Strategic Management And Risk Mitigation In Tesco

Risk situations faced by the company

In the modern day business, strategic management plays a very crucial role in different fields of operations. There are different strategies used by different organisations so as to improve the performance of the firms. Strategic management is also essential for reducing the risks that are confronting their business. Risk mitigation strategies are used within the organisation so as to ensure that firm faces no long term challenges (Woods, 2012). Tesco is one the biggest super market chains in the world having more than 3751 operational stores. It is a big brand name hence the risk associated with the firm is also big. The incidents such as property-write down a scandal related to accounting and heavy competition can ruin the future growth of the company. This report highlight the different types of failures that it faced in different departments due to which company had to face great losses. It also elaborates about the strategies that are made by the firms so as to control these situations. Apart from this the impact of the strategies and its effectiveness has been provided.

Tesco faced several issues in their business from time to time. This report is going to highlight on the years 2014 which was financially a setback year for Tesco. The accounting scandal named Property write-downs have led to both financial and image failure. Alone in 2014, company has faced a loss of £6.4 billion and it is understood be one of the biggest losses that corporate has faced in UK. Marketers responded positively even after company was in loss, this is because they had faith on Tesco as they considered it as a good investment. The negative thing about it is the fact that it is still uncertain. Their plan named “Every little help make a big difference” was made for working with NGOs government and other partners, retailers as well as suppliers for making a progressive business plan. It was designed for create huge success in their outlines, customers management, environmental challenges and commitments so as to tackle any situations in their business (Arena, Arnaboldi and Azzone, 2011). The strategy involved direction, scope of business, long term visibility etc.

The recovery of the 2014 loss was recovered till 2016 where they developed delicate relationship with the suppliers.

(Source: Moore, 2016)

Tesco has made strategic management as their essential aspect in their business. It includes five steps named goal setting, analysis of the situation, strategy formulation, implementation and continuous evaluation for achieving the goals and the way in which firm competes with others. A firm utilises different types of strategic management processes with the help of stakeholders (Ramanathan, 2011). This help is done in terms of implementing the plan; evaluating its progress and measuring success through continuous assessments.

All the strategies that are made by the firm are generally three distinct levels of strategies that are linked with the firm. These strategies are classified into three categories. First is the corporate level strategy for achieving the overall purpose and to extend their business. Second is the business level strategy that is used for specific markets and third is the operational strategy that is used successfully in the organisation (Black and Baldwin, 2012). Some kinds of strategies that Tesco has made for itself are:

• Consistent and coherent strategy: These are the strategies that are made by the government so as to ensure that changes in the microeconomic condition in the working environment can be handled in an appropriate manner.  The on-going issues like the change in the prices as well as gaining competitive landscape can be difficult. It is very effective in dealing with the risk that emerges due to day to day operational failures (Kukreja and Gupta, 2016).
• Corporate Responsibility: The problems related to the responsibility of the firm towards the society have increased. This includes their responsibilities towards customers, communities and employees. Since Tesco deals in the business of food products hence they have a responsibility towards the challenges related to issues of social importance like the quality of health and food waste. Tesco have faith in helping people to create a successful business and career. The biggest responsibility of the company will be towards the farmers who are their major suppliers (Zaleha Abdul Rasid, Ruhana Isa and Khairuzzaman Wan Ismail, 2014).
• Competitor strategy: Since the competition in the industry is increasing at a much faster rate hence companies such as Tesco needs to make strategies that improves the quality of their product at the same time it increases the value so as to compete in the market. In today’s business all the firms are making competitive strategies that are capable of beating others in the business. Tesco takes use of the feedbacks and campaigns so as to beat others in the marketing strategies. This helps them in reducing the risks related to the product failure (Laisasikorn and Rompho, 2014).

Strategic management in Tesco

There are several factors that affect the business environment of the Tesco hence they have impact on the strategy that is made by the organisation. Some of the major environmental factors that affect the business of the organisation are as follows:

