In this assignment we will look at three aspects of operations management, which are Finance, human resource and information technology at an organisation. To understand the concepts better we have selected the case of Tesco Plc., UK. PART A: Managing Finance
Financial management is a very important component of the operation management at a company. The role of the financial management at the company is to purposefully management the financial resources; present the performance of the organisation in financial terms.
(Brigham E.F. and Ehrhardt M.C., 2010) The financial management has to acquire the required capital required for achievement of strategic and tactical objectives at a low cost. The financial management has to anticipate the financial result and maintain the financial balance as per the company’s needs. Information received by the Financial Management at Tesco
The information that is of importance to the financial management of Tesco is * The investment cost of the funds on the capital market. * The current rates of exchange that are prevalent in the market and short term interest’s rates that s prevalent in the monetary markets.
* The financial management synthesises information that provides new investment opportunities available to the company. The financial management tries to make innovation in the financial field with the help of new financial instruments that are available in the market.
Decisions taken by Financial Management of Tesco Plc.
Based on the information, the financial management has to make critical decisions regarding finance of the company: * The financial management has to take decagons on the interest rates at which the company is willing to take loans.
* It has to predict the future cash flow needs of the company. * The company has to make decision on the long term debt and short term loans while also making decision on the issue of shares and the option of self-financing. * The management has to make decision on the risk management technique to be adopted along with the financial impacts of the project that the company has undertaken on the financial health of the company.
Role of Financial Institutions in Financial Decision Making
Financial institutions are responsible for distributing financial resources to the users in planned manner. (Mondy R.W., 2009) There are different financial institutions in the market that specialise in collecting funds as well as lending it to different organisation to carry out their projects. The examples of financial institutions include banks, credit unions, asset management firms, building societies and stock brokerages. The financial institution can be categorised as
* Deposit Taking Institutions
* Finance and Insurance Institutions
* Investment Institutions
* Pensions providing institutions
* Risk management institutions
While there are government financial agencies who assigned to carry out the regulatory and supervisory function of different other institutions. The financial institutions have been integral in satisfying the financial and management needs of different industries and this has also shaped the national economic scene. Deposit taking institution are mainly concerned with accepting deposits, providing commercial loans, real estate loans, mortgage loans and issuing share certificates. The finance companies provide loans, inventory financing and indirect consumer base, the companies gets funds form these institutions thorough the issue of bonds and other obligations. The insurance companies have become an integral part of a company’s financial obligations.
The insurance companies also provide a different investment options and also provide loans for a number of purposes. The financial institutions such as stock, exchanges, commodity markets, futures, currency and options exchange are involved in creating and providing ownerships for financial claims. (Mondy R.W., 2009) These financial institution mange price change risks and maintain liquidity in the market. Through the various instruments the institutions provide investment opportunities and help businesses to generate funds for various purposes. The various investment banks are responsible for a number of financial activities such as underwriting securities, selling securities to investors, providing brokerage services and providing fund raising advice.
Analysis of the Financial Statement of Tesco Plc.
The financial statement is periodic documents that are published by companies to show the company’s financial performance. The information from financial statement is important for internal and external purposes. The financial statements are used by the employees and management for their own information about the company while the manager use tit to plan future activities and compare performances of departments in financial terms. The statements can also be sued to compare with other company’s statement to compare the performance on a macroeconomic level. A financial abatement mainly consists of four main components which are balance sheets, profit and loss account, cash flow statements and income statement. Each component has different function which can be lined out as: Balance Sheets: It provides the financial situation of the company as a whole. It records the tangible and intangible goods that the company owes or owns.
The three categories in a balance sheet are assets, liabilities and shareholders’ equity. The assets are basically categorised in to current assets, fixed assets and other assets. The liabilities section of the balance sheet consists of current liabilities and long term liabilities. The shareholders equity represents the net worth of the company. In balance sheet, the shareholder’s equity is calculated as the sum of liabilities and net worth. Profit and Loss Account: it summarizes the incomes and expenses of a company in a given period of time. This includes accruals which are incomes that will be realised only after the particular profit and account was prepared.
