Business at work

to survive and be successful. These relate to issues such as profit

levels and market share.

. Secondary objectives tend to measure the efficiency of the

organisation. They may affect the chances of success, but only in the

long term. Examples include administrative efficiency and labour

turnover rates.

Profit maximisation.

Profit maximisation one of the most important objective for companies which

are owned by shareholders. Profit, at is simplest, refers to the extent to

which revenues exceed costs, so profit maximisation occurs when the

difference between sales revenue and total cost is greatest.

Survival.

Survival is an important objective for many businesses. It is particularly

important when businesses are vulnerable such as:

. during their first few years of trading

. during periods of recession or intense competition

. at a time of crisis such as a hostile takeover.

Most recently established businesses have survival as an objective.

Increasing sales or market share.

Growth increases the scale of a business, resulting in higher levels of

output and more sales. Many businesses pursue growth strategies because

their managers believe that this is essential for survival. If a firm

grows, it might be able to attract more customers, earn higher profits and

begin to establish itself in the market.

Growth offers:

. increased returns for the owners of the business

. higher salaries for employees of the business

. a wider range of products for the business’s existing and potential

customers.

Growth can be important target for managers. It is increasingly common for

managers’ pay packages to be a combination of shares and salary.

Providing social or community service.

A number of organisations provide services to the community. These

organisations are part of the public sector – they are managed, directly or

indirectly, on behalf of the government – yet they are a form of business.

Their overriding objective is to provide the best positive service to the

local community.

Charitable and non-profit objectives.

Charities have a high profile in the UK. Charities have a number of clear

objectives:

. to rise the public’s awareness of the cause that thy support.

. To rise funds to support their projects.

Charities trade with the intention of earning as much revenue as possible

to spend on their particular causes.

Producing high quality products.

Just as many businesses seek to provide high quality service, a large

number of businesses also have the provision of high quality product as an

important objective. Acquiring reputation for top quality can allow

businesses to charge a premium price and to enjoy higher profits.

Reputations for supplying quality products are jealously guarded.

Tesco is committed to retaining its position as the UK’s largest

supermarket retailer. Customer feedback forms, in-store discussion groups

and a continuous analysis of sales figures has enabled Tesco to recognise

the importance of the key principles of price, quality and service.

The company owes its success to its emphasis on meeting changing customer

needs through service and innovation, while maintaining its commitment to

value and quality.

Underlying its business success is a commitment to upholding certain

values and working and working principles and seeking continuous

improvement in its ethical performance.

Companies are part of the society in which they operate and must take note

of the interests and concerns of many different groups. For Tesco these

includes its customers, its stuff, its shareholders, its suppliers and

people in the local communities close to its stores and in the world

beyond. Each group has expectations of the company which Tesco has to meet

and manage if it is to maintain its position as a leading and successful

retailer.

Tesco must serve its customers by providing the goods they want and the

service they expect. By meeting customers needs better than its

competitors, Tesco earns profits and creates value for its shareholders.

Tesco, like other large companies, however, recognises that its wider

reputation depends on other things such as its stuff relations, its

attitude to the environment, its support to the community, and its

relationships with suppliers. Also as a leading food retailer, the company

must ensure that its provides products which are safe to eat or use, as

well as giving customers advice on matters such as healthy diets.

Tesco’s main business objectives:

. to provide customers with outstanding, naturally delivered, personal

service

. to earn the respect of its stuff for the values and appreciate their

contribution

. to understand customers better than anyone

. to be competitive even on the basics

. give customers a broad range of strong relevant promotions in all

departments of the store

. give customers what they want under one roof

. provide an environment that is easy and pleasant to shop in

. upgrade existing stores to the standards that is expected from Tesco

. to recognise Tesco has brilliant people, use this strength to make

customers’ shopping enjoyable in a way no competitor can

. use intelligence, scale and technology to deliver unbeatable value to

customers in everything Tesco does

. to maximise profits to provide high returns for shareholders

. to increase sales or market share as much as possible

. advertising should appeal to all customers in a relevant

Tesco’s main mission statements:

. To be world’s best and largest supermarket retailer.

