Tesco Leadership & Recovery

Problem statement

Tesco's downfall is chiefly a result of a lack of trust among its customers, among other factors. As we are all aware, the company was founded in 1919 and was formally launched in the UK when it opened its first stores in 1929(Fitzpatrick,2013). In 2013, Tesco was ranked fifth, which was a drop from position two in 2012. Walmart and Carrefour rank first and second, nd respectively (Deloitte Ghana, 2017). This, even though Walmart and Carrefour were founded much later than Tesco. Walmart was founded in 1962, and Carrefour in 1960.

In terms of growth, both retailers managed to surpass Tesco despite their late establishment. Tesco committed some mistakes that have led to its reduction in sales. Some of the grave mistakes it made were: permitting the erosion of trust of millions of its customers, poor leadership under the management of Philip Clarke, who was the Chief Executive Officer of the company until 2014, a broken relationship between Tesco and its key supplier, and d change of its senior officers, which brought about cultural change within the business. This worked against the success of its business (Ahmed, 2015).

It also occurred that Tesco was fraudulent in some of its dealings. For instance, Laurie McIlwee, a former chief financial officer, raised an alarm about a problem that had been discovered in one of its businesses. The alarm concerned financial controls. It happened that there was a mis-declaration by some of the finance officers due to an early accounting of profits, which is forbidden and a dishonest business practice. Where profit accounts cannot be backed with facts or justified, it becomes an act of fraud( Nurse, 2016).

Due to the above fraudulent act, the company has been under investigation. This is mainly due to the £263m misstatement of its forecasted profits (Ruddick, 2014). Though due to some due diligence, the finance department has been able to discover the fraud before it leaked externally, there is no guarantee that the practice has stopped.

Sometimes the CEO took it upon himself to change things without making consultations with the relevant stakeholders. This is a major mistake since some of the moves did not impact the performance of the company. For instance, when   Phillip Clarke took over the company in 2011, the company experienced a lot of changes. This is even though there was disagreement between senior managers about the running of the company. Some had to leave the company due to a lack of consensus on critical things affecting the company. It is under the leadership of Philip Clarke that Tesco experienced a major change in culture, and the company was adversely affected. Instead of Clarke motivating Tesco employees to do things, she made them do things, not because they wanted to do them but because they were made to do them. A positive culture, therefore, cannot be ruined (Ahmed, 2015).

Speaking to the BBC, Clarke claimed that the changes that had taken place in Tesco were necessary considering the prevailing circumstances. He claimed members of the company who left the company failed to acknowledge this fact. There can be no better proof of a lack of teamwork than this. It seems that Clarke had to force changes even when other members of the company disagreed with them. A good leader will listen to others and implement only those changes that are ratified by major stakeholders.

Poor marketing strategies and unstable product pricing are other problems that led to the erosion of trust by Tesco customers (Mail Online, 2015). The company prioritised short-term promotions instead of maintaining low prices over a long period of time, which would boost the trust and confidence of their customers. Short-term promotions led to confusion due to fluctuating prices.

Tesco's failure to study its competitors, such as Asd, was another business mistake they committed. If it paid attention to what is happening within its competitors, it should have occurred to the management that Asda’s pricing was much appealing to customers. This would have dictated its pricing strategies and adjusted accordingly. The fact that Walmart and Carrefour were doing better than Tesco meant that Tesco had lost its competitiveness.

Making random changes within the company was another problem. For instance, between 2011 and 2012, Clarke let go of a number of executives whom he thought would be rendered redundant going forward. This was in view of building a multi-channel retail market that met the standards of the new era. Unfortunately, this worked against the company since people with crucial experience and understanding of the business were let go. New employees with little or no experience in the business were hired. In the process, the company experienced cultural change that made its performance worse (Mail Online, 2015).

Data Analysis

Tesco's failure is solely due to leadership and poor decision-making.  It has lost $1.2 billion trying to extend its business to the US. The company has also lost 20 billion of its value. This is after its $250 million overstatement, which led to the dismissal of 8 of its executives. Since the beginning of 2014, Tesco's stock has fallen by over 50 cents. There was also a 90% decrease in its profit during the first half of the year 2014. On the other hand, Tesco's competitors, such as Walmart, continue to do well. By 2014, Walmart had taken the lead d the bestseller retail market(Rebelo et al., 2014).

