Resource Planning And Allocation For Organizational Effectiveness

Impact of three key resource decisions on effectiveness and performance of Tesco Plc

This section of the report aims to evaluate the impact of three major resource decisions internally as well as externally on the effectiveness and performance of a FTSE listed organisation in UK. Hence, Tesco Plc has been chosen as the organisation, as it is one of the biggest retailers both in UK and in global markets. The first part of this section aims to demonstrate the impact of three major resource decisions internally as well as externally on the effectiveness and performance of Tesco Plc. The second segment focuses on assessing the financial statements of the organisation with the help of certain financial ratios and accordingly, recommendations would be provided based on the outcomes.

The third part concentrates on assessing the utilisation of different strategies and tools to monitor both tangible and intangible resources of Tesco Plc. The final segment of the report sheds light on describing the significance of costs in pricing strategies and accordingly, suggestions would be provided based on the current costing system of Tesco Plc.

The three key resource decisions include strategic decisions, tactical decisions and operational decisions and these decisions have severe impact on the performance and effectiveness of Tesco Plc both internally and externally. These are briefly explained as follows:

In the words of Haddock-Millar and Rigby (2015), strategic decisions are long-term decisions, which are taken into consideration at the time of future planning in alignment with the mission and vision of the organisation. In case of Tesco Plc, the managers of the organisation need to make decisions about whether to remain in the retail business, as the organisation has experienced heavy losses in 2014 after the profit overstatement scandal in 2014 (Zhao 2014). In addition, long-term estimations of organisational turnover set in contrast to the probable market conditions would help the management of Tesco Plc in determining whether to carry on with the retail business.

Tactical decisions are those decisions, which help in implementing the overall strategy and the middle-level management of Tesco Plc undertakes these decisions (Alam 2016). In case of Tesco Plc, the tactical decision whether to extend the working hours of the retail stores for increasing the number of customer visits. Accordingly, the managers would seek the research data on probable customer numbers for helping them to decide, if a need for extending the opening hours is required. In addition, since Tesco Plc has millions of data items in headings of sales and cost, this would help in depicting an overview of trends, which could be used for future planning,

As commented by Brannen, Moore and Mughan (2013), the operational decisions are associated with the daily business operations of an organisation. These are routine operations and the junior or middle managers of Tesco Plc are involved in making these decisions. In addition, one of the significant operational decisions of Tesco Plc is whether to order for more products in the upcoming weeks. The data related to sales and stock would reveal the time of placing supply orders.

Tesco Plc could encounter three types of risks arising from inadequate resources and these are described as follows:

Tools and techniques in planning and allocating resources

The people risk in an organisation could arise in the form of staffs leaving projects permanently or temporarily, late joining in the project and querying issues associating people not dedicated to the project (Rahman 2015). In case, Tesco Plc loses some of its staffs during an ongoing project, it could result in average slip of above five weeks and temporary loss of more than two weeks. In addition, some projects miss the deadline, since adequate staffs are not available in the initial phases. Under such situation, Tesco Plc could experience delays in the upcoming projects, as the people involved in the initial project would join the new project lately.

When any supplier of Tesco Plc fails to finish the allocated work within the stipulated time, it has the biggest impact on the projects of the organisation (Metzger 2014). Since the outsourced work takes place outside the organisation, it would become difficult for the project team of Tesco Plc to observe and evaluate the reasons of the issues. Hence, finding the right supplier for projects having unusual requirements might cause additional project delays for Tesco Plc.

The third risk associated with inadequate amount of resources is money risk, as a single project delay could increase the amount of money needed to finish the project (Ismail 2017). Due to this, Tesco Plc might experience problems to initiate the next project within scheduled time and hence, additional investment might be needed to obtain the excess resources.

Tesco Plc could use the following techniques and tools used for planning and allocating resources:

Tesco Plc could create a map, which is granular to see the positions in which the resources are deployed. This map could be introduced with the help of a mobile application depicting the resource needs, growth options and returns. This would help the management of Tesco Plc to understand the need for trade-offs between initiatives and activities. Such effective transparency would modify the resource allocation in Tesco Plc, as it has powerful divisional leaders.

