Strategic Human Resource Management at Tesco Plc

Gloucestershire business school| Strategic Human Resource Management at Tesco Plc| An analysis of Tesco’s strategic HR and employee relationship management| | Abdul Latif Sultan (s1010402)| 4/1/2011| Standard APA referencing style used Reference list presented at the end of the paper Word Count: 3009 This paper has been submitted at the University of Gloucestershire in partial fulfillment of the Masters in Business Administration course module ‘Strategic Human Resource Management,’ under the able guidance of Dr. Xiaoni Ren and Jocelyne Fleming.

Today’s competitive environment demands companies to pay serious attention to its human resource management because of the important role it plays in realizing a company’s mission, objectives and strategy. It is a vital element in driving a company towards success. The paper aims to demonstrate how strategic HRM and managing good employee relationships play an important role in the success of TESCO PLC. The paper also aims to present a view of how competitive advantage is highly dependent on effective Human Resource Strategies. Introduction According to John Bratton ‘Strategic human resource management is the process of linking the human resource function with the strategic objectives of the organization in order to improve performance (Bratton, 2001). Another view of management authority Michael Beer suggests that the HRM policies and practices of the organisation need to fit with its strategy in the competitive environment and the conditions that it faces’ (Beer, 1984).

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Wheelen and Hunger, 1995 define strategic management as ‘that set of managerial decisions and actions that determines the long-run performance of a corporation. ’ The strategic focus to HRM involves linking the managerial decisions with respect to HR policies with the strategic objectives of the organisation. Aktouf, 1996 (as cited in Bratton, 2001) present’s a model which identifies three inter-dependent variables that need to be identified and continuously adjusted; the values of the senior management, the business environment and the resources available to the firm.

The focus is to effectively manage and use the human resources, their skills & intellectual knowledge to gain competitive advantage. Barney states that resources that provide competitive advantage must be un-inimitable, rare and non-substitutable (Barney, 1991). Coff argues that human resources are a vital source for gaining competitive advantage and are inimitable (Coff, 1994). (Guest, 1990) & (Gratton, 1997) share a similar view that employees if motivated can lead to higher performance and commitment.

Gratton identifies six factors of success: the commitment of top management; the motivation and aspirations of recruits; the core capabilities of the management team; the team’s aspiration; its ability to build and maintain alliances; and the integration of the business into a global network. The whole idea is to present a view that organisational success does not depend on the financial power or the technological capability of the firm but rather the attitudes, commitment, skills, capabilities of its employees and the relationship it shares with them.

If Human resources are the actual source of competitive advantage to firms then how have firms achieved this? This paper is inspired by the competitive strategy, managing employee relationships and other human resource practices employed at TESCO PLC that drive them to success. Company Profile Tesco is Britain’s largest food retail group and operates in a number of countries (Bhatnagar, 2006). Its global presence covers Europe, Asia and the United States (Tesco, 2010). Tesco is also credited for being the world’s largest e-retailer with an annual turnover of ? 1 billion. Its market share in the U.

K. is approximately 28% followed by others such as Asda, Aldi, and Sainsbury at 10%, 9%, and 7% respectively (DataMonitor, 2010). Tesco caters in food but since a few years has expanded its services to clothing, electronics, broadband services and telecom services with a tremendous increase in profit margins from ? 2. 2 bn in 2006 to ? 3. 2 bn in 2010 (Tesco, 2010). Tesco deploys its strategies based on 5 elements: international retailing, growing its core UK business, growing in the food as well as non-food sector, developing retail services, and considering the community s the heart of its operations. The 5th element was added recently in 2007 (Tesco, 2010). Over the years Tesco has seen growth and consistency in sales and profits. They credit their management team, their strategy to invest in their employees as their catalyst in being successful. In 1985, Tesco announced the operations of its 100th superstore and in the following year it announced its plan to invest ? 500 million in starting 29 more stores (Corporate Watch, 2004).

