On the 22nd of September the year 2014, Tesco PLC experienced one of its worst business days in recent years. Jones (2014) asserts that the British retail company was implicated in an accounting scandal in which the management was alleged to have overstated its profits for the first half of its financial year. According to Wright (2014), Tesco PLC admitted that contrary to the £1.1 billion figure announced by the company in August, the actual profits for the first part of its financial year was £850 million (Wright 2014). The objective of this essay is to respond to the challenges currently faced by Tesco PLC company and offer advice to the management from an independent business consultant point of view.
Analysis of Current Issues in Tesco PLC
In order to respond effectively to the challenges that Tesco is currently faced with, it is important to understand the current situation of the company. In addition to the scandal that Tesco PLC is recently implicated in, Tesco PLC also faces high levels of competition from Adli and Lidl. In fact, since the scandal, millions of consumers have shifted from shopping in Tesco to Aldi and Lidl. Wright (2014) argues that one of the main reasons for the scandal in Tesco is that the retailer had too many special offers that were intended to boost sales. Apart from boosting sales, these special discount products are culpable for the rebates miscounted by the retailer causing the accounting error. According to Graham (2014a), this scandal had significant adverse impacts on Tesco which was already struggling; while sales for the company’s competitors- Aldi and Lidl- increased by 29.1% and 17.7% respectively from September 2013 to September 2014; Wright (2014) reveals that Tesco sales dropped by 4.5%. Neilan (2014) asserts that market share of the company also dropped from 30.2% in August 2013 to 28.8% in August 2014.
Secondly, it is obvious that there is an issue of unethical business practices in Tesco PLC. Graham (2014a) purports that for some time, Tesco had allegedly been contravening the Groceries Supply Code of Practice by boosting its profits through postponing supplier payment dates or lessening their trading accounts. A third issue that Tesco is confronted with is the issue of leadership and management. When issues of unethical business practices as colossal as the accounting scandal in the company emerge, it is obvious that the leadership of the company has failed in fulfilling its functions and obligations in the company. Moreover, Wright (2014) asserts that none of the company’s ten board members have any significant experience in the management of retail businesses. In addition to this, the leadership practices of Tesco ousted the CEO who is described as being a “micro-manager” (Wright 2014).
Neilan (2014) asserts that the business strategy used by Tesco in the last two decades is another issue that the company is confronted with. Wright (2014) purports that under the leadership of Sir Terry Leahy- Phillip Clarke’s predecessor- Tesco’s strategy was to ensure that the company remained a market leader through the establishment of numerous large stores in different foreign markets such as the US. The failure of this strategy was evident in the approximately 33% drop in Tesco’s profitability from the year 1998 to 2010 (Wright 2014). Rather than make things better for the company, Graham (2014a) asserts that the arrival of Phillip Clarke and his strategy of store upgrades only exacerbated issues for Tesco since it resulted in increased product prices which drove many price sensitive customers away. Moreover, Wright (2014, para. 3) alleges that Tesco has for many years been characterized by a culture of cost cutting.
McLoughlin (2014) claims that since leadership is very significant in determining a company’s business strategy and development of an organizational culture, Tesco PLC should reassess its managers and leaders as well as the members of the firm’s board of directors. The fact that none of the ten board members has direct experience in managing retail businesses is not beneficial for Tesco. According to Smith (2014), it is also recommendable for Tesco PLC to reconsider its leadership and managerial frameworks and structures. As indicated by Tesco Corporate (2008), one of the most important features of a successful business venture is leaders that are effective, accountable and ethical. Moreover, Graham (2014b) posits that in order to get rid of the company’s culture of cost cutting and unethical business practices, it is vital that the company’s top leadership be comprised of individuals who are ethical, visionary and with a reputation of successful corporate social responsibility.
Simon (2014) claims that the leadership of the company should also consider closing some of the stores that the company has. According to Wright (2014), Tesco already has too many stores. In fact, one of the mistakes that the previous leadership of the company committed was establishing numerous large stores in different regions. Another recommendation is for Tesco to reduce the number of products that it stocks. According to Neilan (2014), it is noteworthy that there are several differences that exist between retailers such as Tesco PLC and hard discounters like Aldi and Lidl. Rather than the approximately 40,000 or more products that are stocked in conventional supermarkets, Wright (2014) purports that hard discounters stock is mostly comprised of an estimated 2,000 different products. Secondly, Russell (2014) asserts that unlike supermarkets such as Tesco which retail brands that are heavily promoted by their manufacturers, most of the brands in hard discount stores are own labels. As depicted by Wright (2014, para. 9) “simplicity begets efficiency”. Unarguably, when a retailer sells a limited amount of products, the firm is able to get high volumes of return for each unit and at the same time handle its warehouse activities more effectively thus avoiding scandals such as the accounting error in Tesco.
This essay responds to the challenges currently faced by Tesco PLC and offers advice to the company’s management from an independent business consultant point of view. Although the accounting issue in Tesco is a very serious scandal which had adverse impacts on the company and caused the ousting of the company’s CEO- Philip Clarke and four other top executives, the greatest challenge for Tesco PLC is the company’s failure in safeguarding its business interests from discounters such as Aldi and Lidl. Although it will undoubtedly take Tesco PLC time to recover from the challenges that currently confront the company, the recommendations made herein are considerably beneficial.
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