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Function 1.6: The nature of business activity

Functional areas of Tesco plc.

The diagram above shows the key functional areas or departments of Tesco, as one of the leading retailers in the U.K. It is currently the leading supermarket chain in Britain, with a higher market share than its leading rivals, Asda-Wallmart, Sainsbury’s and Safeway.
I have explained earlier the key functional areas of a typical business and Tesco, as the diagram shows, displays this type of structure. For example, the Company Secretary, Rowley Ager is responsible for Pensions, the Company Secretariat (the administrative staff), the Treasury, Taxation,
Site Facilities, Transport and all aspects of Consumer Law.

The Finance Department, directed by Andrew Higginson, is responsible for all aspects of finance and audit, and also for European affairs. These functions are shown in Figure 1.3 in my introductory section. I have no detailed information on Finance within Tesco other than financial data available from the Company Accounts and from the Tesco and Bized websites……… and these are more relevant to a detailed finance study of
Tesco as a company, a topic to be studied in a later Unit.
The Marketing Department, directed by Tim Mason, is responsible for all aspects of marketing , Customer Service, Advertising, Market Research,
Clubcard, Estates and Metros. Since the early 1990s Tesco marketing strategy has been to become the best in terms of price, quality and service. Objectives are set, and ways found of meeting them, in all aspects of company’s operation.
The Retail Department, directed by Michael Wemms, is responsible for all retail operations and express stores.
Tesco first ventured into foreign markets when it acquired stores in Irish
Republic in 1978, but these were sold in 1986. The 1990s produced a much better climate for European expansion. Now Tesco operates 80 stores in
Central Europe, and 16 stores in two Far East countries trading both under the Tesco and subsidiary fascias. The 13 Tesco stores in the Czech Republic and Slovakia, 29 stores including 5 supermarkets in Hungary, 31 stores in
Poland. Also Tesco plan to open 12 hypermarkets in Thailand and in South
Korea over the next three years.
The Human Resources Department within Tesco is responsible for many thousands of employees across the whole spectrum of the organisation. Tesco employs 154,000 people in the UK and 27,000 in Ireland and Europe. It does not appear on the organisation chart, which I obtained from Tesco, because this function is somewhat complex and shared between the main headquarters at Cheshunt. Hertfordshire, and the many stores operated by Tesco around the country. For example, there are two Tesco superstores in Leicester, at
Hamilton and Beaumont Leys, both of which have a Human Resources officer in charge of personnel administration.
The Commercial Department, directed by John Gildersleeve, responsible for all commercial operations and technical services.
The Distribution Department, directed by Philip Clarke, responsible for
Supply Chain and all distribution operations. Distribution Director responsible for products delivery, logistics and transport. Its purpose is to ensure that Tesco stores have the right products delivered against agreed delivery schedules and in good condition, enabling the stores to provide a consistently high level of customer service. Tesco products are sent to stores from distribution centres around the country. Tesco runs 13 centres and a further six centres are run for Tesco by contractors. A typical centre covers 300,000 square feet and handles some 50 million units a year. The centres work around the clock, seven days a week, providing
2,500 deliveries daily, amounting to 19 million cases per week. Tesco employs 6,800 people in distribution (excluding the staff at the contractor- run centres), and has about 1,000 tractor units and 2,000 trailers in its national vehicle fleet.
The Operations department, directed by David Potts, responsible for operations of Tesco stores in Northen Ireland & the Republic of Ireland. In
May 1997, Tesco completed an agreement with Associated British Foods to purchase all their supermarkets in the north and south of Ireland. The purchase price was Ј641 million, giving Tesco a further 110 food stores and a leading position as a food retailer on both sides of the Irish border.

I have considered each of the major functions of Tesco separately. However, it is the effective interaction of business functions that is essential to the success of an organisation in attaining its objectives.
As an example, Tesco has recently introduced a customer-oriented website on the Internet. Company has developed within this service facility a direct order system via E-mail – called “Tesco Direct”. Customers can order their produce/product for home delivery.
There are now many thousands of such deliveries but these all depend upon the successful interaction of the major business functions outlined earlier.
In other word, -

. Marketing - responding to the initial enquiry, receiving and processing an order, distributing the product to customer.