. Completely increase value for customers, and to earn their time

loyalty.

How Tesco is going to achieve these objectives?

What Tesco expects from its staff in order to achieve this?

Tesco staff:

. Are all retailers, working as a one team.

. Trust and respect each other.

. Respect all customers, the community, suppliers and the competition.

. Strive for personal excellence in everything they do, leaving no stone

unturned in order to get it right.

. Are encouraged to take risks, give support and do not blame others.

. Are rewarded for creating value for customers.

. Are talked and listened to: and their knowledge is shared, so that it

can be used.

. Have fun, celebrate success and learn from failure.

What is the comment Tesco has to its customers?

Tesco customers want the best possible value for their money. Tesco is

determined to offer its customers quality products, good service,

attractive stores and low prices.

To meet this aims, Tesco:

. works closely with suppliers to ensure products are of the highest

quality and are delivered to stores in the best possible condition.

. makes sure that its staff are committed to giving the best possible

quality of service.

. aims to create in its stores an environment which makes shopping easy,

interesting and comfortable.

For example, in 1993 Tesco introduced Value lines, which offer exceptional

value for money, followed by New Deal Pricing on leading commodities and

brands in 1994. In 1996, Tesco introduced Unbeatable Value with the pledge

that nobody would sell the equivalent product for less price.

E3

Organisational functions.

All organisations require resources to carry out their functions. One way

of judging the success of a business is to compare the resources it uses

with the value of the product that results. For example if it is a small

business running by it’s owner, for example small shop, so it doesn’t need

any workers, large piece of land and big capital, owner can work alone. But

if it is a very large business like car manufacturing so it requires a lot

of workers, very large piece of land and big capital.

The resources of the business.

One way of considering the resources used by a business is to classify them

into the factors of production. The main capital of production are capital,

labour and land.

- CAPITAL refers to any manufactured product used by the

business to make other products. This category

therefore includes all machinery, vehicles and office

equipment used in businesses. It also includes the

company’s buildings.

- LABOUR is the human resources used by business

organisations during production.

- LAND – site on which the business is located and

natural resources it might use.

- ENTERPRISE – owners and shareholders.

Functional areas.

All businesses combine factors of production as an essential part of their

production activities. To combine these factors, to engage in production

and to achieve their objectives organisations undertake a number of

functions. The major business functions include:

. finance

. production

. human resources

. administration

. research and development

Business requirements for functional areas depends on its size, for example

small business might merge many of these functions within their

administration department, with responsibility in the hand of one or two

people. As a business grows the number of people required to carry out

these functions increases.

The financial function.

Extensive use of IT

Produces standards

cost data

Customers Auditors Inland

Revenue and

(price list) (accounts)

Custom & Excise

(information

relating

to tax liability)

Figure 1.3: The financial function

A separate department normally carries out the finance function of the

business. The finance department carries out a number of key activities:

. records all financial data

. chases up slow payers

. collects payments from customers

. provides information to external bodies

. analyses costs

. advises board of directors

. monitors and analyses financial data

. advices managers and budget holders

Production function.

Production covers all the activities that must be undertaken to make the

firm’s products, from the receipt, of raw materials through to the output

of the final product. The production function concentrates primarily upon

planning and controlling the various stages of production so that the most

efficient use is made of business resources.

Production manager responsible for:

. maintaining supplies of components and raw materials to ensure

continuous production

. ensuring that the precise requirements of customers are met

. monitoring quality to insure that finished products meet the quality

standards expected by customers

. using resources – people, machinery and production space – as

efficiently as possible to make the business competitive in the

markets in which it trades.

One of the most important issues in production is quality. Modern

businesses compete just as strongly on the quality of their goods and

services as they do on price.