Tesco Plc could gauge the correlation between the percent of resources every cell in its portfolios obtained in the current year and those in the previous year. With the help of this benchmarking, the organisation could identify whether its main resources are allocated actually.

The financial statements of three years of Tesco Plc have been considered to evaluate the financial viability of the business and the following ratios are taken into account:

Particulars	Details	2015	2016	2017
Revenue	A	£      62,284	£      54,433	£      55,917
Gross profit	B	-£        2,112	£        2,854	£        2,902
Gross margin	B/A	-3.39%	5.24%	5.19%

Table 1: Gross margin of Tesco Plc for the years 2015-2017

(Source: Tesco plc 2017)

According to the above table, the gross margin of Tesco Plc has increased to 5.24% in 2016 from -3.39% in 2015; however, it has declined marginally to 5.19% in 2017. This implies that the organisation has started to revive its position in the UK market due to its long-term reputation. However, the sales volume is still lower in contrast to the overall cost of sales, which denotes lower demand in the market (Dalton 2016).

Particulars	Details	2015	2016	2017
Revenue	A	£      62,284	£      54,433	£      55,917
Net profit	B	-£        5,741	£           138	-£             40
Net margin	B/A	-9.22%	0.25%	-0.07%

Table 2: Net margin of Tesco Plc for the years 2015-2017

Financial viability analysis of Tesco Plc

(Source: Tesco plc 2017)

The above table denotes that the net margin of the organisation has increased from -9.22% in 2015 to 0.25% in 2016, which has fallen again to -0.07% in 2017. This denotes that the organisation is struggling to generate sufficient income due to falling demand in the market and rising operating expenses due to the scandal in 201     4 (Morgan, Tallontire and Foxon 2017).

Particulars	Details	2015	2016	2017
Current assets	A	£      11,958	£      14,828	£      15,417
Current liabilities	B	£      19,810	£      19,714	£      19,405
Current ratio	A/B	0.60	0.75	0.79

Table 3: Current ratio of Tesco Plc for the years 2015-2017

(Source: Tesco plc 2017)

Based on the above table, it could be observed that the current ratio of Tesco Plc has increased from 0.60 in 2015 to 0.75 in 2016 and it has increased further to 0.79 in 2017. The ideal current ratio in the UK retail industry is considered as 2 (Chapagain and Ahokangas 2015). In this case, the ratio is quite below the industrial standard, which denotes that the organisation is struggling to meet its existing obligations with current assets.

Particulars	Details	2015	2016	2017
Current assets	A	£      11,958	£      14,828	£      15,417
Inventories	B	£        2,957	£        2,430	£        2,301
Prepaid Expenses	C	£           516	£           440	£              –
Current liabilities	D	£      19,810	£      19,714	£      19,405
Quick ratio	(A-B-C)/D	0.43	0.61	0.68

Table 4: Quick ratio of Tesco Plc for the years 2015-2017

(Source: Tesco plc 2017)

The quick ratio of the organisation has increased from 0.43 in 2015 to 0.61 in 2016 and it has increased further to 0.68 in 2017. This denotes that the organisation has started to minimise its level of inventory; however, it is below the industrial standard of 1 (Babajana and Hughes 2015). This is because the organisation is not able to assess the market demand effectively and this has resulted in blockage of stock.