. Administration – adding the customers details to the IT system, passing on details to other departments within the business.

. Finance – investigating the financial status of the customer, offering credit terms if appropriate, invoicing for payment.

. Distribution – receiving details of order and meeting the customer’s demands, liasing with marketing over delivery dates, rescheduling other production as required.

. Human resources – at a store or warehouse level – ensuring sufficient employees are available to meet the delivery requirements of the order, arranging overtime payments if necessary.

Hence these functions help meet the objectives successfully. All Tesco’s organisation structure works as links of a chain, if one link falls down, all the organisation will experience difficulty. For example, most important department of Tesco, I consider, is Distribution department. If this department fails, products will not be delivered to the store, so customers will go to another store. Tesco’s success is built on the good work of each department.

E4

Organisational structure
In many small firms, the owner may have a very hands-on approach and may be responsible for getting customers, hiring any extra labour and acquiring other inputs and taking all financial decisions. As organisations grow, however, their structure takes on a greater significance and those at the top have to pay more attention to its formal structure and presentation.
The various business functions will show an increasing degree of specialisation as an organisation expands and people will be employed to manage and take decisions in specialist areas.

In general, an organisational structure sets out:

1. Major roles and job titles, showing who is in control of the business as a whole and who manages its major business functions within departments.

2. The level of seniority of people holding different positions and their respective positions in the organisation’s overall hierarchy.

3. The working relationships between individuals, identifying relationships in terms of superiors and their subordinates and indicating who has authority to take certain kinds of decisions and who are responsible for carrying out the work arising from those decisions.

4. The extent to which decision making is concentrated in the hands of people at or near the top of the organisation or handed down to those at lower levels of management.

5. The broad channels through which information is communicated throughout the organisation, indicating the route by which instructions flow down the hierarchy and how information flows back up the hierarchy.

Organisational charts

Organisational charts are representations of the job titles and the formal patterns of authority and responsibility in an organisation.
Business may produce organisational charts for several reasons. First, it is important that a company reviews its organisational structure on a regular basis to take account of any changes in the business environment.
A formal organisational chart helps the company to identify where changes need to be made and to decide the relationship between any new sections or departments and the rest of the organisation. Business also produce organisational charts because they allow a company to review its structure and to identify areas where cost saving changes and improvements can be made. Organisational charts are useful when changes take place in the company. It can be updated to take account of any informal developments in its structure that have been good for the company. A revised organisational chart is particularly useful for informing people about the new structure of the company after mergers or take-overs.
The organisational chart can also be used during an induction period to give new employees a useful overview of the company and their own position within the structure in terms of their authority and the managers to whom they are responsible. Although an organisational chart has several uses, it should not be taken as giving an exact description of how the organisation actually operates. It does not give the exact nature of job responsibilities or indicate what levels of cooperation may be necessary between departments.

Function 1.7: Line authority in a production department.

Chain of command - is the line of command flowing down from the top to the bottom of an organisation. It passes down the management hierarchy, from director and senior management levels to those in middle and junior management positions and eventually to employees in supervisory jobs who, for example may have authority over assembly line workers or staff providing services to the organisation’s customers. Organisations with a long chain of command - with a hierarchy made up of many levels of management - are said to have tall organisational structures.

Span of control - refers to the number of subordinates a manager is responsible for and has authority over. Organisations with a long chain of command will tend to have narrow spans of control. Organisations with a short chain of command tend to have wider spans of control. This produces a flat organisational structure because it has a hierarchy with fewer levels of management.

Flat organisational structures: are generally desirable, there is a limit to the number of subordinates who can be placed under one superior. Even very experienced managers who have the qualities and personalities that promote loyalty and hard work can only be responsible for so many employees.

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