Introduction
What I need to do?
In this coursework I need to produce a detailed business report on one
medium–sized or large business. In investigating a chosen Case Study I must
comment and analyze each of the following aspects of the Business:
Objectives
Organization
Structure
Culture
Communication Channels
Quality Assurance and Control
“Adding Value”
I need to examine how these factors interrelate to affect the success of
the business. Also I need to explain how quality assurance and control
systems help the business to add value to its products and services.
As example for my investigation I chose Tesco plc., because Tesco is good
example of public limited company and Tesco – is a most popular
supermarket’s network in UK.
How businesses are classified?
I can classify the business by form, by industrial sector, by ownership, by
objective, by size and by location or market.
Forms of businesses.
SOLE TRADER.
Oldest, simplest, most common form of business easy to set up enterprise.
A sole trader exists where a single person owns a business. This is very
common form of organization. Over recent years, the number of sole traders
has grown significantly. There are several reasons for this trend including
more opportunities to work for firms on consultancy basis and government
support for self-employment. Most sole traders work on their own .
Initial capital – savings or borrowed. Very common in retailing, service
trades.
Advantages:
- Easy to set up with little capital and few legal formalities
- The owner controls the business - quick decision making
- Personal contact with customers
- All profits belong to owner
- Satisfaction, motivation, interest in “Working for yourself”
- Business affairs are private – except far tax returns
Disadvantages:
- Unlimited liability for any loss or debts incurred: owner is
responsible or liable
- Cannot “Buy in bulk” and enjoy “Economies of scale”
- Expansions limited by available capital
- Division of labour is difficult
- Continuity a problem…
Good example of sole trader is T. Regan Plant Hire.
PARTNERSHIP
The minimum membership is two partners and the maximum twenty.
Must be at least one general partner who is fully liable for all debts and
obligations of the practice. “Sleeping partner” – not active. Partnership
exist mainly in the professions – doctors, lawyers, accountants and
surveyors frequently run their organization in the form of partnership.
Partnerships normally operate in local or regional markets, though advanced
in information technology are allowing many professions to offer their
services more widely.
Advantages:
- Easy to set up
- More capital with extra partners
- Division of labour – specialization
- Responsibility can be shared e.g. long working hours redused
Disadvantages:
- Partners have unlimited liability
- Disagreement can cause problems – no sole decision – maker or owner
- Lack of capital may still hinder expansion
- Profits must be shared among all co-owners
- Problem of continuity
Good example of partnership is Rolls-Royce.
COMPANIES
A company is defined as an association of persons that contributes money
(or equivalent value in goods and assets) to a common stock, employ it in
some trade or business, and share the profit or loss arising out of that
business. Join stock companies are governed by and registered under the
Companies Act 1985. A company has a separate legal identity form its
members and can sue in its own name. There are two types of company: public
companies and private companies. Both require minimum two shareholders, and
there is no upper limit on the number of shareholders. All companies enjoy
the benefit of limited liability. Capital is raised by selling shares.
PRIVATE LIMITED COMPANIES
Shares can be transferred privately. All must agree.Private limited
companies are suitable for small and medium-sized operations. This type of
business organization is particularly suitable for family firms and for
small enterprises involving just a handful of people.
Private limited companies find it easier to attract capital because
investors have the benefit of limited liability and this access to finance
makes it simpler for the business to grow.
Advantages:
- Shareholders have limited liability
- More capital can be raised
- Control of company held within the firm
- Shares are transferable
Disadvantages:
- Profit are shared out among more people
- Legal procedures…involve time
- Not allowed to cell shares to the public
- Restricts amount of capital raised
- Difficult to find a buyer if shareholder wishes to “leave”
Good example of privet limited company is Littlewoods Ltd.
PUBLIC LIMITED COMPANY
The second type of limited company tends to be larger and is called a
public limited company. There are about 1.2 million registered limited
companies in the UK, but only 1 per cent of them are public limited
companies. However they contribute with far more to national output and
employ far more people than private limited companies.
Good example of public limited company is Tesco plc. which I going to
investigate.
CO-OPERATIVES
Co-operatives are organised on a regional basis. Members can purchase
shares and each member has one vote at the Annual General Meeting, no
matter how many shares are owned. Members elect a board of directors who
appoint managers to run day to day
business. The Co-operative is run in the interests of its customers and
part of any surplus is distributed to members as dividend. Shares are not
sold on the stock exchange, which limits the amount of money that can be
raised.
