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:
Quality Assurance and Control
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 mmy 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.
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, tthe 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. VVery common in retailing, service
– 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
– 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.
The minimum membership is two partners and the maximum twenty.
Must be at least one general partner wwho 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.
– Easy to set up
– More capital with extra partners
– Division of labour – specialization
– Responsibility can be shared e.g. long working hhours redused
– 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.
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 aand this access to finance
makes it simpler for the business to grow.
– Shareholders have limited liability
– More capital can be raised
– Control of company held within the firm
– Shares are transferable
– 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
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 iis distributed to members as dividend. Shares are not
sold on the stock exchange, which limits the amount of money that can be
Good example of co-operative is CRS (Co-operative Retail Society).
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.
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
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 aa 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 MMcDonald’s.
PRIMARY – extractive organisations.
SECONDARY – manufacturing organisations.
TERTIARY – providing-services organisations.
PUBLIC SECTOR: Civil service, Government departments, Public corporations,
PRIVATE SECTOR: Sole traders, Partnerships, Limited companies, Charities,
– To make a profit
– To “Break – even”
– To provide service
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 lletters 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 ccould offer lower prices to
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
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, tthey
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 eeveryday 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 £1 billion for the first time.
During the 1980s, Tesco continued to build new superstores, opening its
100th in 1985. In 1987 it announced a £500 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
In 1985 Tesco introduced its Healthy Eating initiative. Its
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 iimage, 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 aa 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 lloyalty 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 JJack 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 aat least £50,000 and the company must have received at least 25
per cent of the nominal value of the shares. Public limited companies must
• 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
• 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
• 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.
• 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. CCompetitors may be able to use some of this information to
their advantage. They have to publish more information than private
• 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 ccompany 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 £841 million, compared to £758 million in the
year ending 28th February 1997. This £841 million was divided into £737
million spend in the Great Britain, £63 million in Ireland, north and
south, and £41 million in Europe. Tesco anticipates that in the 1998-9
financial year, capital spending will rise to about £950 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 £505 million.
About 50% of the profits were distributed to shareholders as dividends.
Subsequently approximately £250 million was retained by the company for
investment in new stores and improving their service to customers.
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
organisation set itself.
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 tto be served?
• What benefits are to be provided?
• How are consumers to be satisfied?
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
Figure 1.1 illustrates the interrelationship between a company’s mission
statement and its objectives.
Figure 1.1: The hhierarchy of objectives
The goals pursued by any business can be separated into primary and
• 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
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 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 ttakeover.
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.
• increased returns for the owners of the business
• higher salaries for employees of the bbusiness
• a wider range of products for the business’s existing and potential
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
Charitable and non-profit objectives.
Charities have a high profile in the UK. Charities have a number of clear
• 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 llargest
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
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 tthe 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
• to earn the respect of its stuff for the values and appreciate their
• 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
How Tesco is going to achieve these objectives?
What Tesco expects from its staff in order to achieve this?
• 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 iin 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 sservice,
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 tto 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.
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 oof 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 ccategory
therefore includes all machinery, vehicles and office
equipment used in businesses. It also includes the
– 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.
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:
• human resources
• 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
Customers Auditors Inland
(price list) (accounts)
Custom & Excise
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 uup 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 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
• 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 aa
wide range of functions, customers are more likely to purchase a
Figure 1.4: The links between the production function and other
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
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
• 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
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 iinside and outside the
business as it carries out its tasks.
• keeping customers satisfied
• discovering the needs of customers and advising the production
• carrying the responsibility for ensuring the effective distribution of
products to wholesalers and retailers
• liasing with marketing agencies to provide the necessary expertise
• 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. EEffective marketing can offer businesses a number of
• early warning of changes in consumer tastes and fashions through
regular market research
• knowledge about competitors and information regarding competitors’
• the means to present the company in a ppositive light through public
• 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 oout organisation’s IT system.
