News about Tesco's troubles comes thick and fast, today's bad news about overstating profits has wiped off 11.59% of the share price. It fell by 26 pence to £2.03.
The company's new Chief Executive Dave Lewis has suspended four senior executives including The Managing Director. How far this restores confidence remains to be seen, but this also depends on Deloitte's investigation of Tesco's recent trading performance.
If senior staff receive share options, the incentive to overstate prospects is tempting, good results lead to a higher share price, and increased wealth for those managers who hold share options. However, the timing of income and payment flows is a matter of judgement, and so far there is little to suggest that Tesco have broken any laws. But it is worthwhile thinking about the relationship between shareholders and managers re rewards and organisational structure.
Shareholders may wonder how the firm has dug such a big hole, and why its auditors PWC managed to miss it. They might also ask questions about Tesco's accounting methods, are they are true and fair picture of its operations or not? There may be some disquiet about PWC's lengthy association with Tesco, which may raise questions about the oligopolistic nature of the accounting and audit markets. Shareholders might be dismayed that Tesco's Board has not yet appointed a new Finance Director.
Tesco's new Chief Executive Dave Lewis started on September 1st, one of his main tasks was to restore confidence in the firm's trading strategies. The firm had been squeezed by discount retailers like Aldi, Lidl, and improved trading performances by Sainsbury's, Waitrose and Marks & Spencer. Shares had dropped sharply in late August after a second profit warning in 2014, over the last year, Tesco's market capitalisation had dropped by 40%. In short shareholder value has been hammered.
Terry Leahy was going to be a hard act to follow. His successors have been weighed in the balance and found wanting when faced with the challenges of adapting to a changing UK market after a long economic recession. It might be worth reflecting on short and long term causes of the firm's poor performance, for example under-investment in UK stores may be a factor, as capital had been poured into Fresh and Easy, in The United States, likewise over-expansion into banking, mobile phones, and insurance. Bad news about horsemeat burgers and property write offs added to the retail giant's difficulties.
Dave Lewis has a huge challenge to undo today's damage to Tesco's market position, he will be hoping that there is no more bad news which will bury the group's reputation.
A fascinating video here from the excellent Peter Marsh of the FT which explores the complexity of manufacturing operations at the world's largest eyewear maker Luxottica.
You probably haven't heard of Luxottica, but you will almost certainly be familiar with their broad product range. Luxottica's best known brands are Ray-Ban, Persol and Oakley. It also makes sunglasses and prescription frames for a multitude of designer brands such as Chanel and Prada, whose designs and trademarks are used under license.
In total, Luxottica is estimated to have around 80% of the global market for eyewear. It is also a vertically-integrated business with over 7,000 retail outlets around the world, many them trading under the Sunglass Hut brand.
Luxottica has six plants in Italy and two in China.
In the video, Peter Marsh introduces the concept of networked manufacturing. This concept is explained further by this excellent Economist article. The close integration of marketing (new product development & brand / product portfolio management) with operations is a key theme explored in the video.
The UK automotive manufacturing sector is one of the most successful and vibrant parts of manufacturing in the UK.
To get students excited to learn more about great case studies like JLR, Nissan, Honda and JCB, show them this short video. It's packed with useful research stats too - how many can they jot down on first viewing (and then show them again!)
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