Tesco Business Analysis: Internal and External Factors

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Business and Business Environment
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Table of Contents
Introduction................................................................................................................. 3
LO1............................................................................................................................. 4
LO2............................................................................................................................. 9
LO3........................................................................................................................... 12
LO4........................................................................................................................... 16
Conclusion................................................................................................................ 20
Reference List...........................................................................................................21
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Introduction
Many companies exist in the corporate world which are all categorised under many
different segments as per their size, range of scope, legal structure, and their
shareholders. Three different types of organisations like Tesco, BBC, and The British
Red Cross Society belonging to different business sectors are explained and
analysed. Tesco is one of the world’s largest supermarket chains. Founded in 1919,
they specialise in selling general merchandise along with groceries and processed
food products (Tesco plc, 2019). In this report, the various internal and external
factors that influence the operations of Tesco are analysed. The interrelationship
between the various functions of the company is also analysed. The size and scope
of the organisation is explained by comparing them with their competitors. An
assessment of the micro and macro environment of Tesco and their advantages and
disadvantages is also done with the help of tools like PESTLE and SWOT.
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LO1
Explain the different types, size and scope of organisations.
P1 Explain different types and purposes of organisations; public, private and
voluntary sectors and legal structures.
There are three different sectors of organisations according to their profit-making
objectives and ownership. These three types of sectors along with appropriate
examples are explained below.
Figure 1: Different Types of Organisations
(Source: Created by the Learner)
Public Sector Organisations: The organisations that are categorised under this
banner have their ownership in the hands of the central government or local
government bodies of the UK. These organisations provide services to the public like
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transportation, defence, broadcasting, and many more. Most public companies
provide social, welfare, health, and educational services to the public. These
companies do not conduct their business primarily to earn profits (Sangiorgi, 2015).
An example of a public company is the British Broadcasting Company (BBC). It is a
public company which is owned by the government of the UK. The government funds
the operations of the company. The government also owns all the profits and
revenues generated. BBC has their headquarters in London and broadcasts their
television programs all over the world. Established in 1920, they have been providing
their services to the public and have played an integral role in shaping the British
culture. BBC has over 20,000 staff employees with annual revenue of over 4.5 billion
pounds (Bbc.com, 2019).
Private Sector Organisations: private business entrepreneurs own private sector
companies like Tesco. These types of companies have total ownership over their
business without any government intervention. All the profits and revenues go
directly to the owners of the company. They conduct their business operations with
the goal to achieve the maximum amount of profits. These companies mostly sell
Fast Moving Consumer Goods (FMCG) like groceries and eatables along with Fast
Moving Durable Goods (FMDG) like clothes and utensils, which sell fast and are very
profitable (Adebola, 2017). Tesco is a company that specialises in retail chains to
sell FMCG products. They have around 450,000 employees with an annual income
of 55 million pounds.
Voluntary Organisations: as the name suggests, private entrepreneurs own the
companies that fall under this category. Their main aim is to provide social and
welfare services to the people who are in need. Their main objective is not to earn
profits but to provide their services and accomplish their goals (Mohan et al., 2018).
These are charitable companies, and are often called as Non-Governmental
Organisations (NGO). The British Red Cross Society is one such example of
voluntary organisation. Formed in 1870, they have a staff of 3,500 employees and
32,500 volunteers. Th4ese volunteers do not work directly under the company but
provide their assistance and services when in need. The main objective of this
company is to provide help to the people in crisis, who have witnessed natural
disasters like earthquakes and tsunami’s. They have a policy of non-discrimination
when helping the people in need and operate all over the globe. The funding of their
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operations is mostly done by charities from famous celebrities and other
organisations (British Red Cross, 2019).
The differences between these three types of organisations are explained in the
following table.
Category Public Sector
(BBC)
Private Sector
(Tesco)
Voluntary Sector
(British Red
Cross Society)
Ownership Owned by the
government
Owned by private
entrepreneurs
Owned by a
community or
group of individuals
Objectives Offer social and
welfare services to
the public
Generate
maximum revenues
and earn profits
Offer social and
welfare services to
the people in need
Products and
Services
Transportation,
educational,
medical, financial,
and many other
types of services
(Hofmann and
Ogonek, 2018)
FMCG and FMDG
products and
services
Medical, financial,
and many other
types of services to
people suffering
from natural
disasters
Profitability Low to moderate
profitability
High profitability Low to negligible
profitability
Table 1: Differences between organisational sectors
(Source: Created by the Learner)
P2 Explain the size and scope of a range of different types of organisations.