Cash Flow Statements: These statements are very important to predict the future flow of finance in the company. The cash flow statement is concerned with understanding if there is enough money for all the activities and expenses of the company and stands as a good measure for a company’s liquidity. Income Statement: The income statements are used to measure the company’s sales and expenses over a specific period of time. They are prepared at the end of each financial year and shows the results of the operation of the company I the given time. The financial health of the company will also be analysed using Ratio Analysis, The Analysis of Financial Performance of Tesco
Financial statement analysis is concerned with identify the strengths and weaknesses of the company’s finances and establish the relationship between the different financial statements. Tools and Techniques: There are various tools and techniques that have been identified to conduct financial analysis. The tools and techniques are categorised in to (Brigham E.F. and Ehrhardt M.C., 2010)
* Horizontal and Vertical Analysis: The horizontal analysis is the comparison of two or more financial data. It represents the changes between years in both monetary and percentage form. While Vertical analysis is concerned with the preparing ad presenting common sized statements. * Ratios Analysis: The ratio analysis is considered to be the most powerful toll for analysing the financial health of the company, ratio simply means one number expressed in terms of the other. There are many forms of ratio analysis satisfying different functions which are profitability ratios, liquidity ratios, activity ratios, long term solvency ratios and leverage ratios. Table 1) Financial Ratio of Tesco Plc.
Ratio/ Year| 2009| 2010| 2011|
Gross Profit Margin| 7.6%| 7.8%| 8%|
Operating Profit Margin| 5.91%| 5.88%| 6.07%|
Return on Assets| 7.06| 4.69| 5.08|
| | | |
Return on Capital Employed| 7.06| 4.68| 5.07|
Current Ratio| <1| <1| <1|
Based on the above calculation we can conclude that the financial performance of Tesco up to the mark. The company maintained good profit percentages which satisfy the shareholders while the company as a god return on the assets it has employees and it short term financial obligation are fine. Although financial statements are a highly useful tool, it has two limitations which are the comparability of the financial data between companies and the need to look beyond ratios.
But on the contrary financial statements have a lot of benefits like the investors, who can use the information to make decisions on investments. (Blazey M., 2008) There is an accounting standard board that will make sure the accounts are carried out in a legal manner. The information from financial statements helps the government analyse the taxation policy of the company. The financial statements are useful because it shows the financial condition of the company. Analysing the financial statements involve identification of the information from the users. This allows the companies to analyse the trends in the financial data, compare the data across companies,
Financially the company has gone through a lot over the last four year with the economic turn down and the fall in profits. The company has had to tighten its fences over the time period by reducing cost and cutting employment. The financial strategy of the company is one of the main reasons why the company did not face the full effect of the economic turn down. There are various factors that have to be considered before making decision on the financial of the company. The company has a very effective risk management practice that has allowed the company to stay liquid despite the financial turn down and fall in sales. The company has adopted a flexible financial management plan that allows the company to adjust to any situation. The encouragement of credit by government has allowed the company to maximise the capital and start growing again.
PART B: Managing People
Managing the staff and employees in the organisation is another important function of the management. Human resource management has gained prominence recently, as it has become clear that quality employees are imperative for the success of the organisation. There are various factors that have contributed to Human Resource Management gaining importance. When the staffs are highly motivated and committed then it transfers to better customer satisfaction thus better profitability. (Sheehan C., 2005)
Human Resource management is considered to be planned approach to managing and motivating people in an organisation. Through different human resource management, the management aims to establish a more open, flexible and caring management style such that the employees are motivated, developed and managed such that the full potential of the employees are satisfied. Human resource practices are employed in every department and branch such that each unit of business of a company achieves higher productivity and the objectives of the company are achieved.
Human Resource Practices
The human resource managers are responsible for integrating the strategy of the company with the human resource system. The HR managers try to arrange the activities and strategies to achieve the objectives of the company. HRM is linked to an organisation strategic direction in a systematic way, to integrate the strategy: (Price A., 2007) * The HR managers are responsible for clarifying the department’s strategic direction by spreading the vision and mission and values statement.
* HR managers are important to the organisation, as they are responsible for linking the strategy with the human resource programme that is integrated to achieve the objectives and convincing the employees. * Human resource managers have to project the short and long term resources needs through a manpower plan. * The managers set performance standards and analyse the performance of the employees. The managers will have to tie departmental objectives with the overall objective of the organisation. The employees require regular coaching and develop staff for the required job. * The HR managers have to continuously improve the staff competencies through constant training and engaging staff in developing services that meet the customer needs.