The beginning of the next decade saw Tesco basking on the success of its petrol filling stations to become UK’s largest private petrol retailer (Corporate Watch, 2004). The company introduced the idea of developing new and different store concepts and better customer centric initiatives. In 1995 Tesco introduced a revolution in the food retailing market, the Tesco club (loyalty) card, which provided offers and other benefits to customers and also helping the company learn more about its customer’s shopping patterns and needs (Cheffey & Smith, 2010).

Other customer centric services included: Tesco Direct in 2006 (Cheffey & Smith, 2010) which aimed at encouraging catalogue shopping and to rival Argos, the Baby-club for new parents, and the introduction of Tesco Personal Finance a strategic joint venture alliance with the Royal Bank of Scotland. In 2000 & 2002, Tesco ventured into Taiwan Malaysia respectively. Also in 2002, Tesco ventured into Poland with an aim to capture the Polish food retail by acquiring the ‘HIT’ Hypermarket chain (Walsh, 2002).

By the end of 2003 Tesco had 45% of its space overseas, market leadership in 6 of its 10 countries, and was profitable in 8 out of 10 markets (Tesco, 2010). Tesco is no longer just a food retailer but also provides products and services that include books, compact discs, digital music, videos, flowers, games, gardening, gas, holidays and flights, financial services, insurance services telecoms services and healthy living services (E-Diet and Tesco Healthy living initiative) (Cheffey & Smith, 2010).

Tesco has developed various kinds of Tesco stores ranging from Tesco Extra, Metro Tesco and Tesco Express (Bhatnagar, 2006) in order to better meet the needs of the people. In 2008, the company invested ? 76 million (DataMonitor, 2010) in acquiring sophisticated ERP systems in order to streamline its operations and assist them in managing stock and inventory efficiently and maintain their low cost strategy. The following year they saw an increase in profits by ? 550 million (Tesco, 2010). These systems are generally criticized for the time and cost nvolved in training the staff to handle these systems. It should be assumed that Tesco possess a great number of manpower with skills, talent and knowledge without which any of this would not be possible. The use of technology and finance alone does not help a business, but the Human resources that drive them act as a major source of achieving competitive advantage. This force is its core strength that its posses, apart from its successful marketing strategy & advertising campaigns, that makes it the market leader. The role of HR in competitive advantage and organisation’s performance

Based on previous research on another module it was identified that Tesco employs a hybrid strategy to compete in the market. It employs a differentiation (successful supply chain and IT systems) and low-cost strategy approach. Tesco operates on very low costs making them the market leaders. Employing low cost strategies involves additional investment in automation facilities, equipment and employee skill. Differentiation strategies call for employees to focus on creativity and innovation. According to (Jassim, 2007) the employees must be credited for successfully deploying these strategic elements: innovation, low costs, quality etc.

This is all possible only when employees are motivated with the right HR practices. According to Pfeffer competitive advantage through HR can be gained with the help of these 16 principles (Pfeffer, 1994): • Employment security • Incentive pay • Participation and empowerment • Symbolic egalitarianism • Long-term perspective • Selectivity in recruiting • Employee ownership • Teams and job redesign • Wage compression • Measurement of practices • Cross-utilization & cross-training • High wage • Information sharing • Training and skill development • Promotion from within • Overarching philosophy.

According to research conducted with employees of various organisations, the factors that play an important role in improving performance and long term loyalty of employees are: High job security, high wages, good communication and strong respect for individuals, personal development such as training, reward and social relationship, performance reviewing and setting goals and objectives, job description, good manager with a good qualification and vision and involvement in the selection process (Jassim, 2007). These answers clearly relate to the sixteen rinciples laid down by Pfeffer, 1994. According to Beer et al. rewards and benefits can be used to send a powerful message to employees about what behavior and attitude the organisation seeks from them (Beer, 1984). Designing fair reward systems to motivate employees result in employee satisfaction which translates to customer satisfaction which in turn leads to more profits and returns. Tesco awarded ? 98m worth of the company shares to its employees to appreciate their efforts. They offer a long term career to its employees by offering competitive pay, training and development.

