University Report: Tesco Plc and Activity-Based Management Analysis

This report provides a comprehensive analysis of activity-based management (ABM) within Tesco Plc, a major UK retail chain. It begins with an executive summary and introduction to ABM, explaining its nature and implementation steps. The report then delves into the specific issues Tesco faced during ABM implementation, including challenges in data acquisition from various departments, understanding employee salaries and performance, and determining resource requirements. It highlights problems in obtaining operational data and assessing activity performance. The report further explores how ABM contributes to stakeholder satisfaction and long-term organizational viability and sustainability, focusing on system-wide performance analysis, quality management, and supply chain management. It also addresses environmental sustainability aspects, such as environmentally conscious operations, pollution prevention, and waste minimization. The conclusion summarizes the key findings and implications of ABM for Tesco's strategic management.

Running Head: Tesco Plc
Strategic management
Student’s Name
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University
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Running Head: Tesco Plc
Executive summary
Competition and professionalism are equally existent in the retail sector in the United
Kingdom. Tesco plc is a retail supermarket chain that is known for its service efficiency and
better retail products including varied items. This organisation was formed in 1919 by Jack
Cohen. Initially, the firm was a group of market stalls. Activity-based management is known
as a process which came into being in 1980. Based on this process business aspects are
understood as well as strengths and weaknesses. On the basis of this system a successful
company can avert the risk of financial loss and can mitigate further loss. Activity-based
management helps to identify profitable aspects of business and at the same time which are
non-feasible and need to be eliminated. In a variety of organisations, activity-based
management process gets into the application. Particularly operations which involve cost
usage find the beneficial aspects of activity-based management. Implementation of this
system is not always easy. In Tesco also, during the implementation of activity-based
management some issues originated and these were related to some operational aspects such
as supply chain management, performance measurement, environmental sustainability and
quality management. Acquisition of operational data and identification of resources required
for production department were also troublesome. Moreover, determination of staff
contribution in terms of performance could not be easily done.
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Running Head: Tesco Plc
Table of Contents
Executive summary...............................................................................................................................2
Introduction...........................................................................................................................................4
Activity based management and its nature.........................................................................................4
Activity based management – steps of implementation.....................................................................5
Issues during implementation of activity based management in Tesco Plc........................................6
Problems in acquiring data from important departments of the organisation.................................6
Challenge in understanding the salary and allowances of employees of the company...................6
Problems regarding determination of degree of performance effort delivered by employees of
Tesco.............................................................................................................................................7
Problem in understanding resource requirement for supporting production volume......................7
Problem in obtaining operation data..............................................................................................7
Problem in acquiring data to determine activity performance........................................................7
Stakeholders satisfaction and long-term organizational viability and sustainability through Activity-
based management.............................................................................................................................8
Maximum analysis of system wide performance...........................................................................8
Quality management......................................................................................................................8
Supply chain management.............................................................................................................8
Satisfaction of stakeholders...........................................................................................................9
Sustainability of the business.............................................................................................................9
Environmental sustainability...........................................................................................................10
Operation that is environment conscious.....................................................................................10
Prevention of pollution................................................................................................................10
Waste minimisation.....................................................................................................................10
Conclusion...........................................................................................................................................10
References...........................................................................................................................................12
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Running Head: Tesco Plc
Introduction
Tesco is a professionally managed firm that was established in the year 1919 in England. In
this reported activity-based management has been discussed with reference to Tesco Plc. The
implementation and useful aspects of this process have been discussed to understand how the
overall quality management can be ensured. Some issues related to the implementation of this
process have been also discussed herein so that overall knowledge can be obtained.
Activity-based management and its nature
Activity-based management has become popular among many organisations due to its useful
functions that help management to understand areas that require improvement. In simple
words, strengths of business can be understood and weakness can be converted into
competence. Profitability can be improved with the help of activity-based management
system. Activity costs are often needed to be understood by business and for this purpose
firms use activity-based management to evaluate overheads and cost of distribution, facilities,
equipment and overall operation. Cost allocation becomes accurate since firms get to
understand about the optimal use of costs. Alongside wasteful activities that include cost
usage can be eliminated for protection of business from incurring a future loss. This helps the
business to become more competent and successful in the given industry (Sekaran and
Bougie, 2016, p. 432).
Many organisations eagerly use activity-based management as a process. Operations that
involve costs exist in organisations that are service providers or manufacturers and so on.
Therefore evaluation of operation becomes necessary and activity-based management
becomes the first choice for the firms. Maximum potentials of business can be achieved if
activity-based management can be used. This process keeps a close watch on processes of
business and activities which are meant for achieving business goals. Besides these, if
unnecessary activities can be identified, cost related to these can be eliminated by stopping
these processes or operations and profitability can be increased. Resource optimization
becomes higher for businesses (Hill, Jones and Schilling, 2014, p.85). Operation of
management finds great help in activity-based management since management operation gets
assisted by this process and performance of the overall organisation and business improve a
lot. Activity-based management has a common derivative which is activity-based costing.