Particulars	Details	2015	2016	2017
Cost of revenue	A	£      64,396	£      51,579	£      53,015
Opening accounts payable	B	£        5,831	£        5,076	£        4,545
Closing accounts payable	C	£        5,076	£        4,545	£        8,875
Average accounts payable	D=(B+C)/2	£   5,453.50	£   4,810.50	£   6,710.00
Creditors’ turnover (in days)	D/A	30.91	34.04	46.20

Table 5: Creditors’ turnover ratio of Tesco Plc for the years 2015-2017

(Source: Tesco plc 2017)

The above table signifies that the for Tesco Plc has increased from 30.91 days in 2015 to 34.04 days in 2016 and it has increased further to 46.20 days in 2017. The higher the ratio, the better it is for the organisation in retaining greater amount of cash (Haslam et al. 2015). In this case, Tesco Plc has managed to raise the payment of its creditors despite the falling demand and revenues in the market. This is because of the strong reputation in the UK retail industry and timely payments to the suppliers.

Particulars	Details	2015	2016	2017
Cost of revenue	A	£      64,396	£      51,579	£      53,015
Opening inventories	B	£        3,576	£        2,957	£        2,430
Closing inventories	C	£        2,957	£        2,430	£        2,301
Average inventories	D=(B+C)/2	3266.5	2693.5	2365.5
Inventory turnover	D/A	18.51	19.06	16.29

Table 6: Inventory turnover ratio of Tesco Plc for the years 2015-2017

(Source: Tesco plc 2017)

The above table denotes that the inventory turnover ratio of Tesco Plc has increased from 18.51 in 2015 to 19.06 in 2016; however, it has declined to 16.29 in 2017. This denotes that after fall in market demand, the organisation has reduced its supply, which has helped in minimising its inventory at a faster rate.

Solvency ratios:

Particulars	Details	2015	2016	2017
Total liabilities	A	£      37,143	£      35,278	£      39,415
Total equity	B	£        7,071	£        8,626	£        6,438
Debt-to-equity ratio	A/B	5.25	4.09	6.12

Table 7: Debt-to-equity ratio of Tesco Plc for the years 2015-2017

(Source: Tesco plc 2017)

The above table signifies that the debt-to-equity ratio of Tesco Plc has fallen from 5.25 in 2015 to 4.09 in 2016, which has increased again to 6.12 in 2017. This indicates the organisation has relied too much on debt funding, instead of equity financing. The main reason behind such lower equity value is that the investors are not willing to invest in the shares of the organisation after the profit overstatement scandal in 2014 (Schmitz 2015). As a result, it has increased the debt burden of Tesco Plc severely in the UK market.

Particulars	Details	2015	2016	2017
Market value per share	A	£          1.50	£          2.07	£          1.78
Earnings per share	B	-£          2.12	£          0.05	-£          0.01
Price/earnings ratio	A/B	-0.71	41.37	-178.00

Monitoring and evaluation of tangible and intangible resources

Table 8: Price/earnings ratio of Tesco Plc for the years 2015-2017

(Source: Tesco plc 2017)

The price/earnings ratio of Tesco Plc has increased from -0.71 in 2015 to 41.37 in 2016; however, it has declined drastically to -178 in 2017. This ratio helps in determining the market value of the firm and a higher ratio is always favourable for an organisation (Schmidlin 2014). The organisation has a significant lower ratio, which denotes that investment in Tesco Plc would provide negative returns to the shareholders in future.

• Tesco Plc needs to extend its product lines further along with ensuring product quality so that the overall revenues of the organisation are increased. This, in turn, would help the organisation in increasing its overall profit level.
• Although Tesco Plc has minimised its level of inventory, it needs to minimise the same further, as the market demand is extremely low.
• Finally, Tesco Plc needs to increase its dividend payments to the shareholders so that it could accumulate funds from equity financing. As observed, the organisation has been heavily reliant on debt financing over the years, which has increased its debt burden severely. Hence, issuing additional equity shares in the market with better future returns would help Tesco Plc in balancing its capital structure effectively.

It has been observed that Tesco Plc has earned revenue of £54,433 million in 2016, which has increased by 2.73% in 2017. Within this particular timeframe, the organisation has recorded an operating income of £1,046 million, which has fallen by -2.77% in 2017 and a net income of £138 million, which has declined by 128.99% in 2017. In relation to physical assets, Tesco Plc has stopped its diversification programs and it has changed its focus in improving the existing stores under “Build a Better Tesco” program. This program is intended to refurbish the existing stores of the organisation in UK, repositioning, development of new product and delivering customer service through investment of £1 million (Wood, Coe and Wrigley 2016).