Tesco has various schemes to reward its staff and motivate them to work harder. These rewards and benefits include employee share incentive schemes, deals on retailing services, insurance, mobile offers, pension schemes, fair remuneration etc. Tesco draws on the idea of IRS, 1996 and uses rewards and benefits as a strategic tool in influencing team behavior (IRS, 2010). The Organisation is committed to invest in training and developing the skills, knowledge and talent of its employees with knowledge, skill to retain them as a source of sustained competitive advantage.

Tesco also pays close attention in selecting and developing its leaders. The Tesco academy trains & develops the leadership, technical and management skills of its people (Tesco, 2010). The aim of continuously developing these leadership and management skills is to gain competitive advantage through effective leadership. It takes good leadership skills to bring in to life good patterns of employment relationships in the organisation (Jassim, 2007). This also highlight a resource based view at Tesco, as employees are valued and considered as resources that need to be retained and developed to gain competitive advantage.

Human resources are ‘the pool of human capital under the firm’s control in a direct employment relationship (Wright, McMaham, & McWilliams, 1994). Considering the resource based view of strategy, HRM is valued not only for the role it plays in implementing a given competitive environment but for the role it plays in generating strategic capability (Barney, 1991) and its potential to create firms which are more intelligent and flexible than their competitors (Grant, 1991).

Tesco employs 472,000 people globally, employs a participative management approach and manages good relations with its employees (Tesco, 2010). Its HR policies and practices must be given credit for the increasing profits and success of Tesco over the years. Tesco clearly identifies its Human resources and providing them with effective training and development to retain, also it defends their human resources by maintaining good relationships, developing them as resources with distinctive capabilities and competencies, building employee commitment, employment security, training programs.

The idea of Tesco is to draw upon PMI, 1996 as cited in (Jassim, 2007) that, improvements in individual skills and team behaviors leads to more effort leading to better performance. Strategic recruitment and selection at Tesco is another factor that leads to sustained competitive advantage. It tries to recruit people with the right skills one example would be Tesco’s graduate scheme initiative, where they hire local graduates, train them to cater to the local customers and ensure securing talent for the future growth of the business.

Management authorities have concluded that HRM practices like staffing, training are positively connected with organisational performance (Pfeffer, 1994) (Schuler & Jackson, 1987). The HRM functions of Tesco act as its vital element as it moulds the employees to become the significant contributors to the firm. Availability of Human resources with the appropriate skills, HRM practices will then lead to success and the achievement of organisational objectives. This relationship and notion clearly identifies the strategic function of HRM broader than just focused on hiring employees.

By hiring and developing talented staff and ‘synergising’ their contribution within the resource bundle of the firm, HRM may lay the basis for sustained competitive advantage (Jassim, 2007). In order to get a better well versed model of strategic HRM, it should be linked to the employment relationship. The role of Employment relationships in gaining competitive advantage at TESCO Employment relationship is a socio-economic exchange process involving the mediation of the interest of employer, to minimise the labour cost and the interest of the employee to maximise the labour price (Jassim, 2007).

Maintaining the employee-employer relationship is critical in motivating employees, high productivity and influencing behavior and over all it helps in avoid and resolve any problems that might arise between them. The scope of the relationship between an employer and the employees is more complex than its relationship with the customers. Customers switch to competitors when the relationship is not working while unhappy employees can affect the productivity negatively. The employees experience the relationship with the employer as soon as they begin working and it goes on for a long time.

Employment relationship has 2 elements attached to it Conflict or Cooperation (Bratton, 2001). Conflict occurs when employees feel they are not being fairly treated, unfair remuneration, they feel insecure about their jobs because of the lay-offs, when there is a problem with respect to power sharing between the two parties, or employee misconduct. It is critical that the management avoids this conflict and creates a more cooperative environment as the quality of product or service is directly dependant on the performance of employees.