The business has several cost involvement aspects which are payments and salaries for
suppliers and staffs. Apart from this business revolves around products and service delivery,
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Running Head: Tesco Plc
purchase activity from customers. The overall level of efficiency can be achieved and
maintained with the help of activity-based management (Harrison and Lock, 2017, p. 159).
Activity-based management – steps of implementation
Activity-based costing is derived out of activity-based management. For implementing
activity-based costing, it becomes necessary to adopt activity-based management which
involves three crucial stages. These include
 Categorization of activities into two non-value added and value-added segments.
 Ranking of value-added activities as per added value perception by customers
 Non-value added activities are improved or removed and value-added activities are
increased and improved by the business.
In comparison to activity-based management, activity-based costing is costly to implement in
the business. Business organisations are often recommended to implement activity-based
management at the time when a loss in revenue is possible. At the time of price competition,
this implementation becomes necessary and organisations try for applying this process in its
operation. When business operation, process and products are not simple then
implementation of the activity-based management process is often suggested to a company
like Tesco Plc which is one of the large firms in the retail sector in the UK. However,
organisations with a simple process do not always feel the requirement of implementing
activity-based management into their operation (Foss and Hallberg, 2014, p. 52).
Issues during the implementation of activity-based management in Tesco Plc
Several issues had arisen while implementing the activity-based management in Tesco plc in
connection with aspects such as supply chain management, performance measurement,
environmental sustainability as well as quality management.
Problems in acquiring data from important departments of the organisation
For obtaining data from the departments it was important to have authorisation from
management as the data are important financial information. These data were confidential as
being related to expenditures like salaries and allowances to employees. It is obvious for the
department to disagree to provide financial information (Cania, 2014, p.90). These data are
vital for the company considering that payments of salaries are on the basis of academic
qualifications of employees and these are considered before they are entrusted with any
particular tasks or assignments. However after knowing the nature and purpose of the study
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Running Head: Tesco Plc
of data the department agreed to provide with the financial information on the condition that
data will be kept confidential and will not be disclosed to others and will not be used for any
other purposes (Jenkins and Williamson, 2015, p.44).
Challenge in understanding the salary and allowances of employees of the company
It is possible that some employees perform more and they are not paid with any extra
allowances and payments. Some staffs while performing organisational activities from a
particular department possibly hold administrative positions in other departments in the
company. The company realised that the costs incurred are for serving the interest of the firm
and this is the reason corresponding activity related costs were not charged to the
departments. Due to this, confusion prevailed as to payments of salaries and allowances to
employees of the company (Goetsch and Davis, 2014, p. 61).
Problems regarding the determination of the degree of performance effort delivered by
employees of Tesco
For understanding the knowledge base and performance related effort by employees of each
department in Tesco a questionnaire was prepared. They needed to answer the questions
which offered hints of their knowledge and level of efforts in organisational work. During the
activity, it was assumed that employees of a particular department took participation at the
same time (Bettis et al, 2014). Several employees were known to be an outstanding performer
and yet their level of knowledge and performance did not reflect on their answers based on
the questionnaire. This created confusion and after discussion with management this was
resolved but this entire process took ample time (Morschett, Schramm-Klein and Zentes,
2015, p.702).
The problem in understanding the resource requirement for supporting production
volume
Tesco plc tried to adopt a common method of allocating costs and its proper maintenance
based on square feet. For supporting production quantity with quality enriched raw materials,
store capacity and maximum utilisation of stores were important. But store officials were not
adequately aware of these two factors. Some store spaces were underutilised. After this came
to notice, this confusion was resolved by discussing with the management of the firm (Stead
and Stead, 2014, p. 178).
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Running Head: Tesco Plc
The problem in obtaining operation data
Operation data are always of great help for the firm to implement activity-based management
process. While some operation data were unavailable, other important information were
easily available from the relevant department. In the beginning, it was expected to have data
from all major departments. But with the progress of work required data could not be
obtained from some departments e.g. R&D, IT, customer service of the company. This
situation was handled with help from management. Most problematic part in this respect was
non-cooperation of the departments which were not willing to get convinced and later they
became with the intervention of management ( Lewis, 2015, p.287).
The problem in acquiring data to determine activity performance
In activity-based management, implementation is the foremost part that is not possible
without having adequate data to understand activity performance. It helps to know the
activity-based cost. This helps in achieving vital knowledge to evaluate the efficiency of
Tesco in connection with several departments such as customer service, production,
marketing and research and development. Performance of each department could be
understood and compared. The requirement of cost allocation and its extent, as well as
performance as a preset target, can be better understood from this activity-based cost that
needs the relevant data from the departments. Finance department along with the IT
department and the research and development department was completely non-cooperative
and agreed to offer information after the active intervention of management. Therefore the
implementation of the process of activity-based management consumed maximum time (Feng
et al, 2016, p. 56).
Stakeholders satisfaction and long-term organizational viability and sustainability
through Activity-based management
Activity-based management as a process improves the overall profitability of the organization
and therefore improves the level of satisfaction of stakeholders. This helps to find long term
sustainability and viability of the organization. In Tesco, with the help of the following ways,
these are achieved.
Maximum analysis of system-wide performance- activity-based management keeps
focuses on responsibility and functionality of organisational operation activity than the cost.