There have been a lot of efforts by the management to redeem Tesco from its poor performance track record. It seems that the efforts are paying off, though in small proportions. In the financial year 2015/2016, Tesco recorded a positive growth in sales. During the 2015/2016 financial year, it recorded group sales worth £47.9 billion and £49.9 billion in the 2016/2017 financial year. In actual rates, this was a 4.3% change and a constant rate change of 1.1%. Tesco’s group operating profit before exceptional items was £985milion during the 2015/2016 financial year and £1,280milion during the 2016/2017 financial year(Tesco plc, 2017). This was a 29.9% actual rate change and a 24.9% constant rate change. The company net debts reduced from £5,110million to £3,729million which represents a 27.0% drop in its net debts(Tesco plc, 2017)

Tesco's revenue in the financial year 2015/2016 was £53.9 billion and £55.9 billion in the financial year 2016/2017. This is a 3.7% actual rate change and a 0.8% constant rate change. Its operating profit was £1,072miliion in the 2015/2016 financial year and £1,017milion in the 2016/2017 financial year(Tesco plc, 2017).

From the data analysis above, it has had a better share of good and tough financial times. Though the company is trying to regain its control in the market, it still has not been able to gain momentum compared to its track record during the early years.  It has failed to expand beyond the UK despite being the leading retail market in the UK. Its sales volume, as per the data released during the 2015/2016 financial year, shows that it recorded sales worth £54,433,0,00 ahead of Sainsbury’s and Asda, which came in second and third, respectively. Sainsbury’s sales were valued at £23,506,000 while Asda’s were valued at £23,325,000(Retaileconomics.co.uk, 2016). It is, however, facing stiff competition from its global competitors such as Walmart.Walmart is ranked number one in the world under the Forbes top 2000. On the other hand, Tesco is ranked in position 587(Forbes.com, 2017).

Alternative Solutions

Tesco is in the lead. The business has not failed. What has failed is the leadership of the company. While it is difficult to separate business leaders and the business itself, it is possible to separate individual weaknesses from business weaknesses. If the business is operating in an environment where it the a ready market, good infrastructure, and other factors promoting the growth of a business, if the business fails, the problems lie in its leadership. This is the case with Tesco. The following are the alternative solutions that would reverse the situation and put the company back on track:

i. Listen to its customers. If a customer complains today, it should be the last time he complains. This means acting promptly upon customers’ feedback. Roger Gill, in his book, ‘Theory and Practice of Leadership,’ notes that a visionary company must pay close attention to its customers’ feedback (Gill, 2006).

ii.  Capitalise on its competitor's weaknesses. What its competitors get wrong should be gotten right. Their weaknesses should be turned into Tesco’s strengths.

iii. It should give customers a reason to shop in its stores. There are too many things that can be done to achieve this, but the most important of them all is keeping beating their competitor’s prices. It is a customer’s priority to save money.

iv. Teamwork among all the stakeholders. At no point should a business be a one man’s show. Every decision should be based on a collective consideration of all relevant facts and prevailing circumstances by all the stakeholders. Decisions ought to be made in the best interest of the survivor of the business and its shareholders.

v. Empowering and motivating their employees. When employees are treated in a manner that makes them feel that they are part of the business, their productivity improves. When employees are coerced into doing things they cannot be productive, and ultimately, the business cannot thrive. In his Two-Factor Theory of motivation, Frederick Herzberg posits that motivation is key to the success of business (Griffin, 2007).

Recommendations

My recommendations revolve around fixing what has gone wrong in Tesco. To boost sales and to regain Tesco’s lost glory calls for undoing all the wrongs to build trust and strong relationships between the company and all its stakeholders.

To begin with, Tesco must work towards attracting customers to boost its customer base. It needs to re-examine what it is that Sir Terry, who saw the company grow into becoming the world’s most successful retailer during his tenure. Under the leadership of Sir Terry the business for 14 years, the company witnessed unprecedented growth in sales and profit. There is, therefore, a need to point out the possible changes that have led to the reduction of Tesco’s sales and profits. Not every change in strategy will work for a business. Only changes that are necessary and unavoidable should be implemented in a business. This ensures consistency and predictability in a business (McAlpine,1999). As a result, customers gain trust and confidence in the company’s brand. According to Sir Terry, it is not in the business of Customers to wait around to make a judgment in the retail market. They assess the business and make a judgment. They judge a business daily in their assessment. If the retail is not meeting their expectations, they switch to other markets. Therefore, there is a need to act on customers’ feedback as promptly as possible and make only changes that will make them inclined towards Tesco.