The HRM cycle refers on the main role of the management in the organisation:
Figure 2: HRM Cycle
Articulate Vision and Mission
Articulate Vision and Mission
Performance Management Systems
Performance Management Systems
Service Quality Enhancement
Service Quality Enhancement
Training and Development
Training and Development
Drawing up HRM Plan
Drawing up HRM Plan
The above framework represents the roles the HR management of a company has to practice for effective personnel and human resource management at the company. (Morley M., & Colings D., 2004) The cycle starts off with management integrating the vision and mission in to the work culture of the company. The HR managers have to then draw up a human resource plan for the future activities along with the man power planning or declining on the personnel who will take over the jobs. The Human resource manager has to create performance management systems and evaluate the performance of the personnel. The company has t them provide the employees with proper training and development to carry out the particular job. All these steps are aimed at improving the service quality and increasing customer satisfaction.
Human Resource Practices in Tesco
The human resource practices at Tesco can be analysed using the above Human Resource Cycle. Tesco has grown in size and is growing at a very fast rate; the human resource need o the company is expanding and changing. The company deals with a vast range of products and thus the personnel need of the company is also very diverse. The enormous growth within the country means, the company needs to follow a different recruitment tile and process. The company has focused on the mission of Every Little Helps more and more in its human resource strategies and the common philosophy is used to integrate the workforce of the company.
The company is committed to the understanding the needs of the employees and make sure the role of the individual contributes to the development of the company. The company and it’s the employees to broaden its experience with the company and encourage the employees to progress along the organisational set up of the company. (Blazey M., 2008) The company looks for people who are passionate about retail and develop relationship with the customers. The company expects the employees to achieve results through determination and commitment. The company is committed to treating the employees in an ethical manner.
The employees are required to react to customer feedbacks in a positive manner while corking in a team. The employees have to ensure availability to the company 24/7 and engage with a multi lingual work culture. The workplace planning is the process of analysing the organisations future needs for personnel’s with a definite skills set and experience. The company achieves these objectives thorough recruitment and selections. The company recruits at regular intervals to satisfying the burgeoning needs for employees in the company. There are five steps adopted by Tesco to plan the workforce,
* Design Human resource management system
* Understand the context or environment in which the strategy is adopted. * Forecasting the demand for the human resource in the future. * Analysing the internal and external success of human resource supply. * After the designing the workforce plan, create plan for putting it in to action. After planning on the workforce, the management has to decide on the performance management system which will be used to monitor and reward the employees. The company uses various performance management techniques. The measurement is divided in to analytical and non-analytical performance management system. Under the analytical performance management scheme, the work is broken down in to Points Rating and Factor Comparison. Points Ratings: The key elements of the job are divided in to different factors and each factor is analysed using points. This is the non-analytical tool used by Tesco to understand the performance of the employees.
Tesco predominantly uses the non-analytical tool of job classification to evaluate and reward its employees. The job specification strategy allows the company analyse the skills, competencies and experience that is required for a particular job. Performance management is the systematic process through which the employees involve its employees, as individuals and member of a group. The performance management of the employees involves its employees, as individuals and members of the group. Employee’s performance management includes the planning of work and setting expectations. The performance management is focused on providing a continuous monitoring system which is also flexible. The companies develop the staff’s ability to perform and rates the performances periodically.
The company also uses different non analytical tools to understand the performance of the employees. The non-analytical methods include job ranking, paired comparison and job classification. The Duty manager at the company is responsible for management the shifts of the staff at the company while the customer services assistant stacks up the shelf while dealing with the customers but are not involved running the business unit. Tesco adopts a very complex taint management system focusing on enhancing the abilities of its existing staff and developing them to be future entrepreneurs at the company. The strategy at Tesco to manage talent is called ‘Talent Management’; the main focus of the talent management is to develop future leader or the company.
The company is focused on a process heavy approach to talent management. The company understand that as the business develops and grows t needs constant us [ploy entrepreneurs who will take up the reins in the future and drive the organisation forward. Tesco uses a very innovative reward system strategy to reward the employees. The company provides the employees with shares in the company to complete one year of service and at the end of each financial year. The company allows the employees to save as they earn the employees can buy new shares as they earn more. The company provides the staff privilege card, the staff loyalty card that gives 10% discount and club card points on most Tesco products. The company uses pensions and life insurance scheme that will provide security to the family of the staff. The company gives the companies discounts and special offers that are available exclusively to Tesco Staff on gym memberships, travel tickets etc.