It also puts emphasis on overall organisational performance than individual output. This
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Running Head: Tesco Plc
improves products’ quality, service level leading to improvement in motivation among
employees (Labunska, Petrova and Prokopishyna, 2017, p.39).
Quality management- activity-based management tries to regulate costs allotted to the
company. Unit managers are also responsible for controlling the same. When actual
performance is compared with the standard set by the company, performances get better
identified. Measures of financial performances are also considered by activity-based
management. Employees related costs are also found out by this process particularly when
employees incur costs (Rosenbaum-Elliott, Percy and Pervan, 2015, p.121). Tesco uses a
reward system as a part of a motivation programme so that employees and managers remain
motivated and capable to manage costs and deliver a consistent level of service for the benefit
of their company. The activity-based management system is very much appreciated by the
company to achieve higher satisfaction among its employees, suppliers and customers (Feng
et al, 2016, p.64).
Supply chain management - analysis of activities for understanding the strength and
weaknesses is the main purpose of activity-based management. Activities which are valued
added or non value added can be differentiated from this analysis. Value-added activities are
those which contribute value to the overall company operation, service and production
output. On the other hand non-value activity is such an operation which does not offer value
to company operation and the overall business of the firm in the short run as well as long run.
This analysis also takes into consideration the perception and viewpoint held by stakeholders,
customers and suppliers of the company (Kerzner and Kerzner, 2017, p.70). A set of value-
added activities form value chain which also links these activities with associated parts like
sourcing of raw materials to the production of required end products. The analysis of value
chain is also an important activity in Tesco and during this process, important activities are
enhanced while the wasteful operations and activities are eliminated to improve cost
efficiency. It can be concluded by saying that value chain analysis always remains an
important aspect of activity-based management process in Tesco (Rothaermel, 2015, p. 72).
The satisfaction of stakeholders- activity-based management process helps to identify the
operation and activities which involve maximum resource and time. If these are eliminated
then overall response time of clients gets improved. This keeps the business informed about
the efficiency level of a particular process or activity. Similarly, response time from suppliers
can be also improved for serving the purpose of consumers. This becomes possible when
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Running Head: Tesco Plc
value-added activities replace the non-value added activities. At this point, the significance
of activity-based management is always higher and activities based on value get identified.
Therefore overall costs can be reduced and consumers will remain satisfied since their
demands are addressed by effective operation and activities supported by activity-based
management (Hofmann and Bosshard, 2017, p. 321).
Sustainability of the business
Sustainability means a lot for a company so that based on some aspects the business achieves
development by ensuring economic, social along with environmental benefits. With the help
of activity-based management in Tesco, the management prepares plans, strategies and
objectives for making the business competitive by focusing on every activity. Tesco has the
plan to offer products at competitive prices also besides premium prices for customers. This
helps the firm manage costs of operation based on a higher volume of sales. This could be
achieved by the company when activity costs can be also managed. Only value-added
operations can be continued and the company on the basis of these useful operations can
ensure that product qualities are not compromised (Hislop, Bosua and Helms, 2018, p.59).
Tesco’s sustainability effort focuses on the extent of use of resources and its effect on the
environment. This motivates the company to adopt environmental friendliness. Tesco keeps
its focuses on the ethical approach of business which also includes friendliness to nature and
environment. Activity-based management process is helpful for the company to increase
sustainability aspects of business for achieving more reputation in the retail industry across
the world (Stark, 2015, p.77).
Environmental sustainability
In this segment, Tesco believes to operate its business in a responsible manner by ensuring
the utmost friendliness to the environment. Moreover, the working environment of the firm is
healthier for employees. Alongside customers, society and suppliers along with stakeholders
also are better served by a host of means adopted in business.
The operation that is environment conscious- management of Tesco adopts environment-
friendly outlook and based on activity-based management only those operations are
prioritised for organisational effectiveness which is not detrimental to the environment (Hitt,
Xu and Carnes, 2016, p.121).
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Running Head: Tesco Plc
Prevention of pollution- minimisation of pollution from the business operation is another
helpful aspect of Tesco which also improves credibility among stakeholders and nature
loving consumers in the industry. In this purpose, the firm always tries to improve operational
efficiency so the pollution can be reduced to the maximum extent (Hubbard, Rice and Galvin,
2014, p.451).
Waste minimisation- with the help of activity-based management, Tesco aims to achieve
operational efficiency. In this process, the company wants to minimise waste and look for
recycles products and recyclable raw materials. The initiative of recycling by the company is
the result of cost awareness from activity-based management (McGrath and Whitty, 2017,
p.72).
Conclusion
Tesco is one of the leading supermarket chains in the United Kingdom. Activity-based
management has been implemented by the company. However, in the process of
implementing several issues have been confronted with by the company. The overall purpose
of activity-based management in the company is to achieve long-run viability and
sustainability. This process is helpful for Tesco to identify the strengths and weakness of
operations and accordingly improvement is achievable. The company has adopted
environment-friendly operations and these are beneficial for ensuring business sustainability
in the competitive retail sector in the country like the United Kingdom and across the world.
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Running Head: Tesco Plc
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