Tesco - Digital Transformation

 

TESCO Background Information:

Tesco is a British multinational grocery and general merchandise retailer, 8^th largest retailer in the world, headquartered in the UK with about 6800 stores worldwide. Out of which about 3900 stores are located across UK & Ireland with a market (UK) share of about 30%.

Tesco was started in the year 1919 by John Cohen in London as a small shop. They opened their first store in 1929, since then it has grown to be a multinational company with presence in about 12 countries like India, Hungary, Czech Republic, Slovakia, Poland, Japan, US…

The phenomenal success of Tesco is attributed to number of factors like Visionary leadership, Organic growth, use of technology and Acquiring successful brands and branding most of them under one brand (TESCO). Since 1950s Tesco has acquired about 30 companies and have integrated them under the Tesco umbrella effectively.

In the last couple of decades Tesco revenue has grown from £16b to £64b. In the Year 2019 Tesco had a market cap of £25b and revenue of £64b with net profits of about £1.4b

Some of the businesses Tesco has diversified in the last 2 decades are Banking, Mobile services, Retail Consulting, Restaurants & Wholesale.

 

Characterization of the situation & theories:

Since the beginning of Online shopping revolution, “The Amazon Effect” most of the retailers across the world has faced tough competition and had to strategize their Business model around Online shopping services as one of their main facets. As per the record, Tesco was the first retailer in the world to offer online shopping services in the year 1995 but since then the landscape has changed drastically as there are many disruptors in the market.

The landscape is now filled with new disruptors like Amazon & Ocado (New market disruptors) who are competing against the traditional retailers like Tesco.

Our case here addresses the last 10 years of Tesco, how as an Incumbent – Tesco made decisions and actions to overcome the disruptions and maintain its Strategic position through its digital transformation initiatives. Tesco had number of digitization initiatives like a dedicated website Tesco.com, use of Social media for advertisements, using latest technologies in stores and providing seamless experience for its customers by introducing Self checkouts, scan as you go devices, digital wallets, Tesco Pay using mobile phones. Also, in the UK at Gatwick Airport they have introduced “Tesco Virtual stores” an easy way for the busy travellers to order Food & other Groceries.

This new avatar of Tesco as a digital retailer is mainly due to the competition from other traditional retailers from Germany like ALDI & LIDL – who follow “Stack high & sell at Low margins” which is mainly a low-end disruption. Players like Amazon have created a much bigger market (by selling “anything and everything” – The Long Tail revolution) than Tesco by mainly targeting the non-consumption in the market, which is mainly a New market innovation.

Aligning with Innovation and Disruption

With this competition Tesco was forced to be innovative both on Physical (store!) & Online front – on quality, affordability & convenience. Hence as an Incumbent Tesco’s response to this competition would be mainly be termed as “Low-end disruption” using its online presence effectively and matching the price with other retailers in Food Grocery, Electronics, Gaming & other general merchandise by being affordable at the same time convenient. Also, the use of technology in-store is mainly sustaining innovation providing its customers with Seamless interaction, easy to shop experience, simplicity & convenience

Let’s understand the “Strategic Questions” to which Tesco are trying to assess their business

1.      What innovations should we utilize to grow market share and better meet the needs of customers? (Primary question)

2.      How can we defend against disruption and learn to harness technology to increase our rate of innovation? (Secondary question)

 

Discovering Customer Jobs to be Done - JTBD

The job to be done in this case is “help me to shop quality food & grocery with convenience & at affordable prices”.

Based on this criteria Tesco has organised its physical & Online shops to help customers to buy products.

Physical store: The products are clearly labelled with price and also the aisle is organised based on product category, Geography & Age. Using the self-check out has improved the customer service as well the scan as you go service has helped customers to decide on their spending thus helping customers to have the choice to go for a value product or for an expensive product.

Online Shopping: Tesco’s website is quite well organised and its easy for customers to search the products online. Click to collect service has given flexibility to customers to schedule their deliveries as well some of the online offers are much better than the rivals including Amazon. At the online shop the number of products Tesco sell has increased year on year thus helping customers to have a choice of One stop shop for all their needs (approx. about 50000 Products)

Both Physical stores and the online shops are organised around the “Jobs to be done”. But as the Online shopping is increasing day by day due to the current ongoing Pandemic (CoVid-19), the pressure on online demand increased, but Tesco responded by scaling their online systems and responding to the customer demand, which is a good example for their “Emergent Strategy”. I believe during the last year the relevance of Tesco as a brand has made a significant impact to local communities across UK by their reliable, safe online service as well at the physical stores.