Good example of co-operative is CRS (Co-operative Retail Society).
CHARITIES
Charities are organisations with very specialised aims. They exist to raise
money for “good” causes and draw attention to the needs of disadvantaged
groups in society. They also rise awareness and pass comment on issues,
such as cold weather payments, which relate to the elderly.
Charities rely on donations for their revenue. They also organise fund
raising events such as fetes, jumble sales, sponsored activities and
ruffles. A number of charities run business ventures. Charities are
generally run according to business principles. They aim to minimise costs,
market themselves and employ staff. Most staff are volunteers, but some of
the larger charities employ professionals. In the larger charities a lot of
administration is necessary to deal with huge quantities of correspondence
and handle charity funds. Provided charities are registered, they are not
required to pay tax. In addition, business can offset any charitable
donations they make against tax. This helps charities when raising funds.
Good example of charity is British Red Cross.
FRANCHISES
A franchise is not a form of business organisation as such, but a way of
managing and growing a business. Franchising covers a variety of
arrangements under which the owner of a businnes idea grants other
individuals or groups to trade using that name or idea. However, it is
important to realise that a franchise can trade as a sole trader, a
partnership or a private limited company. The legal form of business that
is chosen will depend on the capital needed, the degree of risk, the number
of people having a stake in the franchise and the personal preferences of
the owner. The person or organisation selling the idea (the franchisor)
gains a number of advantages from the process of franchising. The
franchisor normally receives a share of the profits generated by the
franchise. Usually the franchisee benefits by being granted rights to an
exclusive territory and support from the franchiser in the form of staff
training, advertising and promotion.
Franchising is a cheap and quick way to set up your own business. By the
year 2004, it is estimated that 70 per cent of all new retail outlets in
the US will be franchises.
Good example of franchise is McDonald’s.
Industrial sectors.
PRIMARY – extractive organisations.
SECONDARY – manufacturing organisations.
TERTIARY – providing-services organisations.
Ownerships.
PUBLIC SECTOR: Civil service, Government departments, Public corporations,
Local Authorities.
PRIVATE SECTOR: Sole traders, Partnerships, Limited companies, Charities,
Co-operatives, Franchises.
Objectives.
- To make a profit
- To “Break – even”
- To provide service
Size.
- Small
- Medium
- Large
Locations
- Local
- Regional
- National
- Multinational
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Tesco plc.
History
Tesco was founded in 1924. Over the last seventy years, as the food
retailing market has changed, the company has grown and developed,
responding to new opportunities and pioneering many innovations. Today it
is Britain’s leading food retailer.
The founder of Tesco was Sir Jack Cohen. He used his gratuity from his Army
service in the First World War to start selling groceries in London’s East
End markets in 1919. The brand name of Tesco first appeared on packets of
tea in the 1920s. The name was based on the initials of T.E. Stockwell, a
partner in the firm of tea suppliers, and the first two letters of Cohen.
The first store to be opened was in 1929 in Burnt Oak, Edgware.
The business prospered and grew in the years between the wars. In 1947
Tesco Stores (Holdings) Ltd was floated on the Stock Exchange, with a share
price of 75p. The price at the beginning of March 1998 was around 515p.
Self-service supermarkets started in the USA in the 1930s during the
depression. They soon realised that by selling a wider variety and larger
volume of stock and employing fewer staff they could offer lower prices to
the public.
Self-service stores came to Britain after the Second World War, and Jack
Cohen opened the first Tesco self-service store in St Albans in 1948.
In 1956 the first Tesco self-service supermarket was opened in a converted
cinema in Maldon. By the early 1960s, Tesco had become a familiar name. As
well as groceries, the stores sold fresh food, clothing and household
goods. Tesco stores were located in the high streets of many towns. The
Tesco store which opened in Leicester in 1961 had 16,500 square feet of
selling space and went into the Guinness Book of Records as the largest
store in Europe.
By buying in bulk and keeping costs down, Tesco should have been able to
sell at very competitive prices to its customers. Until 1964, however,
suppliers were, by law, able to insist that retailers charged a set price
for their products (the system known as Resale Price Maintenance) which
meant that it was difficult to reduce prices. The intention was to protect
small shops against the lower prices that big retailers could offer their
customers.
