Analyzing Tesco’s Change Management of Self Checkout

Tesco's Change Management Of Self-Checkout

The retail sector of the United Kingdom is its most competitive and largest industry. The UK's leading supermarket chain is the multinational retailer, Tesco, which accounts for 31.6% of the nation's retail market share. Sainsbury's, Morrison's, and ASDA are its major competitors. All organizations have some micro and macro environmental factors linked to them, which influence their operations and decisions. Michael Porter's 5 forces, PEST (Political, Economic, Social and Technological) analysis and SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis are employed in industry analysis and help earn competitive advantage. Differentiation by Tesco began through its introduction of a self-checkout system in its store in Dereham, Norfolk, in the year 2003. This paper will examine this strategic change of Tesco's and assess its effects on the retailer. Attention will be given to investigating its self-checkout instrument. The self-checkout practice was intended to speed up store check-outs and decrease point-of-sale labor costs. Furthermore, the paper will examine what triggered this change, what process is involved, and its benefits to Tesco (Saeed, n.d).

Twenty-five percent of Tesco's UK transactions occur through self-checkout. Despite the handful of challenges faced by self-checkout, including adolescents under the age of 18 purchasing alcohol through self-checkout counters, this process has enjoyed fair success. The UK's retail sector is swiftly-growing. By end-2008, eleven percent of total VAT (value-added tax) registered UK businesses were retailers; the total figure currently stands at a whopping 180,875. The UK's retail sector constitutes nearly eight percent of its GDP (gross domestic product), which accounts for a fifth of its economy. Also, eleven percent of the nation's overall workforce is employed by retail companies. Total combined retail-sector sales for the year 2007 stood at 265 billion pounds, which is a larger figure than Portugal and Denmark's combined economies. Tesco, the biggest retailer of UK, has stores in all of the nation's post codes, totaling 2,115 in number, with 280,000 personnel employed. On a global level, Tesco ranks third in the list of largest global retail chains, and employs 440,000 individuals in its 4,000 stores situated in 14 nations. Its business operations occur in the following six retail-store formats; Express (961 outlets), One Stop (512 outlets), Superstore (448 outlets), Extra (177 outlets), Metro (174 outlets), and Homeplus (10 outlets). Its online arm is "Tesco.com," which facilitates product delivery, chiefly grocery, to consumers' homes. Tesco also runs a web-based shopping mall -- Tesco direct -- that sells non-food products (Saeed, n.d).

Organizational Analysis

The five forces put forward by Michael Porter represent external factors that affect an organization. Porter's Diamond model indicates that some firms in a sector will enjoy greater competitive advantages than the rest. The model aims at revealing industry attractiveness, thereby identifying the point at which competition is most intense. Tesco enjoys the largest retail market share, and can utilize Porter's 5 forces in deterring rival firms from usurping its market share.

Threat of New Entrants:

UK's retailer market has a few main players, namely, Tesco, Sainsbury's, and Asda, which make up 70% of the nation's retail market share, while small chains like Waitrose and Somerfield make up another 10%. With increased industry attractiveness, more new entrants are drawn to it. In the retail sector's case, high profits generated make it a highly attractive option for entry. However, industry price wars deter entry. Furthermore, the sector is associated with a high exit barrier; all these factors contribute to making survival extremely difficult for new entrants (Saeed, n.d).

Power of Suppliers:

All industries have suppliers providing them with raw materials. Supplier power in retailers' case is in retailers' hands. Retail owners can dictate prices of raw materials to ensure they can be sold at profitable, reasonable prices. Suppliers cannot exert much influence, since they may easily be replaced by other suppliers. Supplier power is governed by individual chains as well as potential business loss with retailers. Hence, Tesco, with its "market leader" status, can negotiate better rates with suppliers, compared to rival retailers (Saeed, n.d).

Power of Buyers:

In UK's retail sector, buyer power resides with buyers, since they possess resources and power to move over to other competing firms offering a more profitable price value. They can receive same value for their money. Further, switching cost incurred is low for the retail sector, which is less brand-loyal and more sensitive to price changes. Consequently, retail buyers enjoy more power (Saeed, n.d).

Threat of Substitutes:

Porter defines substitutes as products of another industry that take care of similar needs. If customers have easy access to alternatives for fulfilling their needs, and don't have to compromise much, they willingly opt for those alternatives. In the retail sector's case, Tesco's substitutes are big retailers like Sainsbury's and Asda, as well as butchers, market stalls, corner shops, etc. Convenient substitute access leads to price wars, which are ultimately beneficial to consumers (Saeed, n.d).