 

Organizing for Innovation

As Tesco’s competitive edge lies in balancing both its Physical & Online shop presence, it should clearly define its resources, Processes and Profit formula (RPPs) for both separately.  Tesco cannot have the same RPPs for both Physical & Online stores, as the online market is more competitively fierce compared to physical store presence where they have to absorb the overhead costs like rental space, Logistics and other store overheads.

Initially when Tesco started its online operations (late 90s & early 2000s) the RPP was not distinct. The online orders were fulfilled by something called “Dark Stores”, where in the instore employees (Tesco associates) used to run between the aisles of a big Tesco store to fill the baskets and then load the truck to deliver to its customer homes. This was Tesco’s “Deliberate Strategy”. This model was good initially as it was inexpensive to launch and helped Tesco to scale up quickly and they rolled this to roughly about 330 Stores nationwide.

Tesco didn’t have dedicated resources or efficient processes to cater to the increasing online demand.  This deliberate strategy to use the existing stores (Dark Stores) was a mistake

1.      Each store was able to fulfil only about 250 orders per day (labour intensive), which was nowhere near the competition.

2.      The stores couldn’t handle high volume orders due to space constraint and less inventory in their back rooms. (No dedicated warehouses catering to Online orders)

3.      Also, the instore shoppers were not satisfied with this as they had to compete for the goods with customers who ordered online

As we have seen in the case of Nypro, due to lack of clear distinct RPP they couldn’t succeed in their initiative with Nova-Plast. Similarly, Tesco understood this problem and they managed to recognise this and adopted to this new emerging opportunity (Emergent Strategy) by clearly allocating resources, designed processes like having dedicated warehouses catering to their Online customers.

Even though Tesco’s Digital transformation initiatives are interwoven between both of its physical & online, but the allocation of resources, Processes and Profit formula for Online is very distinct and clear. The warehouses catering to Tesco stores (physical) & online orders are currently different except for remote areas where they still use “dark store strategy” to maintain profitability.

Maintaining a Disruptive Scope

Tesco in the last 10 years have made significant progress in Online sales. Now the customers can access Tesco.com using computer, tablets, Smart phones and also Virtual shops at major airports and subways, thus making convenience for its customers a top priority. 

But they are not resting on their laurels yet…Tesco is “constantly experimenting” on their offerings both at their Physical and online stores using latest digital technologies, thus maintaining its disruptive scope. Some of its initiatives are as below

 

a)      Click & Collect:

Within many urban regions of UK, Tesco offers customers to click & collect (order online and pick-up orders at a local Tesco drive through store). Tesco also offers home delivery with one-hour time slot. 

b)      Clubcard

Tesco after creating the dedicated RPPs to the raising need on online orders, they started using other technologies like Clubcard through which they collect customer data and profile them for different shopping items. With this valuable customer data, Tesco has managed to improve their Inventory and stock items which runs faster and thus making their operations effective.

c)      Scan as you shop

Tesco started providing digital experience to its instore customers by helping them to scan as they shop, giving the flexibility to customers to choose and spend as per their budget. This attracted many customers to try this new digital service.

d)      Social media

Tesco started effectively using Social media sites like Facebook, Instagram & Twitter. They promoted their products to customers based on the individual preferences and also for any customer feedback, they rewarded customers with Loyalty points which can be used to buy products.

e)      Digital Warehouses

To increase the speed of delivery to its online customers, Tesco have automated most of its Warehouses using Digital technologies like Labelling, Scanning and to maintain Inventory.

 

These are some of the initiatives which Tesco has started in the last decade to maintain its disruptive scope by trying new experiments and adopting to the changing customer behaviour also in many ways Tesco is changing the customers buying pattern & behaviour by being the first retailer in the UK market to introduce new technologies.

Tesco have developed an App called “Tesco Access” with Microsoft. This app has helped customers to access Tesco stores online via wireless and mobile devices.

 

Conclusion & Recommendations:

Tesco in the last decade constantly improved operational performance and the customers’ shopping experience both offline and online using digital technologies. Since the launch of its online flagship store – TESCO.COM have fulfilled as much as about 300million orders.