Tesco introduced trading stamps so that it could bring lower prices to its
customers. Customers collected stamps as they purchased their groceries and
other items. When they had collected enough stamps to fill a book, they
could exchange the book for cash or other gifts. Other retailers soon
copied Tesco. Sir Jack was one of the leaders in persuading Parliament to
abolish Resale Price Maintenance in 1964. After this, Tesco continued to
offer trading stamps until 1977.
Apart from opening its own new stores, Tesco bought existing chains of
stores. In 1960 it took over a chain of 212 stores in the north of England
and added another 144 stores in 1964 and 1965. In 1968 the Victor Value
chain became part of the company.
Tesco introduced the concept of a superstore in 1967 when it opened a
90,000 square feet store in Westbury, Wiltshire. The superstore was a new
concept in retailing - a very large unit on the outskirts of a town,
designed to provide ease of access to customers coming by car or public
transport. The term superstore was first actually used when Tesco opened
its store in Crawley, West Sussex in 1968.
By 1970, Tesco was a household name. Its reputation had been built on
providing basic groceries at very competitive prices; the slogan ‘Pile it
high and sell it cheap’ was the title of Sir Jack Cohen’s autobiography.
But as people were becoming better off, they were starting to look for more
expensive luxury items as well as everyday household and food products. In
the late 1970s the company decided to broaden its customer base and make
its stores more attractive to a wider range of customers. Many of the
older, high street stores were closed and the company concentrated on
developing bigger out-of-town superstores. The superstores sold a broader
range of goods, and had wider aisles and better lighting. While still
offering very competitive prices, the emphasis was now on quality, customer
service and a customer-friendly environment. In 1974, the company developed
filling stations at its major sites, selling petrol at very competitive
prices. In line with its new image, Tesco finally stopped giving trading
stamps in 1977, at the same time introducing a price cutting campaign under
the banner "Checkout at Tesco" which proved to be a major success.
In one year in the late 1970s, the Tesco market share increased from 7% to
12%, and in 1979 its annual turnover reached Ј1 billion for the first time.
During the 1980s, Tesco continued to build new superstores, opening its
100th in 1985. In 1987 it announced a Ј500 million programme to build
another 29 stores. By 1991, the popularity of Tesco petrol filling stations
at its superstores had made the company Britain’s biggest independent
petrol retailer.
In 1985 Tesco introduced its Healthy Eating initiative. Its own brand
products carried nutritional advice and many were branded with the Healthy
Eating symbol. The company was the first major retailer to emphasise the
nutritional value of its own brands, to customers.
By 1990, Tesco was a very different company from what it had been 20 years
before. The Tesco superstore offered customers a very wide range of goods,
a pleasant shopping environment, free car parking and an emphasis on
customer service. Although many financial experts had not believed that the
company could so radically change its image, the new approach saw sales and
profits rise consistently. Existing customers took advantage of greater
choice, and new customers discovered that Tesco could successfully match
the offer of any of its retail competitors.
In the 1990s, the company built on its success by developing new store
concepts and new customer-focused initiatives. In 1992, it opened the first
Tesco Metro, a city centre store meeting the needs of workers, high street
shoppers and the local community. This was followed by Tesco Express,
combining a petrol filling station with a local convenience store to give
local communities a selected range of products. The company also expanded
into Scotland when it acquired a chain of 57 stores from William Low.
Tesco broke new ground in food retailing by introducing, in 1995, the first
customer loyalty card, which offered benefits to regular shoppers whilst
helping the company discover more about its customers’ needs. Other
customer services followed, including home shopping for those who hadn’t
the time to visit a superstore, Tesco Direct for catalogue shoppers and the
Tesco Babyclub for new parents. Currently, the company is adding financial
services to its provision for customers.
By 1995, Tesco had become the largest food retailer in the UK.
In the 1990s, Tesco started to expand its operations outside the UK. In
Eastern Europe, it has met growing consumer aspirations by developing
stores in Poland, Hungary, Slovakia and the Czech Republic.
Closer to home, in 1997 Tesco purchased 109 stores in Ireland, which gave
the company a market leadership both north and south of the border.
