full engagement of their employees. This helped them to be successful in achieving their final strategy towards future “To build our team so that we create more value”. They got the growth of the company and they also created the value of the brand for  future growth.

 References


API (2009) “Balanced Scorecard Perspectives”, available:

 http://www.ap-institute.com/Balanced%20Scorecard.html [accessed 25/ 01/ 2013]

Atkinson, H. (2006) “Strategy implementation: a role for the balanced scorecard?”, Management Decision, Vol. 44(10), pp 1441- 1460

Chavan, M. (2009) “The balanced scorecard: a new challenge”, Journal of Management Development, Vol. 28(5), pp 393-406

Drury, C. (2004) Management and Cost Accounting, 6th ed., Thomson, Italy

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Hayman, K. And Lorman, A. (2004) ‘Graduate training schemes have demonstrably accelerated promotion patterns’, Career Development International, Vol. 9(2), pp 123-141

Kaplan, R.S., Norton, D.P. (1996) The Balanced Scorecard: Translating Strategy into Action, Harvard Business School Press, Boston, MA,.

Kaplan, R.S., Norton, D.P. (2001) The Strategy Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment, Harvard Business School Press, Boston, MA,.

Marr, B., Adams. C. (2004) ‘The balanced scorecard and intangible assets: similar ideas, unaligned concepts’, Measuring Business Excellence, Vol. 8(3), pp 18-27

Papenhausen, C. (2006) ‘Implementing the Balanced Scorecard at a college of business’, Measuring Business Excellence, Vol. 10(3), pp 15-22

Tesco performance review (2012) available: http://realfood.tesco.com/our-food/tesco-farming.html  [accessed 23/01/2013]

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Bibliography

 

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 http://www.ap-institute.com/Balanced%20Scorecard.html [accessed 25/ 01/ 2013]

Atkinson, H. (2006) “Strategy implementation: a role for the balanced scorecard?”, Management Decision, Vol. 44(10), pp 1441- 1460

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Drury, C. (2004) Management and Cost Accounting, 6th ed., Thomson, Italy

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