CASE APPLICATION 1

Tesco: Time to Refocus

Founded in 1919, Tesco has been a business success story. With its core business focusing on food retail,
in just under a century, Tesco has grown from a market-stall in the East End of London into the largest
supermarket in the United Kingdom, and the third largest globally. In 2012–13, Tesco boasted group sales
of £72.4 billion, with £2 billion profit before tax. At the end 2014, Dave Lewis, who had been Tesco’s CEO
for only three weeks till then, sent an email to the company’s staff members saying that the organization’s
culture had to change. He said that Tesco needed to focus on its customers and work hard on being open,
honest, and transparent. Most people in his position would have probably waited more than three weeks
before recommending such sweeping changes, especially for something as significant as the
organizational culture. So what caused Mr. Lewis to make such a dramatic public announcement? Put
simply, a financial scandal. With significant issues, related to the drive for growth and positive market
results, being brought to light by a whistle-blower, at the end of September 2014, Tesco had to make an
embarrassing announcement—they had overstated their mid-year profits by £250 million, later revising
this to £263 million. The issues faced were twofold. In order to improve its own financial position, Tesco
delayed its payments to some of its suppliers and it had also been including payments from suppliers as
profit. It appeared that these payments were made against suppliers getting more favorable positioning
for their products and more shelf space. Tesco’s announcement resulted in an 8 percent fall in the share
price, wiping £1.5 billion off the company’s market value. A total of £3 billion was wiped off the share
price in the three weeks following the announcement. On top of this, both the Grocery Code Adjudicator
(an independent body set up to oversee the relationship between suppliers and supermarkets) and the
Serious Fraud Office (SFO), the section of U.K. law enforcement focusing on serious or complex fraud and
corruption, announced that they would be carrying out an investigation into the matter. When you look
at company documents from this period, this type of activity would seem out of step with the culture of
the organization. In 2013, the then-CEO, Philip Clarke, stated that the company should do all it could to
earn stakeholder loyalty and trust. In fact, the 2013 annual report identified poor relations with suppliers
as a reputational risk and reaffirmed the company’s aim to comply with the Groceries Supply Code of
Practice. However, the satisfaction of customers and other stakeholders was replaced by a drive to meet
financial targets and maintain share value. In January 2016, Christine Tacon, the Grocery Code
Adjudicator, released her report. It didn’t make for a pleasant reading for Tesco management. She found
evidence of internal emails that suggested staff members should not make payments to suppliers before
a certain date, in order to temporarily improve margins and ensure that the company was not seen to be
underperforming against targets. A list explaining how the staff could help Tesco reach mid-year targets
was uncovered, which included an instruction not to pay money owed. Some payments were delayed by
nearly two years and in some cases the supplier simply gave up asking! Following the overstatement in
2014, 125 institutional funds filed a joint lawsuit for £100 million, and Tesco is still under investigation by
the SFO. It may be some time before a new culture of trust and transparency will be allowed to flourish;
however, Tesco seems to have seen the error of its ways. The company has improved its communication
channels with suppliers, a majority of whom now say they have a more positive relationship with Tesco
than they did previously.

Discussion Questions

1. Which stakeholder groups are affected by the financial scandal discussed in the case?
 2. How could the omnipotent and symbolic management perspectives explain Tesco’s financial
scandal?
3. How is the email sent to staff members linked to Dave Lewis’ view that the organization’s culture
needs to change?
4. Imagine you are looking to join Tesco. How would the organizational story of this scandal affect
your decision? Consider both the scandal and how it was managed.

CASE APPLICATION 2

The Sky is the Limit

Between November 2015 and 2016, the United Kingdom saw online sales increase by 24.9 percent. So
why was December 7, 2016, a special delivery day for the country? For the answer, you need to look to
the skies. One Amazon customer had to wait for only 13 minutes to receive his Amazon streaming media
player and a bag of popcorn, the first products delivered in the United Kingdom by a drone. Five months
earlier, Amazon announced it would be working with the British government to test drone delivery.
Though in its latent stage, Amazon Prime Air has big plans for the future. Apart from developing the
system in the United Kingdom, it is also looking into the feasibility of drone delivery other countries.
However, there are still many issues to overcome. For example, the United Kingdom has specific rules
regarding the use of drones—drones must fly at a height of 400 feet (122 m) or less, and must avoid flying
within 150 metres of congested areas and 50 metres of a person or structure. Even with these rules in
place, there have been a number of worrying incidents. In April 2016, a British Airways flight reported
hitting a drone while approach the Heathrow Airport, and the U.K. Airprox Board (an organization tasked
with monitoring U.K. air safety) investigated 23 near-miss incidents between April and October 2015, 12
of which were in serious risk of collision. Drone testing is certainly not exclusive to Amazon nor restricted
just to the United Kingdom. In the United States, the first delivery approved by the Federal Aviation
Administration (FAA) took place in 2015. An Australian-built drone made three short trips to successfully
deliver 4.5 kg of medical equipment. Walmart estimated that 70 percent of the U.S. population is within
5 miles of one of their stores and, in October 2015, it applied to the authorities for permission to test
drone home deliveries. From September 2016, hungry diners at Virginia Tech have been able to have their
Chipotle burrito delivered by a Google drone. While Google appears to be grounding its drone venture
with partner Starbucks, it is still looking at possibilities in Ireland, where the rules governing drone use are
less stringent. Though government legislations are a concern, they are not the only external challenges.
Who will be the main users of this new delivery system? This may in part be a generational issue and
organizations are trying to figure out whether the more tech-savvy Post-Millenials are the most likely to
accept delivery by air. With some countries predicting significant increases in life expectancy and an aging,
less mobile population, the demand for home delivery from this age group may also increase. These, and
many other external factors, present managers with some tricky decisions to make in planning, capital
spend, marketing, and recruitment. The U.K. Amazon tests are limited to the delivery of items of 2.7 kg or
less. While this limit may appear quite restrictive, it is believed to account for around 90 percent of
Amazon sales. But what if you wanted to send something bigger? Or perhaps even someone? In January
2016, Chinese firm Ehang unveiled the Ehang 184 passenger drone. The company claims that this eight-
propeller electric drone can carry a passenger for up to 23 minutes. The machine, given clearance for
testing in Nevada, United States, is capable of a vertical lift-off of up to 3.5 km (11,500 feet) and speed of
up to 100 kmph (63 mph). However, it is unclear whether there will be a market for a personal drone
delivery system. Even the economics are questionable—a drone delivers one parcel at a time while a
delivery truck can deliver several hundred parcels across 120 destinations. However, the development of
drone technology offers an innovative alternative to delivery problems. With consumers increasingly
looking for convenience and speed, it is likely that more businesses will be considering drone delivery in
the future.

Discussion Questions

1. What immediate and long-term issues can managers face in organizations that embrace this new
drone technology?
2. In the case, many of the organizations operate in different countries. Will the external forces vary
between countries?
3. When considering the employment of drone technology, are there any demographic
environmental forces to consider? Consider the differences between the baby boomers and the
iGeneration.
4. Which stakeholder groups do Amazon need to consider for this new venture? Who do you think
has the greatest influence over them?