An organisation’s size and scope can be explained by analysing Small and Medium
Sized Enterprises (SME’s) and Large Enterprises.
Small and Medium Sized Enterprises (SME’s): These enterprises are small to
medium in size with no more than 250 employees. The annual turnover of these
enterprises does not exceed 5 million pounds. Due to the size of these enterprises,
they require less capital investment. These types of enterprises are popular because
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of this reason, along with annual turnovers being high depending on their size and
sector. Small enterprises generally require around 50 employees while medium
sized enterprises consist of around 250 employees. These enterprises are owned by
either a single entrepreneur or are in partnerships with 2 or more entrepreneurs. The
partnerships are created by signing a contract, which states each partner’s
contributed capital and the profit sharing ratio. Due to the size and scope of these
enterprises, the government encourages their formation and operations and also
because their profit share constitutes of 47 per cent of the market of the UK (Afrifa,
2016).
Large-scale enterprises: These enterprises are bigger in size and scope compared
to SME’s. These companies have a lot of employees, easily exceeding the size of
SME’s with around thousands of employees. These enterprises are highly profitable,
with average turnover exceeding a billion pounds. A group of entrepreneurs, which
constitute the organisation is Board of Directors, owns these organisations.
The differences between small, medium, and large-sized organisations are
summarised in the table below.
Basis of
Distinction
Small
Organisations
Medium
Organisations
Large
Organisations
Aims and
Objectives
Generating
income, increasing
market turnover,
and stay in the
competition
Increase their
market share, to
grow and develop,
and to increase
their turnover
To earn maximum
profits, increasing
their share in the
market, and
efficiently operating
in an ethical
system (Ambrose
et al., 2019)
Market Share Constitutes around 98 per cent of the
market of the UK
Constitutes only 2
per cent of the
market share of the
UK
Profit Share The profit percentage provided to the
private sector economy of the UK is 47
The profit
percentage
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per cent provided to the
private sector
economy of the UK
is 53 per cent
Employee Count
and Growth
Employs around 50
employees with
maximum turnover
of around 2 million
pounds
Employs around
250 employees
with maximum
turnover of around
5 million pounds
Employs thousands
of employees with
turnovers
exceeding 1 billion
pounds
Sustainability Because these organisations constitute
of around 98 per cent of the market
share of the UK, they have a
considerable influence on the ecology
with approximately 65 per cent of total
pollution.
Even though these
firms constitute
only 2 per cent of
the market share of
the UK, they have
a severe impact on
the ecology with
approximately 35
per cent of the total
pollution due to
their size and
nature of
operations.
Table 2: Differences between small, medium, and large scale organisations
(Source: Created by the Learner)
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LO2
Demonstrate the interrelationship of the various functions within an
organisation and how they link to organisational structure
P3 Explain the relationship between different organisational functions and how
they link to organisational objectives and structure.
Every organisation has many functions, with a few examples of them being the
function of Marketing, Human Resource and Management function, Accounting and
Finance function, and many more. The respective departments of Tesco handle all
these functions. These functions all constitute the structure the organisational
structure of Tesco. A few key functions of the organisation are explained below.
Marketing Function: The function of marketing is responsible for creating new
products for Tesco and releasing them in the market to generate profits and revenue
from their sales. This function is responsible for developing new products and
services and bringing them to the customers for their consumption (Baker, 2016).
The marketing department and the R & D department of Tesco work alongside each
other to develop new products. After a product or service is created, the department
markets them to the customers efficiently to generate revenues.
Human Resource Function: The Human Resource function is one of the most
important functions of any organisation in the world. This function is responsible for
recruiting new employees for the company and managing employee relations with
the company. The functions of the Human Resource Department of Tesco are
responsible for maintaining effective communications between the employees,
managers, and the leaders. The Human Resource department also influences other
departments and functions because it is responsible for recruiting new employees
and placing them in different departments as per their qualifications (Olsen et al.,
2018).