Due to Covid-19 pandemic the number of online orders has increased as much as 1million per week with the scope of increasing by about 20% to 1.2million in the coming weeks, Ref [2]

Tesco.com revenue for 2019 was about $2.5billion in the UK and the worldwide sales was about $4.3billion, Ref [3] & Ref [4] with a scope of increasing by about 20% YoY.  As per financial times report - Tesco to create 16000 permanent jobs due to projected online sales growth by 2/3^rd to £5.5b, Ref [5].

Figure 1: TESCO.COM revenue in the UK -2019

Through the lens of “theory of interdependence” & “Modularity”, it is noted that Tesco follow a holistic approach through its multichannel offering. Even though the RPPs are clearly defined for its Physical and Online businesses the success of Tesco lies in its integration of both its offline & Online operations & point of contacts as we have seen in “Click to Collect” model. The competition is getting modular like Ocado focusing on Grocery market, Argos focussing on General merchandise & Amazon on “Anything & Everything”. But based on JTBD theory, Tesco’s strength lies in its integration of both its In-Store & Online operations and provide customers flexibility, touch and feel opportunity also the convenience.

Competition is still at large and a coherent strategy is essential for Tesco to take on this challenge with the Elephant in the Room (Amazon) …also Ocado another online retailer had been recently valued higher than Tesco (Ref [6]), Ocado has merged with M&S. Also, Amazon has tied up with Morrisons.

With these external challenges Tesco should continue to give Tesco.com more freedom to experiment based on the strategic questions we posed earlier.

1.      Usage of technology should be key “Clubcard and big data analytics” / “Warehouse Automation” initiatives to improve online operations and deliveries.

2.       Low-end disruption – to stack products high and sell at low margins online.

3.      Create a focussed department to understand the Digital revolution and adopt technologies accordingly.

4.      Enhance its Digital marketing operations with focus on JTBD.

5.      Improve skill sets of its employees to use and help customers instore as well to handle customer queries online efficiently.

6.      As an Incumbent Tesco should aim to be “agile” in understanding changing Retail landscape and flexible to alter its strategies.

Retail landscape is quite dynamic and changing very fast due to availability of new technologies. Going forward the success of TESCO.com lies in understanding the JTBD and employing the right technologies & right strategy (balance of deliberate & Emergent Strategies) to skate towards the money/success /profit.

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References:

1.       https://www.investopedia.com/articles/markets/122415/worlds-top-10-retailers-wmt-cost.asp

2.       Weekly online orders - https://www.tescoplc.com/news/2020/tesco-serves-more-than-one-million-online-grocery-orders-in-a-week/ 

3.       https://ecommercedb.com/en/ranking/gb/food-personal-care  => Online Sales figure UK

4.       Worldwide sales extract – Tesco.com – year 2019 & Forecast for 2020 & 2021 – Ref [3]

5.      Jobs created by Tesco due to Online sales increase => https://www.ft.com/content/1821dca8-5f82-42e6-b136-4977240d7ce4

6.      Competition -   https://www.bbc.co.uk/news/business-54352540  (Ocado & M&S partnership, Amazon & Morrisons partnership)

 

Importance of Cross Cultural Management

Introduction:

Cross cultural management is study of differences in cultures that exists in the changing demographics of the world and particularly w.r.t to an Organisation and managing it by learning and practicing to benefit Organisations Geographically. CCM is very important to understand the dynamics within an organisation because of ethnic and cultural diversity that exists. With increasing Globalisation the importance of CCM pervade even vast and has much relevance in today’s business scenario. Globalisation and open markets have paved the way for creation of MNCs. These MNCs with their presence across many countries have to undergo the Local cultural adoption/Shift in order to perform efficiently and smoothly.

The need for understanding different cultures is necessary as Cultures have their own way of interpreting things and what is good for one may be bad for others. And what is believed to be an essential for one group may not be necessary for others. Hence with this diversity an organisation has to understand and adapt sensitively to different group’s want and needs and strive hard to keep the gap among these groups to minimal. The main challenge though is to align Organisation culture with the Local culture and try to have sync with each other. The harmony of these together is very essential for survival and success of Organisation, ignoring these aspects might challenge the very existence

As Change is only constant, with the rapid Globalisation we are witnessing, demographic changes are inevitable and challenge the Organisations to consider CCM seriously as never before and urge the need to deal with change and adopt in order to be competitive. The way Organisation tackles these challenges defines and determines the future success.

