Review TESCO’s approach to ICT and comment

You are required to:

Having critically evaluated the case study you are required to:

1. Critically evaluate the pattern of actions that TESCO has implemented to return to profit;

2. Critically review TESCO’s approach to ICT and comment on its contribution to its success.

Marking Scheme Summary
Executive Summary	5%
Contents Page	5%
Introduction	5%
Evaluation of Tesco’s recent Strategic decisions:
Critical evaluation of the pattern of actions implemented by TESCO	35%
Critically review TESCO’s approach to ICT and comment on its contribution to its success.	20%
Conclusion	10%
Reference List	10%
Formatting and spelling	10%

Answer

Executive summary

This paper discusses Tesco’s colossal loss that was reported in 2014. The paper highlights some of the factors that contributed to the enormous loss published in the UK retail industry. In explaining the retailer’s strategies to revive the business, this paper evaluates the pattern of actions taken by the firm concerning the loss reported in 2014.

Also, this paper evaluates various technological advancements that Tesco has applied in its business. Some of the technologies were developed to curb the adverse effects that customers would experience.

Introduction

In February 2014, Tesco reported a pre-tax loss of £6.4 billion. The report was a surprise to the shareholders since the company had never recorded such a huge loss. It was one of the enormous losses that have even been reported in UK retail history. In the same year, Tesco had experienced accounting scandal on how it had been recording income from the suppliers.

With regards to the scandal, Tesco overstated its profits by £263 million due to problems in a system that charged suppliers to place their brand in the best position. Due to the scandal, Tesco’s property net worth was not the same as it was thought (Butter and Farrell 2015).

Apart from the scandal, Tesco’s under-performance in 2014 was also fueled by the increasing customer attraction by other retailers such as Aldi and Lidl. The rise of online shopping played a vital role in the reduction of Tesco’s customers.

Many customers preferred ordering goods from different retailers who could deliver directly to customers’ premises. The exit of the former Chief Executive Officer, Philip Clarke, after the latest profits warning, also contributed to the vast loss reported by the retailer in early 2014 (The Guardian, 2015).

Clarke was accused of failing to address sales and profit problems that faced the company during his reign. According to a report published by BBC, Clarke said that he had nothing to regret having served at the CEO for three years. His overall management was accused of failing to address critical issues that would have helped the company during the profit warnings.

Evaluation of the patterns implemented by Tesco

After the huge loss, the company saw the need to replace the then CEO Philip Clarke. Dave Lewis, who held an executive position at Uniliver, replaced Clarke. Even though Lewis had no local history, he was determined to revive the company to a better place than it was.

According to a report published by the Guardian in 2015, Lewis noted that there was nothing wrong with Tesco’s finances. The main aim was to make the company healthier. To achieve this, the company had to employ effective strategies.

After his arrival, Lewis embarked on reviewing the accounting scandal that affected the company’s income statements. The investigations were done by the Senior Fraud Office, accountancy watchdog, and the supermarket regulator.

As a result of the scandal, many executive departures were witnessed. Lewis embarked on reviving the management of the company for better performance in the coming years. He was determined that effective management plays a vital role in the achievement of organizational objectives.

Lewis focused on effective and efficient management to ensure that the company achieves its goals that are serving its profits to generate profits. The report released by the Guardian reported that some executive members of Tesco were forced to step out of the executive bubble and get to basics by shopping and cooking for themselves (Wood 2019).

In 2015, the retailer sold its South Korean chain Homeplus for £4 billion. This was the biggest sale in the retailer’s history of asset disposal. The sale of this chain helped the retailer to set some of the debts that it had.

Huge debts were one of the reasons that contributed to the enormous losses in 2014. Therefore, the management resorted to settling the debts by disposing of some of the retailer’s assets. Generally, the disposal of the South Korean Chain was an excellent strategy to revive the company.

Lewis axed thousands of the retailer’s senior officer positions. Some of the axed positions included those of the retailer’s famous outlets, such as austere Cheshunt headquarters in Hertfordshire. The retailer closed down more approximately 40-loss making stores. Because the retailer operates many stores, the management identified those stores that were contributing to huge losses. The stores were closed to strengthen the other profit-making stores.

The closing of the stores was a good move since the retailer wanted to revive its glory in the UK. When the retailer reported huge losses, it was still the largest retailer in the United Kingdom. Lewis was concerned about Tesco’s performance in the market.

Moreover, analysts noted that Tesco had opened many large branches that were likely to male losses. In early 2001, many retailers were competing to open stores in the UK. During that period, many people preferred shopping in retail outlets. Retail stores provided customers with the opportunity to buy many items under one roof. As a result, the retailer opened many stores in the UK and other parts of the world. Therefore, the retailer’s focus on closing some of the stores was significantly important as far as the success of the business was concerned. This move was influenced by analysts’ advice on the retailer’s performance.

The retailer introduced discounting strategies to attract customers. Before the loss was reported, Tesco had been accused of hiking the prices of goods and services. Many customers consider costs before making purchase decisions. Some of the discounting strategies involved reducing prices and giving offers. This was one of the effective strategies that attracted customers.