Tesco needs to adopt an HR strategy that is focused on the people of the organisations, engaging the employees and flexible to adaptation to other macro-economic changes. The company knees t is an insight driven organisation with the right mix of employees which are focused on a common goal. The HR strategy needs to have an understanding of the key drivers that make business successful within the climate in which it operates. The HR management has to create a flexible and agile working culture within the organisation making sure it changes with accordance to the external changes. The company needs to focus on making behavioural and decagons making processes conducting commentary on the different processes. There are other factors that need to be considered with accordance to benchmarks.
TESCO is one of the largest private sector employer in the UK who employees more than 280,000 staff, the companies requires the staff to work as a team and respect each other. The company demands the employees to listen, support and share knowledge’s among peers. The company claims to provide a marketing leading package of pa of benefits with the inclusion of child care and rearing the staff with shares. The company allows the employees to share the views of the company like conduct staff question time session ad employer’s feedback surveys. Tesco maintains a good relationship with the Union of Ships, Distributive and Allied Workers Union and the partnership is considered to be one of the biggest single trade unions in the private sector. The partnership aims at enraging good employment practices in the enterprise and make sure the worker are treated ethically and with respect.
Tesco serves as recognition among senior management that employees involvement and participation in decision making can contribute to the achievement of the strategic goals. Tesco basically employees a participative management style, this means the employees will have to contribute to the management in certain way. The company has been successfully using its competitive advantage by improving the way in which they deal with the customers. The company adopted continuous improvement and innovation of the welfare management and the customer relations with conjunction with the HRM strategies to gain respectable position in the UK retail industry. The company treats the customers as champions and tries to give them better treatment by empowering the employees.
This has also contributed to the increase in the satisfaction of the employees. The strategy of the company has allowed the company to maintain better work culture and high employee morale. The employees at Tesco are now more motivated and accept change at a quicker rate. One of the main strengths of Tesco’s human resource strategy is the totally development of the employees and has concentrated on the effective implementation and utilization of HR strategies, which has allowed to maintain a competitive edge. The HR policies are integrated with the marketing strategies which are then used in operation. The management style is one of the most integral factors that have allowed the company to improve the performance so that the staff at the company. The HR management strategy is to balance work and leisure properly and making sure the employees performance are improved by constant engagement.
Improved employment satisfaction is an important determinant of improved customer satisfaction. Improved customer satisfaction is a result of the better management of the customer s by the staff o the company who tries to develop a relationship with the customers. Satisfying and retaining customers is a very important function of the management at the company. HRM manager’s manager various function like human capital skills, core culture, employee commitment, teamwork and productivity which are aimed at treating the customers properly thus improve the performance eon the company and competitive advantage of the company.
The human resource management has implication at various stages of customer relationship like finance, sales and customer service. If the company has to make sure there is a competitive advantage the company will have to management its staff better. It has also shown that enhanced employee satisfaction has an effect on the financial position of the company. It has been found that enterprises who concentrate on their human resource management have been able to provide a better performance in the long run. One has to conclude by saying that HRM is a overall process is related to the long term human resource issues in the enterprise and goals of the human resource management has to mirror that if the entire enterprise.
PART C: Managing Information
Managing information about different aspects of the organisation has become a very integral part of a company’s management. Every modern company have an information system strategy in place to manage the affective flow of information horizontally and vertically throughout the organisation. The companies employ various systems to achieve the strategy and make sure the information that is mined is effective and important for decision making process. (Bagad V., 2009) A good flow of information along the organisation set up will mean that he different department sin the transition are better integrated to achieve a common objective. Information system is one of the most important tools of the top management is getting the commands through the organisation and achieve the organisational objectives.
Information consist of data’s which are facts, fire or statistics hitch obtained by observation, counting, measuring, reading. Data is frequently known as raw data which are collected on adaya to day basis for further scrutiny by the management team. (Blazey M., 2008) These data’s are used by senior managers to perform effective and successful management operation in organisation and data enables manager to make better decisions for the future. Data provides picture for the past activities related to the ups and downs of organisations. Data is represented in more understandable manner with the use of graphs, statistics and reports, thus one can conclude by saying that Data is an important asset for a modern enterprise. The process of data is known as information; information provides meaning to the data by establishing relationships and trends in the data.
Importance of Managing Information at Tesco
Tesco is one of the biggest retailers in the UK thus the amount of information it will have to synthesize is vast. To synthesize this amount of data, the company will have to adopt modern technology in term of information systems to manage the smooth and effective flow of information along the organisational structure. Without information about the different aspects of the business, the management cannot make any sort of decisions. The criteria for proper information include validity, consistency, accuracy and completeness. (Galliers R.D. and Leidner D.E., 2009) Validity refers to the reliable sourcing, verified data and information. The data should be accurate consistent and complete in its form so that it leads an organisation to take the right action against any short comings in any of the processes.