For example it is vital for a washing machine manufacturer to produce a

high-quality product. If the machine is not reliable or does not have a

wide range of functions, customers are more likely to purchase a

competitor’s product.

Figure 1.4: The links between the production function and other

departments

The human resource function.

Personnel management considers the tasks involved in managing people –

recruitment, selection and so forth – as separate elements. It does not

take into account how these elements can combine to achieve organisational

objectives.

The personnel management approach makes decisions relating to recruitment,

training and pay systems independently, without considering the impact the

individual decisions have on each other aspects of management and the

achievement of corporate objectives.

Human resources management (HRM) elevates the effective use of a business’s

labour force to an issue to be considered by senior managers as an

essential element of the organisation’s strategy. This approach has raised

the profile (and salaries) of those employed in human resource management.

The human resources function engages in a number of activities to ensure

employees are utilised affectively. These activities are carried out with

the aim of contributing to the achievement of the business’s objectives.

Workforce plan sets out likely future needs for labour and how these needs

might be met. Achieving the workforce plan involves the human resource

function in a number of day-to-day activities.

. recruiting employees – both internally and externally

. training new and existing employees

. paying salaries

. dealing with disciplinary matters and grievances

. overseeing industrial relations, by seeking to avoid disputes and

maintain harmonious relations and constant production

. developing and monitoring an employee appraisal system designed to

assess performance, set targets for achievement and identify any

training needs

Figure 1.5: Developing a human resources plan

The marketing function.

The marketing department carries out a wide range of functions on behalf of

the business. Essentially marketing is communications. The marketing

department communicates with a number of groups inside and outside the

business as it carries out its tasks.

Marketing activities:

. keeping customers satisfied

. discovering the needs of customers and advising the production

function accordingly

. carrying the responsibility for ensuring the effective distribution of

products to wholesalers and retailers

. liasing with marketing agencies to provide the necessary expertise

(small firms)

. if the firm is an export, the marketing department may have contact

with government agencies.

Marketing provides the organisation with information about its customers

and its markets. Effective marketing can offer businesses a number of

benefits:

. early warning of changes in consumer tastes and fashions through

regular market research

. knowledge about competitors and information regarding competitors’

product

. the means to present the company in a positive light through public

relations activities

. allowing the firm to improve the quality of its products by

coordinating and analysing customer complaints

. providing a catalyst for growth by forging relationships with

distributors, retailers and customers in new markets

. supplying consumers with the products they want and giving high levels

of customer satisfaction, which might permit a business to charge

higher prices thereby increasing its profitability.

The administration function.

The scope of the administration department varies enormously between

organisations. In a small business the administration function might

incorporate a number of the functions like finance , personnel and

marketing. However, larger organisations are more likely to operate a

specialist administration department.

A typical administration department has a number of functions:

. Administration department carries out organisation’s IT system.

. Clerical and support service. Information processing, data processing,

filing and reception services can be provided to all areas of the

organisation.

. Security and maintenance. These services are essential to the smooth

running of the business and to the effective operation of other

business functions such as production in particular.

. In some businesses, the administration function takes responsibility

for important public relations activities such as customer services.

The research and development function.

The nature of research and development (R&D) varies enormously between

businesses. Traditionally, the term research and development is taken to

refer to scientific research undertaken by firms producing manufactured

goods, high technology products or pharmaceuticals. However, R&D is equally

important to firms providing services.

By investigating in research and development a business seeks to maintain

competitiveness against its rivals. Competitiveness measures a business’s

performance in comparison with rival firms in the same market. A highly

competitive firm has some advantage over other businesses. This competitive

edge can take a number of forms:

. lower prices

. more advanced and sophisticated products

. a better image with consumers

. a good reputation for advise and after-sales service

. reliability in terms of operation and delivery dates

Types of research:

. basic research

. applied research

. development

The prime function of R&D is to develop new products that can give the firm

a competitive edge in the market. This necessary involves the R&D

department in close liaison with staff in market research, design and

production.