Also, Tesco’s cheapest own-label products were replaced by generic farm brands and ersatz ranges. These changes were done in 2016. Lewis also stopped the previous managements’ idea to make Tesco a one-stop-shop. The retailer decided to quit unprofitable sectors such as electrical to avoid losses. 

Tesco also took over cash-and-cash Group Booker to revive its performance in the market. The move to take over the wholesaler was to reduce the stiff competition that was experienced between the retailers and wholesalers in the UK. After lengthy negotiations, the competition watchdog agreed to grant the takeover of cash-and-cash Group Booker by Tesco.

Currently, Tesco has 3,200 UK stores, whereas Booker supplies 117,000 independent retailers. However, some analysts suggested that the takeover would harm Tesco’s performance. The acquisition also aimed at increasing the retailer’s market share by attracting many customers.

In 2017, the retailer agreed to pay £235 fine to the Serious Fraud Office and Financial Conduct Authority for the investigations carried out in 2014. The management was keen on ensuring that the funds are managed effectively, and sound systems are put in place.

In summary, the new strategies put in place by Tesco were brought about by the shocking loss that was reported in early 2014. The new CEO played an instrumental role in reviving the company from 2014 to 2017, where the retailer significantly picked up.

Tesco’s approach to ICT

Having experienced a fraudulent activity that resulted from the ineffective system, Tesco embarked on technological improvements to ensure that their operons are effective. To make employee’s work easier, the retailer introduced a stock counting system.

This technology was linked to the FRID- enabled barcode to F and F clothing in range. This technology allows products to be counted automatically and removed upon entering the store. Previously, manual counting wasted time.

Moreover, the manual system was tiresome. Today, employees have easy work to do. With this regard, employees are encouraged to do their best. The stock counter has also enabled the retailer to identify the most appropriate replenishment as far as the stock is concerned.

The company liaises with suppliers at the time of need hence ensuring that they do no run out of stock. Generally, the stock counting strategy has made work easier thus enabling the company to reduce the number of employees who were employed to do manual counting. In the long run, this technology has contributed to increased profits reported by the retailer.

As a result of technological advancements, Tesco introduced ‘If This Then Than’ to improve online and offline shopping for customers. This technology meets the drive of a multi-channel approach for both online and offline shopping. This technology has enabled Tesco’s customers to have a good experience while shopping. Through a mobile app, customers can connect with other active apps.

This strategy has made customers’ work easier such that they can receive an email notification on price changes. In terms of sales, this technology has rapidly attracted more customers. Furthermore, this technology acts as a marketing tool. Since customers can connect to other apps, they can also be able to decide on whether to buy the products or not.

Bring your Device Integration is another remarkable technological advancement in Tesco’s approach to ICT. Store managers use BYOD technology. The store managers need to download the app and keep real-time tracking for stock movement. The barcode on the products is used for scanning and assessing relevant information of the particular stock. This technology has enabled the retailer to embrace effective and efficient store management. The store managers’ work has been made easier through the use of this technology.

BYOD Integration enables staff to have an easy time when dealing with customers. The staffs have an easy way to identify more information about any product. Instead of letting customers wait for five to ten minutes, they can now get full details about a given product without wasting time on checking from the store.

AAs a result, staff can serve a more significant number of employees in a day. Timely assistance also boosts customers’ experience. In the long run, such customers are more likely to come back. Therefore, technology has enabled Tesco to improve customer loyalty. Customer loyalty is directly linked to the retailer’s profits.

An increase in the number of customers promotes the likeness of the retailer to generate profits. Notably, most of the technologies used by Tesco are linked to a mobile application. The retailer saw the need to promote its technological advancements through mobile apps since many people have access to mobile phones.

Tesco has improved its M-commerce platform. In the digital era, smartphones are becoming one of the needs of many people. Access to the internet has also increased over the years. Many people have access to the internet. In response to this fact, the retailer in question advanced its online shopping platform to give its customers a pleasant experience. Tesco’s M-commerce has improved the retailer’s overall sales volume since many customers prefer ordering goods using their smartphones instead of traveling to the retail outlet. Many customers who use online shopping platforms do so from their comfort zones, such as homes or even offices.

Mobile Payment App is one of the technological advancements that Tesco has developed to give its customers a pleasant experience. In the economy that a more significant number of customers tend to use soft money; online payment is an excellent way to go. Both offline and online customers can use online payment.

This strategy has enabled customers to pay large amounts of money without carrying cash (Workroom, 2018). Unlike other online payment methods such as Apple pay, Tesco’s online payment system enables customers to earn bonuses. The bonus earned can be used to make payments. Tesco’s online payment platform encourages customers to purchase any product that is in stock.

Conclusion

The year 2014 marked history in the UK’s economy concerning the huge loss reported by the giant retailer. In response to the loss, the company reshuffled its management, starting with the CEO. The CEO was determined to revive the retailer to a previous position in the market and eyes of the public. The management resorted to close some of the loss-making stores to avoid further losses. The management disposed of the South Korean Chain to pay its accumulated debts.

The money from the disposal of such assets was used to revive the business. The retailer overtook a wholesale booker in early 2017. Its technological advancement strategies have contributed to the success of Tesco. Some of the advancements include online payment methods, stock counter, and BYOD Integration. These technologies have boosted customers’ experience. They have also made work easier for the employees.