Flow of Information in Tesco
The information in Tesco flows in a vertical manner between the front liners, middle management and top managers in organisations. Front liners basically make entries of the data of every activity. The middle manages processes the data in to information and it flows to the managers. Top manager receive the information and they analyse the information and use of the information of further decagons making in the organisation. The different activities of the organisation are recorded and the information is transferred through an organisational information system. The MIS is responsible for the flow of information between different levels of the___14 management at is the front liners, middle management and top management.
MIS at Tesco
MIS is a method of applying formalised procedures to acquire information for the people working at all level of the organisation. (Galliers R.D. and Leidner D.E., 2009) The MIS uses external and internal sources of data which will be used to support the organisational planning, controlling and directing the activities in the organist on. The role of MIS is to offer the manage with timely and effective information for the purpose of decision making which are important to satisfying the strategic goals of the organisation. (Bobby D., Boonstra A., and Kennedy G., 2008) There are basically five key components of MIS which are:
1) Decision Support Systems: The decision support system is a computer based information system that supports business or organisational decision making activities. The DSS serves the management is making decision on the management operation and panning of the organisation. (Lucey T., 2005)Decision support systems are software’s which provide the management with an attractive interface to analyse and present information beneficial to make decisions. The decisions support system at the company has allowed the company to improve the persona efficiency of the manager and sped up the process of decisions making. DSS allows the company to increase the organisational control and encourage the exploration discovery form the part of the decision maker. The DSS speeds up the problem solving in the organisation and facilitates the better communication between the top level and the employees. The DSS is integral in achieving a competitive edge when compared to its competitors and helps image managerial processes more effciently and efficiently.
The information forms DSS can be used by the company to speed up the performance of the company through innovative ideas and encourage continuous learning and training. * Knowledge Work Systems: Tesco has a specialised knowledge work system which allows the company to am mange the information from specialised kneeled worker. Knowledge worker include researchers scientists, designers, engineers who primarily create knowledge and information or the organisational. The knowledge worker is integral increasing new products and fined ways to improve existing products of the company. The knowledge systems ray ease to provide internal consultations regarding him areas of throw knowledge and they act as the agents of change.
* Office Automation Systems: This system consists of various computer machinery is used to digitally present the data for the befit of the management. The function of the office automation system are raw adapt storage, electronic transfer and the management of electronic business information comprise the basic activities of an office automation system. Office automation is critical in getting some of the office tasks done factor, eliminate the need for extra staff, the expenses for the storage of data are reduced significantly and it can be used by multiple users at a time. * Transaction processing Systems: it can be either fully computerised, human or a combination of both. TPS is a system that supports the different transactions in an organisation. It is style of computing where work is decided in to individual and indivisible orations. The TPS is integral in increasing the number of transactions at given time. There is a continuous availability of products and the TPs is easy to understand and use which enables driving done the training cost of the product. The TPS also allows for the better protection and transfer of information along the organisational structure.
* Executive Support Systems: Enterprise support system is an enterprise wide application that integrates the different information system and thus integrates the formation system in the organisation. These systems are basically divided in to three types which are enterprise resource planning, enterprise planning systems and custom relationship management. The main role of ESS is to support the communication flow in the organisation, support the decision making n the organisation, support the management and production process of the enterprise. The enterprise support system are flexible and can support any type of businesses but they are hard to maintain and do not support integration. The enterprise resource planning enables the enterprise to manage the business process properly and integrate all the department of the company.
Tesco follows a Bottom Up to Top Down approach to management of information , in such a system the information flows from the front liner, to the middle managers and then to the top managers after further processing. Thus the top management will take the decision based on the information and the decision flows down the hierarchy. The advantages of advantages of adopting this strategy are that it allows for the better deployment of the resources in the early phases of a project, allows the company to achieve better return on investment, there is a high visibility of the changes in the transition.
There is higher level impact to the organisation, (Blazey M., 2008) through this approach many processes that are not beneficial can be replaced in the early part of the project. This approach allows for the better automation of manual tasks thus reducing labour cost. The information system will also for the use of a large number of users by enabling security and privacy of the data that is being exchanged. This type of approach is very susceptible to change thus it needs constant tweaking and introduction goes new processes. The strategy is driven by the existing information technology infrastructure of the company instead of the business process t has to satisfy.
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