Rivalry:

Businesses within a given industry vie with one another for gaining competitive advantage. They frequently resort to price wars when much product differentiation is not possible. As Tesco, Sainsbury's and Asda cannot find any significant means of product differentiation, they employ other incentives such as club cards for attracting customers and gaining advantage. Owing to the high barriers to exit in retail, organizations prefer remaining and competing than quitting if they do not fare well. Intense rivalry led Tesco to differentiate by introducing the "self-checkout" feature for improving customer service (Saeed, n.d).

SWOT Analysis of Tesco

Strengths

Britain's biggest retailer, Tesco's share of the nation's retail market is 31.6%. The firm differentiates through club card and insurance services, allowing buyers to win points when shopping from Tesco. Furthermore, the retailer offers banking services, as well. It also runs the largest global online supermarket, and manufactures its own high-quality products. With regard to location, Tesco increases accessibility through its Tesco Extra, Express, Metro, and Superstore arms. The retailer has increased its client base by expanding to several areas across the globe (Saeed, n.d).

Weaknesses

The retailer relies heavily on Britain for obtaining profits. Any fall in the nation's market can, thus, significantly impact Tesco's operations, and hence, this reliance is unsafe for it. Also, the company has carried out aggressive expansion activities, leaving hardly any cash free for any other function (Saeed, n.d).

Opportunities

Tesco's expansion into Europe, America, Asia and other regions has unlocked better opportunities for it, with regard to international market entry and trade barriers. The firm can now trade easily across continents. Further, it has, of late, ventured into the areas of internet and phone-based (landline/mobile) shopping. Tesco was the pioneer retail company to introduce the concept of internet shopping (Saeed, n.d).

Threats

Entry into a new market with a novel brand necessitates allocation of considerable funds towards land costs, setup, operating costs, marketing, and distribution costs. The company's debt might increase prior to dropping. Also, the new venture may fail if this new market isn't receptive to the company's values. Tesco's existence is threatened by Sainsbury's and Asda's potential to engage in price wars, by lowering prices (Saeed, n.d).

Change Management

The process of change management proves critical in gaining a competitive edge, as desired by many firms like Tesco (Waddell, Creed, Cummings & Worley, 2013). Several different ways exist to categorize organizational change. In deciding upon the right strategy, it is imperative to understand the kind of change a firm desires. Some kinds of corporate changes are as follows:

Incremental Change

These changes, though highly important and major, will be repetitive and gradual, and can help curb resistance by Tesco employees (Saeed, n.d).

Transformational Change

This sort of change typically aids firms like Tesco in realigning strategically with their respective environments. Firms that lose touch with their shifting marketplace will require transformational change at a more fundamental level to survive (Saeed, n.d).

Strategic Change

This deals with general, company-wide, long-term issues. The organization's capacity of identifying and understanding existing competitive forces and their evolution over time is related to the business's competence in mobilizing and managing requisite resources through time, for the selected competitive response (Saeed, n.d).

Triggers of change

For rational organizations like Tesco, change triggers might be the constant hunt for efficiency.

External triggers

Usually, external developments necessitate change. Clearly, numerous external factors exist for Tesco, which it needs to deal with, including an international marketplace's implications, demographic change, broader understanding of environmental problems, and health awareness (Paton & McCalman, 2008). Tesco's general environment may be characterized as part of a typical 'PESTLE' framework:

Political consequences linked to a change in government.

Economic variations like exchange rates, global competition, and macroeconomic activity levels.

Social/demographic change like evolving expectations/values and education levels.

Technological changes like process and product developments and innovation.

Legal repercussions of potential new governmental policies.

Environmental impacts of legislation, and agreements of broadly-held values.

Change Planning and Management

Kotter's Model

Kotter's change model comprises of eight stages which may be employed for successful change implementation (Kotter & Cohen 2012). These stages are:

1. Establishment of a "sense of urgency"

1. Establishment of coalition

1. Creation of a change strategy and vision

1. Communication of the above (i.e., strategy and vision) by combining deeds, symbols, and words

1. Removal of obstacles

1. Production of visible indicators of progress (i.e., short-term accomplishments)

1. Adherence to the process of change and refusal to quit if condition becomes tough

1. Nurturing and shaping of a novel culture for supporting developing innovations and improvements.

Type of Change

One can consider Tesco's implementation of a self-checkout practice a strategic organizational change, as this practice differs from conventional checkout, in regard to how transactions are executed. Cashier checkouts necessitate the presence of a cashier for operating it; however, self-checkouts eliminate this need. This innovative system has given rise to a new method/procedure of serving clients. Combined use of conventional checkout and self-checkout affords customers enhanced service, with reduced customer time spent in outlets. Tesco's self-checkout is aimed at making the shopping process significantly easier, helping enhance shoppers' experience in its stores. Company owners wished to make their shoppers feel they were also part of the company. Customers would choose items from store shelves and proceed to self-checkout counters where they would scan items and pay the bill. The intended result was synergy of cashier checkout and self-checkout (Saeed, n.d).