• Clerical and support service. Information processing, data processing,
filing and reception services can be provided to all areas of the
• 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 rresearch 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
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
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 sshare 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 ffirst 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 aaround 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 oof Ireland. The
purchase price was £641 million, giving Tesco a further 110 food stores and
a leading position as a food retailer on both sides of the Irish border.
I have considered each of the major functions of Tesco separately. However,
it is tthe effective interaction of business functions that is essential to
the success of an organisation in attaining its objectives.
As an example, Tesco has recently introduced a customer-oriented website on
the Internet. Company has developed within this service facility a direct
order system via E-mail – called “Tesco Direct”. Customers can order
their produce/product for home delivery.
There are now many thousands of such deliveries but these all depend upon
the successful interaction of the major business functions outlined
In other word, –
• Marketing – responding to the initial enquiry, receiving and
processing an order, distributing the product to customer.
• Administration – adding the customers details to the IT system,
passing on details to other departments within the business.
• Finance – investigating the financial status oof the customer, offering
credit terms if appropriate, invoicing for payment.
• Distribution – receiving details of order and meeting the customer’s
demands, liasing with marketing over delivery dates, rescheduling
other production as required.
• Human resources – at a store or warehouse level – ensuring sufficient
employees are available to meet the delivery requirements of the
order, arranging overtime payments if necessary.
Hence these functions help meet the objectives successfully. All Tesco’s
organisation structure works as links of a chain, if oone link falls down,
all the organisation will experience difficulty. For example, most
important department of Tesco, I consider, is Distribution department. If
this department fails, products will not be delivered to the store, so
customers will go to another store. Tesco’s success is built on the good
work of each department.
In many small firms, the owner may have a very hands-on approach and may be
responsible for getting customers, hiring any extra labour and acquiring
other inputs and taking all financial decisions. As organisations grow,
however, their structure takes on a greater significance and those at the
top have to pay more attention to its formal structure and presentation.
The various business functions will show an increasing degree of
specialisation as an organisation expands and people will be employed to
manage and take decisions in specialist areas.
In general, an organisational structure sets out:
1. Major roles and job titles, showing who is in control of the business
as a whole and who manages its major business functions within
2. The level of seniority of people holding different positions and their
respective positions in the organisation’s overall hierarchy.
3. The working relationships between individuals, identifying
relationships in terms of superiors and their subordinates and
indicating who has authority to ttake certain kinds of decisions and
who are responsible for carrying out the work arising from those
4. The extent to which decision making is concentrated in the hands of
people at or near the top of the organisation or handed down to those
at lower levels of management.
5. The broad channels through which information is communicated
throughout the organisation, indicating the route by which
instructions flow down the hierarchy and how information flows back up
Organisational charts are representations of the job titles and the formal
patterns of authority and responsibility in an organisation.
Business may produce organisational charts for several reasons. First, it
is important that a company reviews its organisational structure on a
regular basis to take account of any changes in the business environment.
A formal organisational chart helps the company to identify where changes
need to be made and to decide the relationship between any new sections or
departments and the rest of the organisation. Business also produce
organisational charts because they allow a company to review its structure
and to identify areas where cost saving changes and improvements can be
made. Organisational charts are useful when changes take place in the
company. It can be updated to take account of aany informal developments in
its structure that have been good for the company. A revised organisational
chart is particularly useful for informing people about the new structure
of the company after mergers or take-overs.
The organisational chart can also be used during an induction period to
give new employees a useful overview of the company and their own position
within the structure in terms of their authority and the managers to whom
they are responsible. Although an organisational chart has several uses, it
should not be taken as giving an exact description of how the organisation
actually operates. It does not give the exact nature of job
responsibilities or indicate what levels of cooperation may be necessary
Function 1.7: Line authority in a production department.
