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Business at work

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

E1

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.

E2

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 be world’s best and largest supermarket retailer.

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

How Tesco is going to achieve these objectives?

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

. Are all retailers, working as a one team.

. Trust and respect each other.

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

. Strive for personal excellence in everything they do, leaving no stone unturned in order to get it right.

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

. Are rewarded for creating value for customers.

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

. Have fun, celebrate success and learn from failure.

What is the comment Tesco has to its customers?
Tesco customers want the best possible value for their money. Tesco is determined to offer its customers quality products, good service, attractive stores and low prices.
To meet this aims, Tesco:

. works closely with suppliers to ensure products are of the highest quality and are delivered to stores in the best possible condition.

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

. aims to create in its stores an environment which makes shopping easy, interesting and comfortable.
For example, in 1993 Tesco introduced Value lines, which offer exceptional value for money, followed by New Deal Pricing on leading commodities and brands in 1994. In 1996, Tesco introduced Unbeatable Value with the pledge that nobody would sell the equivalent product for less price.

E3

Organisational functions.
All organisations require resources to carry out their functions. One way of judging the success of a business is to compare the resources it uses with the value of the product that results. For example if it is a small business running by it’s owner, for example small shop, so it doesn’t need any workers, large piece of land and big capital, owner can work alone. But if it is a very large business like car manufacturing so it requires a lot of workers, very large piece of land and big capital.

The resources of the business.
One way of considering the resources used by a business is to classify them into the factors of production. The main capital of production are capital, labour and land.

- CAPITAL refers to any manufactured product used by the business to make other products. This category therefore includes all machinery, vehicles and office equipment used in businesses. It also includes the company’s buildings.

- LABOUR is the human resources used by business organisations during production.

- LAND – site on which the business is located and natural resources it might use.

- ENTERPRISE – owners and shareholders.

Functional areas.
All businesses combine factors of production as an essential part of their production activities. To combine these factors, to engage in production and to achieve their objectives organisations undertake a number of functions. The major business functions include:

. finance

. production

. human resources

. administration

. research and development
Business requirements for functional areas depends on its size, for example small business might merge many of these functions within their administration department, with responsibility in the hand of one or two people. As a business grows the number of people required to carry out these functions increases.

The financial function.

Extensive use of IT

Produces standards

cost data

Customers Auditors Inland
Revenue and

(price list) (accounts)
Custom & Excise

(information relating

to tax liability)

Figure 1.3: The financial function


A separate department normally carries out the finance function of the business. The finance department carries out a number of key activities:

. records all financial data

. chases up slow payers

. collects payments from customers

. provides information to external bodies

. analyses costs

. advises board of directors

. monitors and analyses financial data

. advices managers and budget holders

Production function.

Production covers all the activities that must be undertaken to make the firm’s products, from the receipt, of raw materials through to the output of the final product. The production function concentrates primarily upon planning and controlling the various stages of production so that the most efficient use is made of business resources.
Production manager responsible for:

. maintaining supplies of components and raw materials to ensure continuous production

. ensuring that the precise requirements of customers are met

. monitoring quality to insure that finished products meet the quality standards expected by customers

. using resources – people, machinery and production space – as efficiently as possible to make the business competitive in the markets in which it trades.

One of the most important issues in production is quality. Modern businesses compete just as strongly on the quality of their goods and services as they do on price.
For example it is vital for a washing machine manufacturer to produce a high-quality product. If the machine is not reliable or does not have a wide range of functions, customers are more likely to purchase a competitor’s product.

Figure 1.4: The links between the production function and other departments

The human resource function.

Personnel management considers the tasks involved in managing people – recruitment, selection and so forth – as separate elements. It does not take into account how these elements can combine to achieve organisational objectives.
The personnel management approach makes decisions relating to recruitment, training and pay systems independently, without considering the impact the individual decisions have on each other aspects of management and the achievement of corporate objectives.
Human resources management (HRM) elevates the effective use of a business’s labour force to an issue to be considered by senior managers as an essential element of the organisation’s strategy. This approach has raised the profile (and salaries) of those employed in human resource management.
The human resources function engages in a number of activities to ensure employees are utilised affectively. These activities are carried out with the aim of contributing to the achievement of the business’s objectives.
Workforce plan sets out likely future needs for labour and how these needs might be met. Achieving the workforce plan involves the human resource function in a number of day-to-day activities.