Function 1.6: The nature of business activity

Functional areas of Tesco plc.

The diagram above shows the key functional areas or departments of Tesco,

as one of the leading retailers in the U.K. It is currently the leading

supermarket chain in Britain, with a higher market share than its leading

rivals, Asda-Wallmart, Sainsbury’s and Safeway.

I have explained earlier the key functional areas of a typical business

and Tesco, as the diagram shows, displays this type of structure. For

example, the Company Secretary, Rowley Ager is responsible for Pensions,

the Company Secretariat (the administrative staff), the Treasury, Taxation,

Site Facilities, Transport and all aspects of Consumer Law.

The Finance Department, directed by Andrew Higginson, is responsible for

all aspects of finance and audit, and also for European affairs. These

functions are shown in Figure 1.3 in my introductory section. I have no

detailed information on Finance within Tesco other than financial data

available from the Company Accounts and from the Tesco and Bized

websites……… and these are more relevant to a detailed finance study of

Tesco as a company, a topic to be studied in a later Unit.

The Marketing Department, directed by Tim Mason, is responsible for all

aspects of marketing , Customer Service, Advertising, Market Research,

Clubcard, Estates and Metros. Since the early 1990s Tesco marketing

strategy has been to become the best in terms of price, quality and

service. Objectives are set, and ways found of meeting them, in all aspects

of company’s operation.

The Retail Department, directed by Michael Wemms, is responsible for all

retail operations and express stores.

Tesco first ventured into foreign markets when it acquired stores in Irish

Republic in 1978, but these were sold in 1986. The 1990s produced a much

better climate for European expansion. Now Tesco operates 80 stores in

Central Europe, and 16 stores in two Far East countries trading both under

the Tesco and subsidiary fascias. The 13 Tesco stores in the Czech Republic

and Slovakia, 29 stores including 5 supermarkets in Hungary, 31 stores in

Poland. Also Tesco plan to open 12 hypermarkets in Thailand and in South

Korea over the next three years.

The Human Resources Department within Tesco is responsible for many

thousands of employees across the whole spectrum of the organisation. Tesco

employs 154,000 people in the UK and 27,000 in Ireland and Europe. It does

not appear on the organisation chart, which I obtained from Tesco, because

this function is somewhat complex and shared between the main headquarters

at Cheshunt. Hertfordshire, and the many stores operated by Tesco around

the country. For example, there are two Tesco superstores in Leicester, at

Hamilton and Beaumont Leys, both of which have a Human Resources officer in

charge of personnel administration.

The Commercial Department, directed by John Gildersleeve, responsible for

all commercial operations and technical services.

The Distribution Department, directed by Philip Clarke, responsible for

Supply Chain and all distribution operations. Distribution Director

responsible for products delivery, logistics and transport. Its purpose is

to ensure that Tesco stores have the right products delivered against

agreed delivery schedules and in good condition, enabling the stores to

provide a consistently high level of customer service. Tesco products are

sent to stores from distribution centres around the country. Tesco runs 13

centres and a further six centres are run for Tesco by contractors. A

typical centre covers 300,000 square feet and handles some 50 million units

a year. The centres work around the clock, seven days a week, providing

2,500 deliveries daily, amounting to 19 million cases per week. Tesco

employs 6,800 people in distribution (excluding the staff at the contractor-

run centres), and has about 1,000 tractor units and 2,000 trailers in its

national vehicle fleet.

The Operations department, directed by David Potts, responsible for

operations of Tesco stores in Northen Ireland & the Republic of Ireland. In

May 1997, Tesco completed an agreement with Associated British Foods to

purchase all their supermarkets in the north and south of Ireland. The

purchase price was Ј641 million, giving Tesco a further 110 food stores and

a leading position as a food retailer on both sides of the Irish border.

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