Role of Tescos Vision, Mission and Stakeholders - Case Study Example

? Tesco PLC Case Study Presented Tesco Plc. Introduction Tesco PLC is the largest food retailer in UK with a market share of 30.6%. It has expanded its operations across fourteen nations in Europe, Asia and North America (Telegraph media group (2011). It is the third largest retailer globally in terms of revenue earning after Wall-Mart and Carrefour and in fact, the second-largest in profit making after Wall-Mart (Nwagbara, 2011). Tesco’s commercial portfolio comprises of 450 superstores which offer both food and non-food items such as DVDs, phones and books, 170 metro stores which offer a variety of food products in towns and city centers and over 950 express stores offering more than 7,000 food products (Nwagbara, 2011) . Tesco is therefore large grocery retail, with thousands of stores distributed in more than 13 countries Role of Tesco’s Vision, Mission and Stakeholders A firm’s vision and mission statements play an important role in developing consumer royalty (Besanko et al, 2009). Tesco’s vision statement reads “Our vision is for Tesco to be most highly valued by the customers we serve, the communities in which we operate, our loyal and committed staff and our shareholders; to be a growth company; a modern and innovative company and winning locally, applying our skills globally” while the vision statement reads “creating value for customers, to earn their lifetime loyalty.” Clearly, the vision and mission statements of Tesco focus more on the target market and not the products. They focus on the benefits that the customers are going to derive from the company and its products. Besanko et al (2009) argues that such statements highly touch on the emotions of the consumers. Consequently, they contribute to building of loyalty among the consumers of the firm’s products. Apart from the vision and mission statements, some primary stakeholders of this company namely, particularly the leaders and the employees have played an important role in enhancing the successful performance of this company. After Philip Clarke took the leadership of this company, it started marketing itself using the phrase "The Tesco Way." This played a great role in displaying the firm’s values, purposes, principles and goals. This helped the company to expand internationally. Also, the firm changed its strategies to focus on technology under Leahys leadership, which has marked a lot of success. The employees of this company have also contributed to the development of consumer loyalty by being hard working and always being positive to customers. Macro Environment The environmental or external factors that affect the decisions taken by Tesco are grouped into six categories as discussed below: Political factors The current political issue affecting Tesco are the changes in corporate tax rate. The government of UK announced in the 2012 budget that it would reduce corporate tax by 1% for two consecutive years (2012 and 2013) from 24% to 22% (Tesco, 2012a). This will save this company a lot of funds and make it more financially stable. Economic factors The major economic issues affecting Tesco currently are high unemployment causing a reduction in aggregate consumption. This has further restricted the growth of this company in UK (Tesco, 2012a). Social factors The main social issue affecting Tesco currently is the change in consumers’ lifestyle, leading to a change in tastes and preferences. Tesco has responded to this by developing a new product range called “Clubcard” in order to suit different customer groups with different preferences (Tesco, 2012a). Technological Technology has a huge impact on the way business enterprises in all industries operate in the recent years. It has been playing as big role in shaping consumer spending habits. The internet, in particular, has opened a channel through which enterprises in the food retail industry distribute their products to customers (Tesco, 2012a). The new technology has also led to the introduction of self-service checkouts in the food retail industry, hence enabling enterprises to reduce long-term staffing costs. Therefore, if well implemented and utilized, the new technology will support Tesco’s activities and ensure long-term sustainability. Environmental In its corporate responsibility initiatives, Tesco has indicated that it recognizes its role of “creating sustainable ways of doing business.” In this regard, Tesco established a ‘zero-carbon supermarket’ in 2009 and aims at becoming a zero-carbon business by 2050 (Tesco, 2012a). Additionally, this company has reviewed its supply chain to ensure that at least ?1bn of its products sales are sourced from local suppliers in the UK. Legal As Tesco (2011) explains, competition law is the major legal issue affecting Tesco in the recent years. In 2011, Tesco, with other companies was fined ?10.4bn for collaborating with other retailers in the UK to increase the prices of milk and cheese, an act that cost consumers ?270m. Tesco’s competitors, Sainsbury, and Asda were also fined and this highly affected the industry’s ethical standing. Clearly, this act goes against the ideas of “responsible trading” set out by Tesco in its Corporate Responsibility Report. It goes against its responsibility of selling goods “ethically” and “responsibly” and this negatively affected credibility with its customers (Tesco 2011). Porter’s Five Forces Analysis As Porter (1985) explained, the purpose of analysis on a firm’s structure is to understand the effectiveness of its sources of competitive advantage. Below is an analysis of the five forces of competition that have an impact on the overall performance of Tesco: Competitive rivalry There are