. recruiting employees – both internally and externally

. training new and existing employees

. paying salaries

. dealing with disciplinary matters and grievances

. overseeing industrial relations, by seeking to avoid disputes and maintain harmonious relations and constant production

. developing and monitoring an employee appraisal system designed to assess performance, set targets for achievement and identify any training needs

Figure 1.5: Developing a human resources plan

The marketing function.

The marketing department carries out a wide range of functions on behalf of the business. Essentially marketing is communications. The marketing department communicates with a number of groups inside and outside the business as it carries out its tasks.
Marketing activities:

. keeping customers satisfied

. discovering the needs of customers and advising the production function accordingly

. carrying the responsibility for ensuring the effective distribution of products to wholesalers and retailers

. liasing with marketing agencies to provide the necessary expertise

(small firms)

. if the firm is an export, the marketing department may have contact with government agencies.
Marketing provides the organisation with information about its customers and its markets. Effective marketing can offer businesses a number of benefits:

. early warning of changes in consumer tastes and fashions through regular market research

. knowledge about competitors and information regarding competitors’ product

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

. allowing the firm to improve the quality of its products by coordinating and analysing customer complaints

. providing a catalyst for growth by forging relationships with distributors, retailers and customers in new markets

. supplying consumers with the products they want and giving high levels of customer satisfaction, which might permit a business to charge higher prices thereby increasing its profitability.

The administration function.

The scope of the administration department varies enormously between organisations. In a small business the administration function might incorporate a number of the functions like finance , personnel and marketing. However, larger organisations are more likely to operate a specialist administration department.
A typical administration department has a number of functions:

. Administration department carries out organisation’s IT system.

. Clerical and support service. Information processing, data processing, filing and reception services can be provided to all areas of the organisation.

. Security and maintenance. These services are essential to the smooth running of the business and to the effective operation of other business functions such as production in particular.

. In some businesses, the administration function takes responsibility for important public relations activities such as customer services.

The research and development function.

The nature of research and development (R&D) varies enormously between businesses. Traditionally, the term research and development is taken to refer to scientific research undertaken by firms producing manufactured goods, high technology products or pharmaceuticals. However, R&D is equally important to firms providing services.
By investigating in research and development a business seeks to maintain competitiveness against its rivals. Competitiveness measures a business’s performance in comparison with rival firms in the same market. A highly competitive firm has some advantage over other businesses. This competitive edge can take a number of forms:

. lower prices

. more advanced and sophisticated products

. a better image with consumers

. a good reputation for advise and after-sales service

. reliability in terms of operation and delivery dates

Types of research:

. basic research

. applied research

. development

The prime function of R&D is to develop new products that can give the firm a competitive edge in the market. This necessary involves the R&D department in close liaison with staff in market research, design and production.

Function 1.6: The nature of business activity

Functional areas of Tesco plc.

The diagram above shows the key functional areas or departments of Tesco, as one of the leading retailers in the U.K. It is currently the leading supermarket chain in Britain, with a higher market share than its leading rivals, Asda-Wallmart, Sainsbury’s and Safeway.
I have explained earlier the key functional areas of a typical business and Tesco, as the diagram shows, displays this type of structure. For example, the Company Secretary, Rowley Ager is responsible for Pensions, the Company Secretariat (the administrative staff), the Treasury, Taxation,
Site Facilities, Transport and all aspects of Consumer Law.