Chain of command – is the line of command flowing down from the top to the
bottom of an organisation. It passes down the management hierarchy, from
director and senior management levels to those in middle and junior
management positions and eventually to employees in supervisory jobs who,
for example may have authority over assembly line workers or staff
providing services to the organisation’s customers. Organisations with a
long chain of command – with a hierarchy made up of many levels of
management – are said to have tall organisational structures.
control – refers to the number of subordinates a manager is
responsible for and has authority over. Organisations with a long chain of
command will tend to have narrow spans of control. Organisations with a
short chain of command tend to have wider spans of control. This produces a
flat organisational structure because it has a hierarchy with fewer levels
Flat organisational structures: are generally desirable, there is a limit
to the number of subordinates who can be placed under one superior. Even
very experienced managers wwho have the qualities and personalities that
promote loyalty and hard work can only be responsible for so many
Tall organisational structure : some organisations have many levels and
grades of staff with a tree-like management structure and strong patterns
of vertical communication. This means that there are many different grades
of staff between people lower down the organisation and the person at the
top. Tall organisations suffer from problems with bureaucracy, as
information needs to be directed through the correct channels before
appropriate action is taken.
The main ffeatures of such a structure are as follows:
6. At each level there are several staff responsible to a person at the
next level up. The process is repeated until the top of the
organisation is reached.
7. In a llimited company the person at the top is the Managing Director
who is ultimately responsible for the whole organisation.
8. As the levels within the organisation are ascended, the number of
people at each level decreases and this gives the organisation a
In an organisation with flat structure there are fewer levels or grades of
staff and much more emphasis on communication across the organisation. This
is more likely to be the structure of a small business where everyone knows
each other and works together more as a team.
In some situations, however, a relatively wide span of control may be
9. The potential disadvantages of a wide span are outweighed by the costs
of employing the extra managers needed to produce nnarrower spans of
10. Junior employees are engaged mainly in routine work and as a result
the manager is required to make relatively few decisions.
11. Managers are willing to reduce the pressure on their own time by
delegating more decision making and they can identify staff who are
likely to respond well to the extra responsibility.
12. An effective range of financial and non-financial motivational factors
produces a committed group of people who need very little supervision.
13. TThe group within the span are highly skilled or talented and are given
a great deal of scope to be creative and imaginative in their work.
In a line structure, a company is usually organised into functional
departments, each headed by a senior manager, below whom there is a chain
of command. This indicates that there is a line of authority and
responsibility as one goes down the structure.
Each person in the line has authority over those below, while being
responsible for making sure that the work handed down to them from their
immediate manager is completed. This applies even if the subordinate does
not personally undertake the actual work.
14. It is hierarchical structure which is simple to understand – staff
know precisely where they are in the structure, who can allocate work
to them and to whom they are responsible.
15. Managers have a clear understanding of the roles of people when
allocating work and spend less time monitoring work because
subordinates are not distracted or confused by instructions from other
16. A well-established line authority makes it possible for work to be
delegated further down the line – this can be valuable when superior
is seeking to widen the experience subordinates aand develop their
management or supervisory skills.
17. It can involve a very long chain of command – instructions may take a
considerable time to filter from the top and impact on production,
which can be an important drawback if the organisation operates in a
rapidly changing market.
18. The flow of information back up a long chain to management may be a
lengthy process, causing a considerable delay before problems are
identified and tackled.
19. Individuals might only respond to requests from the superior, creating
inflexibility in the organisation which may be totally unnecessary if
co-operation with other managers does not effect working relations
with their superior.
Line and staff structure
A line and staff structure combines both a line authority and what is known
as staff authority. The term staff authority refers to those staff, usually
at a relatively senior level, whose are of work often involves dealing with
different departments. Someone with the relevant staff authority can
provide services and advises to those in the line of authority of other
departments. Managers with staff authority do not have the power to control
or give instructions, but rather the authority to deal with different
departments and to offer advice or support services in relation to problems
or eexploiting new opportunities. However, since those with staff authority
are appointed because of their expertise, experience and good personal
skills, their advice, though not binding, is likely to be very persuasive.