Tesco Chairmen 1947-1998
Sir Jack Cohen 1947-1979
Sir Leslie Porter 1979-1985
Sir Ian MacLaurin (Lord MacLaurin from 1996) 1985-1998
John Gardiner 1997
Chief Executive Terry Leahy 1997
The letters ‘plc’ at the end of its name distinguishes a public limited
company from a private limited company. Most of Britain’s famous
businesses such as Marks and Spencer, ICI, BP, and Manchester United are
public limited companies. All companies with share prices quoted n the
London Stock Exchange are public limited companies.
To become a public limited company, a business must have an issued share
capital of at least Ј50,000 and the company must have received at least 25
per cent of the nominal value of the shares. Public limited companies must
also:
. be a company limited by shares
. have a memorandum of association with a separate clause stating
that it is a public company
. publish an annual report and balance sheet
. ensure that its shares are freely transferable – they can be bought
and sold.
Benefits:
. All members have limited liability.
. The firm continues to trade if one of the owners dies.
. Huge amount of money can be raised fom the sale of shares to the
public.
. Production costs may be lower as firm may gain economies of scale.
. Because of their size plcs can often dominate the market.
. It becomes easier to raise finance as financial institutions are
more willing to lend to plcs.
Constraints:
. The setting up costs can be very expensive – running into millions
of pounds in some cases.
. Since anyone can buy their shares, it is possible for an outside
interest to take control of the company.
. All of the company’s accounts can be inspected by members of the
public. Competitors may be able to use some of this information to
their advantage. They have to publish more information than private
limited companies.
. Because of their size they are not able to deal with their
customers at a personal level.
. The way they operate is controlled by various Company Acts which
aim to protect shareholders.
. There may b a divorce of ownership and control which might lead to
the interests of the owners being ignored to some extent.
. It is argued that many of these companies are inflexible due to
their size. For example they find change difficult to cope with.
Tesco plc. is large, private sector organisation. As it is providing-
service organisation I can classify it as tertiary sector organisation.
Tesco plc. is a national company, but it is becoming to multinational. Main
objective is to make a profit.
As Tesco is a limited company that means all owners have limited liability.
If a company has debts, the owners can only lose the money they have
invested in the firm.
Main source of finance is selling shares and borrowing from the banks.
Tesco has a thousands of owners, every man who has any shares is owner; but
these people can’t control the company, so company has a board of directors
and chairman who control the company.
Tesco has a heavy programme of capital expenditure, investing in new stores
and upgrading existing ones. In the year ending 28th February 1998, the
group capital expenditure was Ј841 million, compared to Ј758 million in the
year ending 28th February 1997. This Ј841 million was divided into Ј737
million spend in the Great Britain, Ј63 million in Ireland, north and
south, and Ј41 million in Europe. Tesco anticipates that in the 1998-9
financial year, capital spending will rise to about Ј950 million, with most
of the extra spending being concentrated in Ireland and Central Europe.
Profit is also distributed to shareholders in the form of dividends.
For example, in 1998 the profits from Tesco after tax were Ј505 million.
About 50% of the profits were distributed to shareholders as dividends.
Subsequently approximately Ј250 million was retained by the company for
investment in new stores and improving their service to customers.
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Objectives of the business.
The objectives of the business can vary enormously A charity’s overriding
objective might be to alleviate poverty in the developing world; on the
other hand many companies’ major objective is to generate the maximum
profits possible. An organisation’s mission statement gives an indication
of the purpose of the business and dovetails with the objectives the
organisation set itself.
Mission statement.
Many organisations attempt to express the purpose of their being within a
few sentences. The mission statements are intended to provide a sense of
common purpose to direct and stimulate the organisation. This statement
represents the vision or mission of the organisation. Mission statements
change over time to reflect the changing competitive nature of the markets
in which business sell.
Mission statement normally set out to answer the following questions:
. What business is the organisation in?
. Who is to be served?
. What benefits are to be provided?
. How are consumers to be satisfied?
Objectives.
Business objectives are medium- to long-term goals or targets that provide
a sense of direction to the business. Objectives are normally measurable
and have a stated timescale.
Company may have a number of objectives. In general, the objectives
pursued by a business tend to vary according to its size, ownership and
legal structure.
Figure 1.1 illustrates the interrelationship between a company’s mission
statement and its objectives.
Figure 1.1: The hierarchy of objectives
The goals pursued by any business can be separated into primary and
secondary objectives.
. Primary objectives are those that must be achieved if the business is
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
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