Accounting and Finance Function: The Accounting department of Tesco, which
maintains all the necessary books of accounts for the company, does this function.
The department calculates the income and profits generated by the organisation.
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This department helps every other department to budget their operational costs and
calculate their total expenditures (Heafy et al., 2018).
Research and Development Function: Tesco needs new products to release them
into the market in order to generate more revenue. The company also needs to
improve existing products to make them better after receiving feedbacks from
customers. These responsibilities are on the shoulders of the Research and
Development (R & D) department of Tesco. This department conducts research on
the target customers of Tesco and fashions a product or service as per their
demands. This department influences the marketing department because after the
products and services developed by this department; the marketing department
markets them in order to sell them to customers (Kang and Lee, 2017). The
accounting and finance department also influence this department’s operations
because the development budgets for new products are either made or approved by
the accountants
The organisational structure is the system that explains how the business operations
of a company are directed and maintained in order to achieve the aims and
objectives of the company. Companies are all structured in way that separates the
roles and responsibilities of the employees of each department, which maintains
order and prevents chaos when the company conducts their business operations.
There are mainly three kinds of organisational structures, which are explained below.
Horizontal or Flat Structure: In this type of organisational structure, many levels of
management are removed in favour of direct communication between the leaders of
the company and the various departments of the organisation. This type of structure
is only suitable for small-scale enterprises due to their lack of many employees and
the size and scope of their operations. Large enterprises like Tesco, which have a
global reach, cannot implement this structure.
Matrix structure: This structure takes the shape of a grid or a matrix in context of
the relationship regarding the flow of command. In this type of structure, employees
with relatable skills are grouped together when conducting an operation, often
resulting in multiple managers overseeing an operation. For example, all
programmers may be grouped together in one department with one clear manger to
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report to, or might also work with other departments, resulting in more than one
manager’s to report to (Bazigos and Harter, 2016)
Hierarchical Structure: As per this structure, employees are grouped together
according to their functions in various departments, which all have one manager to
supervise and conduct their operations. All the employees of a department report to
their manager (Dijkman et al., 2016). Tesco follows this structure, as it is a global
organisation with outlets and shops in many countries. Hierarchical structure also
allows the appointment of a manager to each global region or district. For example,
all the stores of Tesco and their employees in USA report to the manager who is
responsible for overseeing the organisation’s operations in USA.
There is a need for organisational functions of Tesco to be related to each other in
order to accomplish the aims and objectives of the company. When there is a
relationship between the different functions of the organisation, the operations of the
company get easier for conduction because there is a clear flow of information and
communication between the various departments. This allows each department to
know about the work done by other departments in order to make necessary
changes to their own tasks. This helps in improving the decision-making process of
the company, which results in the objectives of the firm to be realised more
efficiently. This interrelationship between the functions of the company keeps the
hierarchical structure intact as it is based around the departments of the firm working
together to conduct operations and accomplish their goals.
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LO3
Use contemporary examples to demonstrate both the positive and negative
influence/impact the macro environment has on business operations.
P4 Identify the positive and negative impacts the macro environment has upon
business operations, supported by specific examples.
Application of the PESTLE framework and how organisations can forecast and
monitor external influences
For the management of an organisation to keep a record of the transformations that
are happing in the external environment, the PESTLE analysis method is very useful
(Rastogi and Trivedi, 2016). There are six elements in PESTLE that are used to
scrutinise the external factors of the area, and if these factors can have any effects,
positively or negatively on the business of the company. The strategy of the business
is prepared after evaluating the elements of PESTLE.
PESTLE analysis of Tesco, UK
PESTLE Factors Analysis
Political Factors European Commission has implanted free trade
agreements that have a positive influence over
business organisations. Due to this agreement, the
price of imported products from foreign countries has
been reduced that has resulted in a lesser price of
sourcing. However, the United Kingdom faced
unsteady political condition after the Brexit in 2016.
The result of Brexit has caused a drop off in the
company’s product sales. The wobbly condition of
UK’s politics has decreased the revenue in the local
market as well as global market due to inadequate
transportation and communication.
Economical Factors Following the financial crisis that hit the United
Kingdom in 2008, retails organisations took the
strategy of discounts and gift vouchers to draw more
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