20. Staff authority enables the expertise and experience of specialists to
be utilised more fully across the organisation.
21. By having access to all areas of the company, managers with staff
authority, communications between departments are at director level,
and so any inter-departmental communication has to pass up the chain
of command in one department to director level and then down the other
before it reaches the appropriate level.
22. Staff authority prevents individual departments from being too inward
looking – departments remain aware of their interdependence and their
role in seeking to achieve the organisation’s objectives.
There is a risk that staff authority may diminish the authority of
individuals in the line management, particularly if those with staff
functions acquire informal power and authority.
In a matrix structure, a senior manager heads a division or team of
specialists drawn from different departments. These specialists are also
located in departments where they are part of a line authority; they are
therefore subject to two sources of authority.
In a matrix structure the simple chain of command found
in a line structure
is replaced by a very large number of reporting relationships as
individuals report to managers in more than one department or function.
A matrix structure may be used for just some of an organisation’s
activities or it may cover the whole work of the organisation. It is often
used for organising and managing project teams, where people with
specialist skills, perhaps from different levels in the hierarchy, are
brought together to solve complex and urgent problems. Project teams may be
created to deal with iissues which arise every now and again or they may be
an ongoing feature of the organisational structure.
Some aspects of marketing, however, may be handled by an ongoing project
team drawn from other departments, although the membership of the group may
change as different marketing issues arise.
23. It promotes increased co-ordination between departments because it
cuts across departmental boundaries – it encourages greater
flexibility and creativity, produced by the cross-fertilisation of
knowledge and skills.
24. It allows for the involvement of relatively jjunior staff, giving them
valuable experience in a wider field for the expression and
application of their particular skills.
25. Staff lower down a line structure can also gain valuable management
development in a project team, preparing them for promotion tto higher
26. The involvement of specialists from different areas reduces the risk
being wasted on projects with no future – in non-matrix structures an idea
in, say, the marketing department may be pursued for a long time before it
comes to the attention of production which might find that it is
simply not practical.
• The existence of a matrix structure and project teams can lead to
confusion as individuals are involved in a large number of different
relationships creating a complex pattern of authority and
• A line manager may resent a subordinate receiving instructions from
managers based on other departments, especially if they are at a lower
level of management.
• This also raises qquestions as to who has priority over the
subordinate’s time and what information arising out of the work of the
project team should also be reported through the line authority. This
can be a potential source of conflict and relations may also be
strained if the subordinate suffers from divided loyalty.
Organisations are centralised when the majority of decisions are taken by a
few people at the top of the organisation and little decision making is
delegated to those further down the oorganisational structure.
Even if many important decisions are delegated to subordinates, some
aspects of the business are always likely to remain totally under central
control. In general, senior managers or a centralised department takes
responsibilities for: major financial issues, wages and salaries, manpower
planning and personnel records, purchasing.
27. Senior management have more control of the business, eg budgets.
28. Procedures, such as ordering and purchasing, can be standardised
throughout the organisation, leading to economies of scale and lower
29. Senior managers should be more experienced and skilful in making
decisions. In theory, centralised decisions by senior people should be
of better quality than decentralised decisions made by others less
30. In times of crisis, a business may need strong leadership by a central
group of senior managers.
31. Communication may improve if there are fewer decision makers.
Complete decentralisation would mean subordinates would have all the
authority to take decisions. It is unlikely that any business operates in
either of these ways. Even if authority is delegated to a subordinate, it
is usual for the manager to retain responsibility.
Some delegation is necessary in all firms because of the limits to the
amount of work senior managers can carry out. Tasks that might be delegated
include staff selection, qquality control, customer relations and purchasing
and stock control. A greater degree of decentralisation – over and above
the minimum which is essential – has a number of advantages.
32. It empowers and motivates workers.
33. It reduces the stress and burdens of senior management. It also frees
time for managers to concentrate on more important tasks.