New Challenges at Work place: Managing Remote teams

With the technological advances (and Globalisation) work places are not limited by boundaries and have challenges to cultural aspects and can determine the success of coordination and communication which are essential factors for team success. Even though the other person can’t feel physical presence the effect of culture can still be felt. Speaking to colleagues in Switzerland is quite different than people in Middle East, speaking about personal things is quite acceptable in Swiss. In UK where it is mostly individualistic based, speaking about personal things quite may not work.

To manage remote teams a set of factors are vital like being objective, encouraging others in the call to participate actively, paraphrasing, stressing on agenda and being open for other ideas.

Conclusion:

Each culture has a different way of looking at things and it is indeed a challenge for managers who work cross-culturally. It is very essential for managers to be conscious of cultures with whom they interact. Organisations believe in diversity as it helps them to tackle diverse set of problems.  People from different cultures bring in different skill sets to table. This diversity in turn brings in competencies to compound present skills to be more competitive and flexible in finding solutions. And the best way to make these cultural issues work for Manager’s benefit is by building a strong relationship through personal rapport and reputation, being motivated and caring for others.

Sustainability - As a case of Ethics

1.    Introduction:

I first heard Sustainability in a speech by CEO of our Company Tom Enders. He was addressing employees and he was stressing upon Sustainability as next major strategic step in organisation’s progress. And he was talking all about Environment and Climate change. So I was of the opinion that Sustainability is all about Environment and made sense that being a responsible citizen it is our duty to protect Environment and probably also an ideal way of conducting business. But when I attended Business ethics seminar I was shown the importance of sustainability in a new light of Ethics. It was a kind of revelation and provided me with some of the thinking as why Sustainability is important and as a manager what best can be done with this new found zeal. Hence my argument is all about Sustainability as new phenomenon which should be used to formulate next stage of strategies and strongly build foundation for future corporate success.

What is Sustainability – definition: “Sustainable development is development which meets the needs of the present without compromising the ability of future generations to meet their own needs.”   Brundtland (1986)

2.    Why Sustainability?

We all live in societal structure where we all depend on each other to lead our lives comfortably. This dependence creates an opportunity to do business and also establishes mutual trust. This trust is the foundation for all our actions. To keep this strongly going forward there exists a degree of fairness which internally depends on individuals moral values and culture. Hence In our lives we are bound to things morally and we are not independent in any sense. We live on the resources which presently in the danger of becoming extinct (Scarce Resources). So it is kind of necessary moral obligation for us to use these resources efficiently and for right purpose. 

Agency theory pointed out at the perspective of looking at business as agencies whose only goal is to be profitable and managers are just agents who work for gaining Owners the profit. And further Milton Friedman in his theory says the only obligation Organisations and Mangers are bound by is to utilise resources and create profits. Well when I look at it these views it doesn’t make any sense at all. I feel these theories are made with narrow perspective and don’t consider the whole picture. These theories might be true with respect to a context and hence cannot be applied in general.

According to me Organisations are part of the very norms of the social structure we live in. For me more than profits what matters most are the holistic well being of Organisation with its environment. So that there is no scope of straining the relation in the Social ecology – the network where Organisation operates as an entity. For this Social ecology to operate well in equilibrium every entity has to respect the presence of others and behave ethically for mutual co-existence (Maturana & Varla, 1987). This can be achieved by having vision and synchronising actions for value creation by means of products and services which are environmentally, Social and economically viable and have positive impact on the lives of all its Stakeholders.

Stakeholder theory which upholds the notion of considering every entity in the organisational ecology to formulate best strategies and see the whole picture appeals me and make a meaningful attempt to help managers to perform potentially. I agree that Social, economical issue are interwoven and forms a complex system. In order to make any value creation, setting vision, goals, objective formulation and changes in an organisation an understanding of relationship of these systems with organisation is necessary. As a Manager I feel very confident to propose any change or to work efficiently in this network ecology only when I appreciate and understand these systems and their relationships. And these can only be achieved through Sustainability practices. Towards this goal I feel the UN GLOBAL COMPACT, BS8900 are some of the major steps and gives a framework to look, refer and apply in organisational practices.

As part of my Literature review I read some articles on Sustainability. Out of that I analysed and compared two case studies which I would like to discuss.