• Political: The political environment of UK has changed drastically and its affect can be easily seen on the business operations that are going on in the country. Decisions such as ‘Brexit’ have a long lasting impact on the operations of the organisation as they will have to redesign their supply chain management system.  They also had the long chain of business in different parts of European Union which was empowered by the free trade agreement between all the member nations of the EU (FitzRoy, Hulbert and Ghobadian, 2012).
• Economic: The economic condition of Tesco is very good as they have strong cash reserves with them. But, it is to be noted that there is continuous decline in the overall economy of the EU. This will have impact on the strategies related to investment and financial management. At the same time it will also have the effect on the generic strategies such as cost leadership strategy.
• Social: It is to be noted that society needs have changed and hence their choices have also changed. With the increase in the people demand towards fresh food items it has become essential for Tesco to make strategies that helps them in availing fresh food items at the stores. For this both inbound and outbound logistics have to be strengthened.
• Technological: Technology has made serious impact on the business process in the retail industry. This has called for improving the technology that is being used within the organisation. With the increasing online shopping behaviour of the people, it has become essential for the Tesco to improve their technology. It is also crucial for Tesco to excel in using digital strategies for different organisational operations. Strategic management in today’s business is highly effected by the help of Technology. Since technology has increased the threat of new entrants hence company needs to adopt all these technologies in their business operations and improve on the challenges that exist in their business (Woods, 2012).
• Legal: Legalities in the grocery industry have changed and these changes in the legal environment have affected the strategies made by Tesco. The change in the strategies is based on the rules that have changed in the industry as well as the obligations that are made by the law.
• Environmental: Governments have become strict over the issue related to environment and waste management. This company will have to ensure that they follow all the environmental laws so as to avoid any kind of legal compliances (Pitt and Koufopoulos, 2012). Risks related to breaching of the environmental laws hence companies will have to keep proper attention towards operational management.

All these factors affect the business strategies made by Tesco at both macro and micro levels. These factors have huge impact on the strategies that are made by the organisation at the ground levels and the performance of the firm.

In order to reduce the risk that is associated with stakeholder there are certain strategic drivers that is used by Tesco in order to maintain the long term values of their stakeholders.

• A differentiated brand: For the long term relationship with the stakeholders at the same time ensuring that risk can be mitigated, it is essential that a strong and distinguished brand is made (Goffin and Mitchell, 2016). They have made strategies for staying in the heart of their consumers. Quality is their first priority hence they are able to make themselves stand-out of most of their competitors. Unique service and focus towards client satisfaction has been their major strategies to mitigate risk chances. In order to reduce the risk related to quality of the items they deliver, Tesco have adopted the strategies to quality management.
• Operational risk: In order to mitigate the strategies which are made by the firms, certain operation related strategies are made. Among all these strategies, the strategy related to operations management can be very beneficial. The most basic strategy that firm aims to use in this regards is technology. This is because use of technology reduces the chances of any major failures. At the same time it also improves the efficiency and effectiveness of the employees and hence the mistakes from their side also get reduced (Wood, Coe and Wrigley, 2016). Technology such as data management software and data analytics has helped the firms to improve the decision making process as the decisions are made after the analysing the data. This also includes reducing operating cost and hence they have saved around £594m and £820m and working towards £1.5bn ambition.

(Source: Tesco, 2018: ConsumerCast)

• Generate cash from operations:  To minimise the environment effects and cost of transportation they are using trucks to order things in bulk. Trucks are fully filled and activity calls are rounding up so as to minimise the stockholding work. Tesco concentrates on the free cash generations and retail cash from actions and hence it has increased by £495m to £2,773m this year.
• Enlarge the mix for achieving product margin: In order to minimise the risk that is generated in the financial terms, they have focused on sustainable productivity, range of products and channels across the business to target the margin of 3.5%-4.0% by the end of the year. Tesco have managed the bundle of values and mix along with the cost-effectiveness of the business. It was a dedicated decision that they have taken at the start of the year by concentrating on the services along with their core retail customers and profitability.
• Increasing value from the property: In order to give advantage to the consumers, Tesco is looking for finding appropriate opportunities so as to utilise the property and space as the property’s portfolio is significant. Tesco is also working with partners and other communities so as to find the appropriate offers to their consumers in most of their stores.  They also utilise their spaces for the benefit of the consumers so as to receive desired response from the side of the consumers (Brannen, Moore and Mughan, 2013).
• Innovation: This strategic driver has been in their core business. They have been collecting the feedbacks from their customers. Based on these feedbacks they work for improving their services and products (Day and Moorman, 2013). In this innovation strategy plays a very crucial role which is again facilitated by strong ideas that is capable enough to compete in the market. Currently, innovation by Tesco is more focused towards improving the customer’s experience of shopping. App based services that delivers the product within an hour is one of the best strategies they have started to mitigate the risk that might be created due to increasing numbers of competitors at the digital platforms.