Tesco should prioritize customer feedback. Listening to customers and acting on their feedback is integral to the growth of its business, growth in terms of increased sales and profit (Beal and Strauss, 2008). Even if new employees are incorporated into the company, the management of affairs should be consistent. At no point should the customers notice the change negatively. For instance, when Sir Terry left Tesco and Dave Lewis took over, there is concrete evidence that Dave’s arrival as the company’s Chief Executive Officer led to the decline of Tesco. The company should have mechanisms put in place to enable a smooth transition without negatively affecting the customer experience.

Among the many mistakes that Tesco committed was permitting the erosion of trust by its customers. To win their trust back, the company must provide lower prices and maintain consistency in its pricing. Fluctuating prices lead to unpredictability, which is bad for the reputation of Tesco. It is important to note that other retailers like Asda have relatively lower-priced products than Tesco. As per the study conducted by Sanford Bernstein (a retail analyst), Asda products 6% cheaper compared to Tesco products. As one of the largest retail markets in the world, Tesco should leave no room for its customers to feel extorted by making price comparisons in other markets. It should offer the best prices by keeping them low.

Since Tesco has competitors, it should not keep a blind eye on them. It should have a keen evaluation of strategies employed by its competitors. By so doing, it will discover its competitor’s weaknesses and capitalise on them (Mukherjee, 2006). It should not operate in isolation from other key competitors like Walmart and Carrefour, which are doing better than Tesco. When customers discover alternative markets, they tend to be carried away and end up making a comparison of prices, customer service, a nd quality of products offered. This is an obvious move, especially since customers don’t trust a business anymore.

Employing good marketing strategies is another remedy for the mess that Tesco has found itself in. When it comes to pricing, the best way to go about it is to maintain low prices over a prolonged period of time, as long as there is sustainability. This is as opposed to having regular short-term promotions that lead to confusion. One probable cause of the fall in Tesco’s sales and profits is poor sales promotional strategies.  The company has been accused of ramping up its promotions on a number of occasions. This is very risky for business, for it involves increasing promotions ahead of anticipated product demand. It would be prudent to employ strategies dictated by the prevailing circumstances rather than acting upon mere forecasts.

While promotions would promote commercial income for Tesco, they did little to improve customer trust. The more the promotion, the more suppliers benefited. Winning customers' trust meant developing a price list that customers would trust. Short-term promotions are prevalent in many retail markets and stand out. Tesco needed to develop a consistent price list to cater to attract customers not only during promotional cycles but throughout the year. This is something Tesco never did.

Management of Tesco’s affairs must be done prudently. The business must be run in a consultative manner so that the weaknesses of individual CEOs and other senior officials don’t translate into weaknesses of the business. As mentioned earlier, Philip Clarke had a lot to do with the failures of Tesco. Even in his departure, it became impossible to place the company there; it was under the leadership of Sir Terry. Decisions must not come from one individual, no matter how good his intentions are. To achieve this, a healthy relationship between the managers and other staff members must be cultivated.

In light of the above, the company has been faulted for entertaining wrangles and misunderstandings amongst its senior managers. Tension, blame game, and mistrust amongst the managers have been witnessed in Tesco. Some individuals have left the company due to misunderstandings in their quest to salvage the company. Lack of teamwork is at the core of the problems facing Tesco.

Bibliography

Books

Gill, R. (2006). Theory and practice of leadership. 

Griffin, R. W. (2007). Fundamentals of management: core concepts and applications. Boston, Mass, Houghton Mifflin.

Fitzpatrick, H. I. (2013). Marketing management for non-marketing managers: improving returns on marketing investments. New York, American Institute of Certified Public Accountants.

Nurse, A. (2016). An introduction to green criminology & environmental justice.

McAlpine, A. (1999). The new Machiavelli: the art of politics in business. New York, Wiley.

Beal, A., & Strauss, J. (2008). Radically transparent: monitoring and managing reputations online. Indianapolis, Ind, Wiley.

Mukherjee, P. (2006). Total quality management. New Delhi, Prentice-Hall of India.

FERNIE, J. (2005). International retailing. Bradford, Emerald Group Publishing.

Online sources

Deloitte Ghana. (2017). Top 10 largest retailers, Deloitte  Press release.

Ahmed, K. (2015). Tesco: Where it went wrong.

Ruddick, G. (2014). Tesco warns profits overstated by £250m as it uncovers 'serious issue'.

Mail Online. (2015). Tesco has lost 'trust of customers and suffered failure of leadership'.

Rebelo, T., Mangini, R., Doan, P.P., and Sami Aljurayyad, S. (2014). Tesco Vs. Walmart By: Tanner Rebelo.

Tesco plc. (2017). Preliminary Results 2016/17.

Forbes.com. (2017). Forbes Welcome.