34. It provides subordinates with greater job satisfaction by giving them
more say in decision-making, which affects their work.
35. Subordinates may have a better knowledge of ‘local’ conditions
affecting their area of work. This should allow them to make more
informed, well-judged choices.
36. Delegation should allow greater flexibility and a quicker response to
changes. If problems do not have to be referred to senior managers,
decision-making will be quicker. Since decisions are quicker, they are
easier to change in the light of unforeseen circumstances which may
37. By allowing delegated authority, management at middle and junior
levels are groomed to take-over higher positions. They are given the
experience of decision making when carrying out delegated tasks.
Delegation is therefore important for management development.
Delayering involves a business reducing its staff. The cuts are directed at
particular levels of a business, such as managerial pposts. Delayering
involves removing some of these layers. This gives a flatter structure.
Delayering is likely to play a major role in a policy of decentralisation
as the removal of management layers allows authority for decision making to
be shifted to a lower level in the organisation.
• The savings made from laying off expensive managers. It may also lead
to better communication and a better motivated staff if they are
empowered and allowed to make their own decisions.
• However, remaining managers may become demoralised after delayering.
Also staff may become overburdened as they have to do more work. Fewer
layers may also mean less chance of promotion.
Management style refers to the approach that an organisation takes in
setting objectives for its employees and the way it manages relations
between superiors and subordinates.
Management or leadership styles can be categorised as:
Autocratic: A manager that adopts an autocratic management style takes
entire responsibility for decisions and, having set objectives and
allocated tasks to employees, expects them to be carried out exactly as
specified. Employees are told exactly what, how and when work must be
started and finished. It is the kind of management style often associated
with a corporate culture centred almost exclusively around production.
Power is focused at the top, and
the centralised decision making is geared
to getting the goods out of the factory and to customers. Little regard is
paid to any non-monetary needs of employees; they are not consulted or
involved in decision making.
Democratic: A democratic management style seeks to involve employees in the
decision-making process, either by consulting them directly or through
their representatives. This approach reflects a corporate culture which is
more human resource centred and recognises the organisational benefits from
meeting its employees’ non-monetary needs – such as a need for job
satisfaction aand a sense of belonging. A consultative approach is
particularly important if an organisation is planning to change product
design or working conditions, methods and practices.
Laissez-faire style: This style gives people complete freedom to organise
and carry out their work. It is a very person centred approach. A laissez-
faire approach may still impose some constraints, such as completion dates
for certain key tasks or the earliest and latest arrival times for a
flexible hours working day. There is no formal structure for decision
making as decisions aare taken by a variety of processes depending upon the
nature of the problem, the opportunity to be explored and the individuals
Consultative style: Leaders consult with others before decision are made.
There will be a group influence in the final decision, even tthough it is
made by the leader.
As diagram above shows, Tesco has many levels of staff: directors on the
top, and step by step to employees on the bottom, therefore I can think
that Tesco is a hieratical organisation, where each individual knows who he
must report to. Communication in a complex organisation such as Tesco will
be dependent on the organisational structure, but this will be discussed
later in my section on “Communication”.
I can see that Tesco has a centralised and decentralised form of
organisation because people on the top, who control the company, take the
majority of decisions and also the company’s Head office is centralised at
Cheshunt in Hertfordshire.
Tesco is very big organisation and has very many stores in different places
– this fact shows that Tesco iis a decentralised organisation, with much
decision-making delegated on a regional and individual store level.
From the information I have managed to access I believe/consider that Tesco
has a very good democratic and consultative management style. It is a very
successful firm, as seen earlier, it is now the U.K. market leader with
positive leadership from above and a notable corporate culture.
The directors present their annual report to shareholders on the affairs of
the Group together with the audited consolidated financial statements of
the Group for the 552 weeks.