In order to reduce the risk that may arise in different business operations, they have developed an effective business model. Tesco has concentrated on each and every aspect of the business that may hamper their business growth. Their strategies includes developed, innovative and radical business model (Wood, Wrigley and Coe, 2016). They have put their consumers at priority and hence they have designed their operations seeking what is right for them. In order to reduce the risk in terms of failure in business, they have concentrated on three operational headlines which states that:

For generating the best possible benefits it is essential to listen and understand to the feedbacks of consumers by reaching out to them.

For developing and producing the highest quality products, it is essential to work with the producers and suppliers all around the globe so as to deliver those products to the customers in an appropriate manner.  At the same time for generating the value of the consumers, Tesco aims to ensure about the efficiency for everything in their business. To gain the loyalty of the consumers they use all their capabilities, skills and insights related to their business so as to have uniqueness in the service delivery. They also concentrate on sustainable values of their stakeholders.

Apart from this Tesco business model is based on the three pillar plan i.e. product places and people.

• People: The strength of their people goes to around 4,40,000 people that works for the betterment of Tesco. In the customer’s experience management these people plays a very crucial role hence their training plays a very essential role in this. Their training and development session aims to build skills along with the inclusive culture that will help them in gaining employees on the long term.
• Product: They continuously upgrade not only their products but also add some of the product ranges. They have been effectively investing on the packaging and transportation of products so that they could deliver quality and fresh products to their consumers. They also use resources that can be easily recycled (Dowling and Moran, 2012).
• Places: In order to reach to maximum possible consumers, Tesco have opened their stores at multiple locations all around the world. At the same time they ensure that they help more than 6000 communities.

Risk management model used by Tesco

• Key risk are registered and maintained by internal audit where it is updated regularly. The register notes owners and responses.
• Annual board meeting is conducted for reviewing strategic risks.
• Annual audit is done by reviewing internal control system also they are proactive.
• Compliance committee meets times a year.
• Internal audit monitor has been set up utilising risk based planning and by facilitating risk management.
• Finance committee sets the limits to treasury.

• Local boards and international CEOs have their own risk registers.
• CEOs should provide annual assurance statements that board governance systems are in place.
• Same procedures are followed at the functional level.
• National level key boards manage core operational risks eg trading and IT.

They are using various aspects of business in which they implement their strategies to ensure risk free environment at the workplace. They are:

• Powerful internal culture: They believe on building a power organisational culture that consists of two major elements i.e. staff and consumers. They care for staffs by improving the value for the consumers so as to earn their lifetime loyalty (Hassan and Parves, 2013). On the employees perspective they provide them with lots of opportunities. This is the reason that they have been able to retain 80% of their employees.
• Risk avoidance steps: They aim to dovetail risk management into everything that is performed at the workplace. At the same time they integrate both performance management and risk management.
• Linking risk and performance management: Risks must be linked with the performance management so that all the risks can be managed in an appropriate manner. They have their own balance scorecards and governance structure. Performance based remuneration is associated with risk ownership.

Tesco being a large organisation needs a very detailed analysis of risks that are linked with its various business processes. It is seen that people are finding for special kind of customer experience. In order to reduce the risk more use of technology will be ideal for the company. This must be done on various aspects of the business. There are people from the local and urban areas are coming to join the organisation and hence their training needs to done in an appropriate manner that too as per the requirements of the firm.

They also needs to check the local factors that are affecting their business as most of the time companies keep on watching the bigger risk posed by external factors and often neglect the facts that are generated at the local levels. In order to reduce the risks related to people management it is crucial that Tesco provides them with the clear idea about how the organisation is going to proceed in the business (Lowe, George and Alexy, 2012). This is essential for improving the coordination among different individuals and units. Further they need to work more on the data management as this data can be beneficial for the analysing the risk that can confront their business in the future.

Factors creating the risk environment for the firm

Conclusion 

From the above based report, it can be summarised that Tesco being a large organisation is facing different kinds of risk in different ways. It is essential that company manages the best of strategies in different operation so as to improve the quality of the work they are doing. There are several factors that are affecting the risk that may arise in their business. Their business and risk management model is also designed in a manner that they can improve the risk that may be faced by the company. Operational risk, Generate cashes from operations, Enlarge the mix for achieving product margin, increasing value from the property and Innovation are some the key strategic drivers for the company. Workplace culture, Risk avoidance steps and linking risk and performance management approach helps them to manage the risks that are confronting their business.

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