The Finance Department, directed by Andrew Higginson, is responsible for all aspects of finance and audit, and also for European affairs. These functions are shown in Figure 1.3 in my introductory section. I have no detailed information on Finance within Tesco other than financial data available from the Company Accounts and from the Tesco and Bized websites……… and these are more relevant to a detailed finance study of
Tesco as a company, a topic to be studied in a later Unit.
The Marketing Department, directed by Tim Mason, is responsible for all aspects of marketing , Customer Service, Advertising, Market Research,
Clubcard, Estates and Metros. Since the early 1990s Tesco marketing strategy has been to become the best in terms of price, quality and service. Objectives are set, and ways found of meeting them, in all aspects of company’s operation.
The Retail Department, directed by Michael Wemms, is responsible for all retail operations and express stores.
Tesco first ventured into foreign markets when it acquired stores in Irish
Republic in 1978, but these were sold in 1986. The 1990s produced a much better climate for European expansion. Now Tesco operates 80 stores in
Central Europe, and 16 stores in two Far East countries trading both under the Tesco and subsidiary fascias. The 13 Tesco stores in the Czech Republic and Slovakia, 29 stores including 5 supermarkets in Hungary, 31 stores in
Poland. Also Tesco plan to open 12 hypermarkets in Thailand and in South
Korea over the next three years.
The Human Resources Department within Tesco is responsible for many thousands of employees across the whole spectrum of the organisation. Tesco employs 154,000 people in the UK and 27,000 in Ireland and Europe. It does not appear on the organisation chart, which I obtained from Tesco, because this function is somewhat complex and shared between the main headquarters at Cheshunt. Hertfordshire, and the many stores operated by Tesco around the country. For example, there are two Tesco superstores in Leicester, at
Hamilton and Beaumont Leys, both of which have a Human Resources officer in charge of personnel administration.
The Commercial Department, directed by John Gildersleeve, responsible for all commercial operations and technical services.
The Distribution Department, directed by Philip Clarke, responsible for
Supply Chain and all distribution operations. Distribution Director responsible for products delivery, logistics and transport. Its purpose is to ensure that Tesco stores have the right products delivered against agreed delivery schedules and in good condition, enabling the stores to provide a consistently high level of customer service. Tesco products are sent to stores from distribution centres around the country. Tesco runs 13 centres and a further six centres are run for Tesco by contractors. A typical centre covers 300,000 square feet and handles some 50 million units a year. The centres work around the clock, seven days a week, providing
2,500 deliveries daily, amounting to 19 million cases per week. Tesco employs 6,800 people in distribution (excluding the staff at the contractor- run centres), and has about 1,000 tractor units and 2,000 trailers in its national vehicle fleet.
The Operations department, directed by David Potts, responsible for operations of Tesco stores in Northen Ireland & the Republic of Ireland. In
May 1997, Tesco completed an agreement with Associated British Foods to purchase all their supermarkets in the north and south of Ireland. The purchase price was Ј641 million, giving Tesco a further 110 food stores and a leading position as a food retailer on both sides of the Irish border.

I have considered each of the major functions of Tesco separately. However, it is the 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 earlier.
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 of 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 one 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.

E4

Organisational structure
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 departments.

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 take certain kinds of decisions and who are responsible for carrying out the work arising from those decisions.

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 the hierarchy.

Organisational charts

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 any 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 between departments.

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.

Span of 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 of management.

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 who have the qualities and personalities that promote loyalty and hard work can only be responsible for so many employees.

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 features 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 limited 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 pyramidal structure.
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 acceptable if:

9. The potential disadvantages of a wide span are outweighed by the costs of employing the extra managers needed to produce narrower spans of control.
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. The 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.

Line structure

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.
Advantages:
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 sources.
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 and develop their management or supervisory skills.
Disadvantages:
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 exploiting 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.
Advantages:
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.
Disadvantages:
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.

Matrix structure

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 issues 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.
Advantages:
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 junior 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 to higher management positions.
26. The involvement of specialists from different areas reduces the risk of resources being wasted on projects with no future - in non-matrix structures an idea originating 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.
Disadvantages:

. 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 responsibility.

. 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 questions 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.


Centralised structure

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 organisational 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.
Advantages:
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 costs.
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 experienced.
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.

Decentralised structure

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, quality 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.

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 arise.
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.

Delayered structure

Delayering involves a business reducing its staff. The cuts are directed at particular levels of a business, such as managerial posts. 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.
Advantages:

. 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

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 and 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 are taken by a variety of processes depending upon the nature of the problem, the opportunity to be explored and the individuals involved.

Consultative style: Leaders consult with others before decision are made.
There will be a group influence in the final decision, even though 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 wil

 
     
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