Consider the case of Shell-Nigeria in which there is a description of its operations in Nigeria vividly describes about the horrible state of people living in the Local community without proper access to basic necessity like water, food and other amenities. Being insensitive to its surroundings what Shell has achieved is nothing but a losing battle where it is struggling with its operations and has been fined by International court for $1.5billion. Its CSR is appalling and local community consider it has a threat and even gone to an extent of kidnapping Shell’s Employees to pay ransom as compensation for its dreadful activities.

On the other hand RIO TINTO a mining corporation with business of over 5 million tons of rock a day with big global footprint recognised the need to establish an identity of its brand as someone who considers environment and its local community as its members. In one of its projects in Madagascar islands Rio Tinto understood the need of involving local community and empowering them with the role of defining and shaping the future of their existence as well looking after the environment they live in. They along with community undertook the charge to protect environment and create economic opportunities by setting up standards and goals to meet. These initiatives helped Rio Tinto to align organisations aspirations of becoming environmental stewardship, social well-being, governance, and economic prosperity.

Some of Rio Tinto’s measures and actions were

▼ To protect biodiversity and water quality around mine locations

▼ Employing aboriginal peoples living near its mines

▼ Training programs for employees - manual labour into skilled positions

▼ Goals for greenhouse-gas emissions and energy use

With this Rio Tinto established a strong relation with its environment and obtained so called Social licence to operate. Doesn’t it feel satisfied and proud? It is just an example of how an organisation can build its strong successful business interwoven in the complex web of Social, Economical and Environmental surroundings.

Just see below the proud CEO of RIO TINTO his views on being Sustainable

“We have to be perfectly frank about what we do. We have a large footprint; we do move a lot of dirt. We have to create an environment where local (and to some extent global) stakeholders can see us moving that type of material in a manner respectful to the community, respectful to science, respectful to the environment, respectful of our employees, that is seen to be sustainable.” Tom Albanese CEO, Rio Tinto

So what are the benefits Rio Tinto reaped because of its actions?

Some of them are improved brand image, Employee satisfaction, Cost savings – Because of efficient operations, Competitive advantage, Process and Market innovation, Effective risk management and enhanced stakeholder relations.

3.    Sustainability as a dimension of ethics

The 2009 Global Recession was mainly due to greed of few corporate who were involved in unethical business practices to create wealth for themselves. Because of few individuals the whole world suffered the financial crisis with impact on every household income and its survival in ever soaring prices and Inflation economies.  Probably this would have curbed with Sustainability practices. Instead of entering into the real estate bubble, long term sustainable thinking would have suppressed the recession from happening.

The Moral compass which places us in the centre of being rational, being to our self (myself), being emotional and for living to others provides a good map on which we can place priorities as individuals or corporations to find the direction as where we need to move or which stance to take. From the case study of Rio Tinto I feel presently Sustainability is the direction/stance which we need to take, as it provides Corporations and individuals an ethical platform to enact and to be responsible ethically to achieve Goals and Objectives by fighting out the present challenges and creating new opportunities.

Also Sustainability provides an opportunity for managers to think about the available resources and how best it can be utilised. By doing so provides an opportunity to manage things both effectively and efficiently. Hence I think sustainability support managers to think ethical and be benefited in the long run.

4.    Actions: What I can do?

As a manager I want to actively involve with Sustainability initiative. We have these Sustainability campaigns at work and to be very honest nobody knows the details of these initiatives like goals, objectives and means to achieve. What we need to do?

From research I was able to learn much of the theory and with literature review and case studies I was able to understand the opportunities and challenges to implement Sustainability aspects into work environment. As an enthusiast I would like to prepare a strong business case at work by analysing day to day work activities I am involved with and envisage better working practices and will discuss with my team members with a presentation to start with.

5.    Conclusion:

In the ancient Sanskrit language there is a saying “VYAPARAM DROHA CHINTANAM” means Business is all about Cheating. Even our ancestors were of the opinion that businesses are means of unethical conduct and its only means is to make profit and oneself rich. This notion has existed long enough and now it’s time to embark on how best business can reciprocate to take and give back and also how best businesses can be well conducted in this complex network.

So instead on thinking Man as the Master and leading a life of Parasite, I prefer Nature as master and would like to live in harmony with its laws in order to lead a moral life. I think Sustainability is the only way forward.