Assignment 2
The effects of the environment on Tesco
Introduction
Established in 1919 by Jack Cohen, Tesco PLC is today the 3 rd biggest retailer in the world. With an
average annual profit of £5billion and approximately 7000 Stores worldwide. Not only is Tesco a
supermarket, it’s also a hypermarket, convenience store and super store. With approximately
500,000 employees working for the company worldwide, it all started with headquarters in Welwyn
Garden City UK.
Today I will be discussing how the effects of the environment have affected the company, internally
and externally with a range of situational analysis techniques.
P4- Discuss the internal, external, and competitive environment on a given organisation.
Tesco is a multinational business that trades globally. I am going to be exploring how Tesco has
performed in Europe discussing the internal, external, and competitive environment with some of
Tesco’s biggest competitors.
Tesco have not been performing very well in Europe could this be down to the internal and external
environment of the company.
The internal and external structures of Tesco could be vital for the success of Tesco in Europe.
Tesco’s board consists of 10 members as of 2014/2015. Where many changes take place. John Allan
the chairman, David Lewis the new CEO and Alan Steward the financial officer.
In 2015, David Lewis announced the reduction of costs by 20% with implications on the management
structure.
There are 11 members in the committee as seen below
Tesco’s organizational structure is hierarchical due to the large size of the business. Inside the stores
there are as many as four layers of management in some larger stores. This does not go for all as the
structure can vary depending on the size, location and other factors affecting the internal structure.
The picture below shows the organizational structure at store level.
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Although this could be a positive for many reasons, such as many job roles for people to progress in
their careers. High levels of management could cause bureaucracy within the business and there
could be communication problems for Tesco. Therefore, it is important that the committee need to
consider creating better flowing communications and flexibility so that the business can run
smoothly and effectively minimizing problems.
“The board has a detailed programme that ensures operational and financial performance, risk,
governance strategy, culture and stakeholder engagement and are all discussed at the appropriate
time” the board eliminate risk of failure to achieve business objectives.
The board consists of four parts, audit committee, corporate responsibility committee, nominations
and governance committee and remuneration committee.
The committee roles consist of…
Audit committee
Provides assessment and oversight of financial process relating to internal controls, risk
management and compliance. They also oversee the effectiveness of internal and external functions.
Risk management “perform robust reviews of risks which could affect business model, future
performance, solvency or liquidity.”
Covid-19 has moved from emerging risk to a principal risk from 2019/2020. Other risks include
climate change and sustainability which remain essential. Another risk the audit committee must
monitor is brand reputation, as well as trust and responsible sourcing and supply chains.
Risks associated with Brexit remain, due to no clarity on long-term trading relationships. This will be
further discussed in my analysis of external factors affecting Tesco.
Tesco have amended their Brexit risk description accordingly and continue to monitor ongoing risks.
Liquidity and risks related to the transformation programme have reduced. Improved cash flow has
reduced to less risk, however, there has been a slight increase in Health and Safety risks mainly due
to Covid-19. This must be taken very seriously to avoid high penalties and legal action. Tesco’s
annual report 2020 continues to suggest that their injury statistics continue to improve.
Tesco have also set out a table containing key risks movements so that they can be monitored and
contained. Like unpredictable and erratic things such as Brexit and cash flow.
Audit committee meetings are held five times a year so that the chairman can provide verbal and
written updates following each meeting so that meetings are effective and timely.
Cashflow
Throughout the year the committee receive reports from chief finance officers for the UK and
Central Europe. Which provide an insight to retail operations and reviews. They regularly review
capital arrangements so that any changes can be spotted, and the right actions can be put in place.
The committee also review ethics and compliance data, protecting the company from fraud.
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Role of corporate responsibility committee
This committee maintains responsibility on sustainable matters. Overseas groups on social and
environmental obligations and ensure responsibilities are put out in a way to build trust, respect and
confidence and monitors external activities that may affect the group.
There are 3 meetings a year that focus 30% on progress against corporate responsibility strategy,
25% on responsible sourcing strategy, 25% little helps plan communications marketing strategy and
20% on governance.
Role of nominations and governance committee
This is used to review the size and skills of the board, which leads to a process for new
appointments, monitors boards and senior management planning and independence.
This is effective as Tesco can review plans for current years, review process against actions in
previous years and review non-executive directors time commitments and independence.
Role of renumeration committee
Determines renumeration policy for executive directors and senior managers, having regard to pay
across the group.
Overall, the board review policies, divide policy and payment, take care of risks and internal control,
operate long and short- term plans and manage budgeting. This helps Tesco to stay successful as
they can on top of the business in an organised and controlled way.
In conclusion, having a diverse board with different perspectives, insights and viewpoints will benefit
the groups stakeholders through better business performances just like Tesco follow as seen below.
There are many external factors affecting Tesco in Europe which can be explored using a pestle
analysis.
Political factors affecting Tesco are things such as tax policies, restrictions on trade, tariffs etc..
Tesco’s annual report suggests “Sales fell by (10.1)% at constant exchange rates, reflecting
disruption from the actions we have taken including the rationalisation of our general merchandise
offer, making our customer offer more relevant and compelling.”
A big threat Tesco will face is Brexit.
After watching an interview on the news with Tesco’s chairman John Allan, tariffs with greatly
impact Tesco as it will lead to higher prices on certain items if there is a no Brexit deal in place. This