However, it has been found that this program has not been rapid, as only 82 out of 247 Extras and 178 out of 482 superstores of Tesco Plc in UK have been refurbished (Limba et al. 2016). Despite such slow improvement, the organisation has placed emphasis more on the Extras and it is expecting to complete the estate by the end of 2017.

In the words of Nugent and Leidner (2016), intangible resources are those assets or skills like a specific technology, accumulated information about the customers, corporate culture, brand name and reputation. These resources are inevitable for an organisation in relation to its competitive power because of their potential sustainability and uniqueness. The three most valuable intangible resources in the context of Tesco Plc comprise of organisational reputation, product reputation and staff knowhow.

Tesco Plc needs to present a customer-friendly environment for attracting greater number of customers. In order to ensure this, Tesco Plc has trained its staffs by teaching about the ways of behaving with the customers. Moreover, the checkout points are a plus point for Tesco, which no other UK retailer has. In relation to the new product development or product reputation, the organisation has integrated supply chain management, which has helped in directing innovation towards new markets. However, the horsemeat scandal of Tesco Plc in a hamburger in 2014 has questioned its product reputation, which has reduced its overall sales margin largely over the years (Chen 2014).

Costs are significant in the pricing strategies of Tesco Plc and the importance of costs in some of the most widely used pricing strategies is described as follows:

This strategy needs to carry out the computation of fixed cost and variable cost in a particular product or service offered on the part of an organisation. After computing the overall cost, the margin of profit is added to each unit. Despite its simplicity, the managers need to conduct financial computations for ascertaining the delivered product or service. However, this strategy does not consider the external factors like market movements or competition and hence, the impact on pricing could not be identified.

Importance of costs in pricing strategies and improvement recommendations for Tesco Plc

These principles include the apportionment of costs that the organisation incurs to each of its products offered. In addition, few assumptions are made as some costs are fixed, while the other costs are variable based on the production level. However, if the inventories are not sold entirely at the end of the accounting period, the fixed manufacturing overhead cost is carried forward to the next year.

Activity-based costing is a method of accounting identifying the tasks performed on the part of an organisation and after that, indirect costs are assigned to products. This system helps in realising the association between tasks, costs and products and with the help of this association, indirect costs are assigned to products better than the conventional methods. With the help of this costing system, salaries of office staffs and management could be apportioned to a specific product produced.

Tesco needs to competition-based pricing policy to finalise the product prices, which are competing in the market. Firstly, Tesco needs to identify its current competitors and accordingly, the products costs could be computed. In such a scenario, one competitor might minimise its product prices to remain competitive in the market. Therefore, Tesco Plc needs to conduct market research effectively to maintain its competitive advantage in the UK retail industry. Furthermore, with the help of this costing system, Tesco Plc could choose from a group of various pricing strategies for accomplishing its strategic objectives.

With the rising competition in the UK retail industry due to globalisation and other external factors, activity-based costing system is the most appropriate costing system for Tesco Plc. The organisation needs the primary costing hub, instead of various small departments. It has above 30,000 products, which is extremely problematic to keep complete track. Therefore, the major issue lies in terms of overhead cost allocation. The activity-based costing system has both volume-based and non-volume based drivers. Thus, it would help Tesco Plc in obtaining the accurate summary of cost of revenue.

Conclusion:

From the above evaluation, it has been found that Tesco Plc could create a map, which is granular to see the positions in which the resources are deployed. This map could be introduced with the help of a mobile application depicting the resource needs, growth options and returns. From the financial analysis, it is recommended to Tesco Plc to increase its dividend payments to the shareholders so that it could accumulate funds from equity financing. Finally, the organisation needs to adopt activity-based costing system in obtaining the accurate summary of cost of revenue.

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