The Process

Proper planning is critical in all organizations for them to succeed in all their activities. Checkout leaders require training to operate this new self-checkout system, since they will be tasked with aiding customers in using these systems, despite the system having a demo on screen that will make it an easily-understandable and user-friendly system. Managers have to train cashiers with regard to the self-checkout's purpose and its potential benefits to customers as well as to the overall organization. Its purpose is motivating cashiers and making them confident, as well as ready to welcome changes. Initially, the implementation will assume the form of a feasibility research. The system will be observed for a certain time period by management, for determining how many customers patronized it, whilst simultaneously collecting staff and customer feedback. If feedback is positive, the management can go ahead with introducing this concept across all Tesco stores (Saeed, n.d).

Discussion

Self-checkout implementation will greatly impact the whole organization, since it will contribute significantly to enhancing store-goers' shopping experience. Further, it will positively impact Tesco sales. Key benefits linked to self-checkout implementation are cost effectiveness, customer satisfaction, and sales growth.

Cost Effectiveness

Cost effectiveness constitutes a key factor in planning processes of change management within a firm. As per Tesco's 2005 annual statement, 130 stores had implemented self-checkout, with more than 850,000 clients using them per week. Self-checkout implementation helps reduce labor cost, since several self-checkout counters can operate without requiring an equal number of personnel (cashiers). Self-checkouts also compensate for staff shortages. But trained supervisors might be needed in stores for aiding customers with self-checkout, if any malfunctioning occurs (Saeed, n.d).

Sales Growth

In today's marketing era, wherein most organizations' chief focus is customers, a buyer usually visits stores in which he/she receives timely, high-quality service. Tesco -- a leading global retailer -- has implemented 3000 self-checkout systems in 750 of its stores. This constitutes a significant improvement since self-checkout's initial implementation. Increased self-checkouts within outlets will attract more clients, since clients know they will be able to leave stores early, by using their self-checkouts. Consequently, Tesco's customer base will grow, which positively impacts sales. In the UK, a fourth of Tesco's transactions occur through these self-checkout systems (Saeed, n.d).

Customer Satisfaction

Introduction of self-checkout improved Tesco customer service, since shoppers can now forgo standing in queues to checkout. According to Kurtz and Boone (2006), technological change/utilization is one among the best ways to bring about customer satisfaction improvements. It facilitates forging of sound relationships with customers, leading to increased customer loyalty. Tesco's 2006 financial statement and annual report showed that 1.5 million shoppers (weekly) at over 200 stores prefer self-checkout. This proves that shoppers are highly satisfied with this system, and it has tremendously increased sales for Tesco.

Resistance to Change:

Change is a ubiquitous phenomenon in present-day organizations. It occurs rapidly and continuously. As change is now a regular component of corporate dynamics, a workforce that resists change will actually be able to cripple the company. It is not easy for individuals to change overnight. People require time to adapt themselves to change as well as to new work-related and behavioral patterns (Buchanan and Badham, 2008). To resist is an expected response to all major changes. People will naturally hurry and defend the existing state of affairs, in instances where they perceive a threat to their status or job security. According to Badham and Buchanan (2008), organizational change may generate resistance and skepticism among employees, sometimes making it impossible or hard to implement improvements in the company.

Anchoring Changes in Corporate Culture

The crux is development of a platform wherein the workforce will embrace change, leading to immense workplace milestones, ensuring the implemented changes continue centers upon integrating these changes into the culture of the organization (Mishra, 2013). A few activities the firm can engage in for ensuring this objective is attained include discussing change development with the team in charge of change. Once a change process generates great outcomes, success stories can be narrated to stakeholders. Including change values and ideologies in new employee recruitment and training processes would be vital when implementing development of strategic ideas to replace change leaders as they move forward to higher posts in their endeavor to guarantee the legacy's continuity.

Causes of Resistance

Resistance symptoms denote specific behaviors employees opposed to change exhibit. Saeed (n.d) states that it is essential to differentiate between resistance symptoms and underlying causes. Such behaviors may be categorized as passive or active resistance.