The principal activity of the Group is the operation of food stores and
associated activities in the UK, Republic of Ireland, France, Czech
Republic, Slovakia, Hungary, Poland and Thailand. A review of the business
is contained in the Annual Review which is published separately and,
together with this document, comprises the full Tesco PLC Annual report
Culture in organisations is often described as the set of values, beliefs
and attitudes of both employees and management that helps to influence
decision-making and ultimately behaviour within them. Each organisation has
a unique culture. This is what makes studying business behaviour so
fascinating. The business culture helps to determine how things get done in
firms and defines, quite simply, how the company works. The fact that
organisations are themselves organic, composed of workers constantly
interacting with each other and their environment, suggests that the
culture in firms is not static and constant – the way firms operate can
change, either intentionally through management action or more likely
through natural evolution.
Corporate culture is a set of values and beliefs that are shared by people
and groups in an organisation. A simple way of explaining corporate culture
might be to say that it is the ‘way that things are done in a business’.
The corporate culture of a business ccan influence decision-making. It also
encourages low level managers to behave like entrepreneurs. Business
leaders are able to create a corporate culture to achieve a corporate
objectives and strategy of the company. It is important that the corporate
culture of a business is understood by all the people that work in the
organisation. It is usually transmitted to new members and reinforced
informally, by stores, symbols and socialisation, and more formally through
Advantages of a strong corporate culture.
• It provides a sense of identity for employees. They feel part of the
business. This may allow workers to be flexible when the company
needs to change or is having difficulties.
• Workers identify with other employees. This may help with aspects of
the business such as team work.
• It increases the commitment of employees to the company. This may
prevent problems such as high labour turnover or industrial relations
• It motivates workers in their jobs. This may lead to increased
• It allows employees to understand what is going on around them. This
can prevent misunderstanding in operations or instructions passed to
• It helps to reinforce the values of the organisation and senior
• It acts as a control ddevice for management. This can help when
setting company strategy.
Figure 1.8: Types of business culture.
Culture, presented within Tesco plc.
Tesco has achieved its position as Britain’s leading food retailer by
offering excellent value and service to its customers. Underlying its
business success is a commitment to upholding certain values, working
principles and culture within the organisation, and to seek continuous
improvement in its ethical performance. As a measure of its achievement to
date, in 1997 the company came top in the Christian Aid league table for
Tesco must serve its customers by providing the goods they want and the
service they expect. By meeting customer needs better than its competitors
do, Tesco earns profits and creates value for its shareholders.
Customer service is at the heart of Tesco business culture. The base line
is quality and value, but customers also look for a shopping environment
which is attractive, well planned, and enjoyable. They also expect staff to
be helpful, responsive to their needs, and sympathetic to their problems.
Tesco is constantly seeking new ways of meeting customer needs. These
include introducing Customer Assistants dedicated to helping customers at
every point during their shopping, establishing a Customer Service Centre
to deal with customer enquiries, providing facilities for customers with
disabilities, and organising customer question times
when Tesco can hear
Tesco employs 154,000 people in the UK and 27,000 in Ireland and Europe. It
is constantly told by customers that its staff are the company’s best
asset. This means that the company must motivate and train its employees to
give the best possible customer service, and provide opportunities for all
members of staff to develop their talents to the full.
The company believes that the welfare and safety of its employees is of
paramount importance, and applies high ethical standards to pprotect
workers’ rights and reward employees fairly for their work. Full and part-
time staff have had their benefits harmonised, including salaries, purchase
discounts, pensions and profit-sharing. The company has a national
agreement with USDAW, the shop workers’ trade union.
The approach of Tesco to worker welfare goes beyond its own employees. The
company insists that its suppliers meet certain employment standards in
matters such as fair pay or minimum working ages. Tesco believes it can
play a positive role in influencing working practices around the world.
Like other llarge companies, however, Tesco recognises that its wider
reputation depends on other things, such as its staff relations, its
attitude to the environment, its ...
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