Tesco 2007 Annual Report Download - page 19

17
OPERATING AND
FINANCIAL REVIEW
Failure to compete with competitors on areas including price,
product range, quality and service could have an adverse effect
on the Group’s financial results.
We aim to have a broad appeal in price, range and store format
in a way that allows us to compete in different markets. We
track performance against a range of measures that customers
tell us are critical to their shopping trip experience. We
constantly monitor customer perceptions of ourselves and our
competitors to ensure we can respond quickly if we need to.
People capabilities Our greatest asset is our employees. It is
critical to our success to attract, retain, develop and motivate
the best people with the right capabilities at all levels of
operations. We consider our people policies regularly and are
committed to investing in training and development and
incentives for our people such as profit sharing. Our ‘Talent
Planning’ process helps individuals achieve their full potential.
We also carry out succession planning to ensure that the needs
of the business going forward are considered and provided for.
There are clear processes for understanding and responding
to employees’ needs through our People Management Group,
staff surveys, regular performance reviews, involvement of
trade unions and regular communication of business
developments.
Reputational risk As the largest retailer in the UK,
expectations of the Group are high. Failure to protect the
Group’s reputation and brand could lead to a loss of trust
and confidence. This could result in a decline in the customer
base and affect the ability to recruit and retain good people.
Like other companies we must consider potential threats to
our reputation and the consequences of reputational damage.
Emotional loyalty to the Tesco brand has helped us diversify
into new areas like retail services and non-food and we
recognise the commercial imperative to do the right thing
for all our stakeholders and avoid the loss of such loyalty.
The Tesco Values are embedded in the way we do business
at every level and our Code of Ethics guides our behaviour
in our dealings with customers, employees and suppliers.
We engage with stakeholders in every sphere to take into
account their views and we try to ensure our strategy reflects
them. The launch of the Community Plan has demonstrated
our commitment to tackling a wide range of societal and
environmental issues. We have high level committees including
the Corporate Responsibility Committee and Compliance
Committee to help guide and monitor our policies.
Environmental risks Our key environmental risks are related
to minimising energy usage in stores and transportation, waste
management and our ability to respond to consumer concerns
in this area. We develop environmental policy through
engaging with key stakeholders and experts in this field to
achieve sustainable growth and minimise our environmental
impacts and the Group’s approach is brought together in a
consistent manner by the Corporate Responsibility Committee.
Policy is reviewed regularly by the Compliance Committee
and Corporate Responsibility Committee. We recognise the
opportunities for competitive advantage through energy
efficiency and look for continuous improvement through
innovations and better ways to help customers act responsibly
towards the environment.
Product safety The safety and quality of our products is of
paramount importance to Tesco as well as being essential
for maintaining customer trust and confidence. A breach in
confidence could affect the size of our customer base and
hence financial results.
Tesco has detailed and established procedures for ensuring
product integrity at all times especially for our own-label
products. There are strict product safety processes and regular
management reports. We work in partnership with suppliers
to ensure mutual understanding of the standards required.
The business also monitors developments in areas such as
health, safety and nutrition in order to respond appropriately
to changing customer trends and new legislation. We have
clear processes for crisis management, pulling together expert
teams should we need to respond quickly on issues.
Ethical risks in the supply chain We do business with a large
number of own-brand suppliers in over 90 countries and the
supply chain is made of complex relationships – from individual
farmers and growers through to processors, manufacturers and
distributors. There is a risk that any part of the supply chain
might not adhere with the Group’s high ethical standards
(which are set out on our website).
To minimise this risk we have a partnership approach to
working with suppliers providing a certain and growing
market for their products, regular payments and payments
on time, and our commitment to sharing our understanding
of customers and changing consumer behaviour. We also
have a programme of regular risk assessments and audits
of suppliers on ethical issues to complement our compliance
work on product safety, quality and capability.
Fraud and compliance As the business grows in size and
geographical spread, the risk of occurrence of fraudulent
behaviour by its employees increases. While the vast majority
of our staff are completely honest, there remains the potential
for fraud and other dishonest activity at all levels of the
business from shop floor to senior management. The Group
takes extensive steps to reduce this risk. Relevant accounting
and other procedures and controls at all levels are clearly set
out and audited across the business to reduce the risk of fraud.
The Group gives clear guidance on behaviour to employees
through the Values and the Code of Ethics. The Audit
department undertakes detailed investigations into all areas
of the business and highlights to the Audit Committee its
findings. The Compliance Committee formulates and monitors
the implementation of, and compliance with appropriate
policies on key areas of ethical behaviour, including fraud.