This gives us a view that in order to their cooperation, employers must treat employees with respect, facilitate a participative and democratic environment by addressing their grievances and suggestions, and reward them fairly. At the same time companies must control the work behavior and make sure employees work efficiently which might at times call for extracting additional productivity at no additional costs, minimizing wages and declaring redundancies (Keenoy & Anthony, 1992).

Tesco gradually realized the benefits of securing employee commitment with the help of communication and involvement as key elements. In the mid 1990’s, Tesco took the key initiative of having an involvement director who was responsible to comply with the legal developments in the employee relations field including consultation and information (Inman, OSUllivan, & Murton, 2010). The changing external environment and the election of the labor party in power forced the organisation to a move forward and initiate a partnership approach.

Tesco has a union recognition agreement with the Union of Shop, Distributive and Allied Workers (USDAW) and the union has a strong presence in stores by 60-70% (Inman, OSUllivan, & Murton, 2010). The company would negotiate payments with the USDAW annually and saw this as a symptomatic of adversarial-style industrial relationship and aimed to move away from this. The company was also concerned about the lack of representation of workers who were not USDAW members, as it was looking to consult staff in order to gain their commitment.

In 1997, the two parties reached an agreement on the nine pillars of partnership USDAW, 1997 as cited in (Inman, OSUllivan, & Murton, 2010): * Representation – All the employees can put forward their views to their elected representative on a staff forum. The intention of the forum is to be ‘challenging but not confrontational’. * Training – Union representatives from the staff receive training in industrial relations, employment legislations, company’s culture, its values and Tesco’s terms and conditions. They also receive additional training in personal skills. Consultation – Tesco retains the right to take decisions about the business, with the union having a ‘say’ in the impact of change. Joint areas for consultation include health and safety, acquisitions/redundancies/TUPE, company performance, competitor activity, staff/customer research, pensions, discipline and grievance procedures. * Understanding issues ? encouraging staff to raise issues for company to listen to & act where necessary. * Communication ? to update the employees with regular information about recent developments in the business. * Business-focused ?

Acknowledging the importance of change for business performance. * External influence ? promotion by USDAW of the company & of retailing as a career for people. * Values and culture ? these need to underpin the partnership model and to work together to meet the needs of the employees and customers of Tesco. The partnership model is underpinned by a new communication framework that operates from the store level to the national level. The store level involves elected representatives who are consulted by the management on the changes that need to be made which is run by the staff for the staff and veryone is allowed to be a part of it. The regional involves the elected representatives meeting union’s divisional officer and the regional managers and the aim is to discuss the issues raised by the staff forums and to forward issues to the national forum. The national forum consists of nine elected union members, the union’s national officer the retail HR and Managing directors all of them meeting to negotiate pay, conditions, major company changes, policy matters (Wright, McMaham, & McWilliams, 1994).

There is also a staff suggestion scheme on store levels and rapid action teams to consider it and take it forward (Tesco, 2010). A positive employee relationship increases employee job satisfaction and therefore leads to better quality goods, services and increase in productivity. Motivation is a key factor in maintaining these relationships. Good employee relations Motivation act as a catalyst for organization’s performance and competitive advantage. Tesco seems to have identified its need for strategically managing good relationships with its employees and took necessary steps towards enhancing them.

Conclusion Tesco has benefitted from using strategic human resource practices and the alignment of its human resource function with its strategy. Its participative approach has helped the organisation in gaining competitive advantage and being successful over the years. Tesco clearly aligned its differentiation & low-cost approach with strategic human resource management to become leaders in the retail market. Involving employees in decision making, fair treatment and good reward schemes have led to high morale, employee satisfaction, efficiency, better profits etc.

The employees and their skills are the main strength of Tesco. Its focus on good SHRM policies and practices has proven to have helped them in organisational performance. Its distinctive HRM has helped it achieve competitive advantage and become highly successful. SHRM in general, is a distinctive approach to HRM with the objective of achieving competitive advantage through the strategic deployment of a highly committed and capable workforce, using an integrated array of models and techniques.

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