three major competitors for Tesco in the UK food retail industry namely; Sainsbury, Asda and Morrison. These enterprises utilize different business strategies to attract customers. Sainsbury’s strategy involves providing premium services while Asda’s strategy involves providing value for consumers through appealing prices for different products (Thompson & Martin, 2010). Tesco has changed its business strategy from that of “pile it high, sell it cheap” to a strategy that involves balancing both quality and price (Tesco, 2011). Power of Buyers Thompson & Martin (2010) elaborate that Tesco’s buyers have little power in regard to the company’s overall corporate strategy. However, customers in the food retail industry are able to switch easily from one retailer to another due to the low cost involved. This enables the consumers to wield much power as a collective. Tesco has responded to this by identifying the tastes of the customers and establishing the “Clubcard.” Since this product range was established, Tesco has been able to track any changes in behavior of customers, and devise appropriate ways to respond (Thompson & Martin, 2010). Consequently, Tesco has enjoyed a significant increase in customer loyalty recently. Power of suppliers According to Thompson & Martin (2010), Tesco suppliers are relatively weak or have quite little power in regard to working with this company. For instance, when it becomes necessary for Tesco to lower prices for its products, they share the pain with the suppliers by forcing them to cut prices for their supplies. Thompson & Martin explain this largely caused by the fact that Tesco works with many suppliers, rather than a single large supplier. Tesco is usually able to change suppliers with relative ease and to adapt to the supply chain. In comparison with the suppliers, who often rely on this company for their survival, it means that the suppliers have little power to determine the products they offer and the prices for their products. New Entrants As Thompson & Martin (2010) observe, the “big four” supermarket chains (Tesco, Asda, Sainsbury and Morrisons) dominate the food retail industry, making it extremely difficult for small, new entrants to survive in the industry. However, Thompson & Martin (2010) assert that the new entrants have recently changed the way they do business and are forming co-operatives which enable them to support each other and to become strong competitors. The threat of new entrants is increasing due to the increasing role of co-operatives and will be a key factor of consideration while determining competitive strategies in the future. Substitutes The current substitutes for Tesco’s business model are online retailing and discount stores. Tesco has been putting efforts to extend into online retailing but maintains its focus on the physical store format (Tesco, 2012a). Secondly, the importance of discount stores has risen in the recent years, mostly due to the current situation facing customers. Tesco was using this model in 1990s but has recently expanded its strategy to include them. Alongside its “value” products, Tesco has added the “finest” quality-based product range which is aimed at fulfilling the demand of a market that is les price sensitive (Tesco 2012a). SWOT Analysis The following are the Strengths, weaknesses opportunities and threats facing Tesco Company: Strengths Tesco commands the largest share in the UK market, reducing threat from new entrants. As mentioned, it is the third largest in globally and has international presence in over 14 countries. It enjoys strong financial power and brand name. This company has been able to take advantage of development in technology. Solomon (2010) explains Tesco’s usage of technology in marketing and distribution surpasses that of competitors. Weaknesses Tesco has increased its geographical spread in the recent years and as Nwagbara (2010) explains, this has made it difficult for this company to focus on specific markets. It has a high dependency on the UK market, making it vulnerable in case unfavorable conditions hit this market. According to Nwagbara (2010), the level of consumer satisfaction for Tesco in the international market is poorly rated, in comparison with the close competitors. Opportunities As mentioned, development in technology has opened an opportunity for business enterprises in the food retail industry to increase sales and reduce costs. Secondly, the popularity of this firm is increasing rapidly in the international market. This has opened an opportunity for this company to attract new customers. The company has an opportunity to expand into untapped markets especially in Asia through strategic alliance with local companies in those markets. Threats One of the major threats facing Tesco is the fierce competition that Tesco is facing in the UK food retail market. The UK competition law also poses a threat to Tesco as it limits its growth opportunities. For instance, this law was used by the European Commission to block Tesco from acquiring the British retailer Safeway (Solomon, 2010). The reduction income rates and rise in unemployment in UK may lead to low purchasing power by consumers, leading to reduced sales by the company. Recommended Strategies There are various strategies that Tesco can apply in order to maximize its competitiveness and profitability. The first strategy is to look for new opportunities in new markets or to expand into other industries such as banking. This will help to hedge on the risks associated with concentrating on one industry or market. Alongside the latest investment to increase consumer convenience in the UK market, Tesco will need to work towards ensuring consumer satisfaction, which is currently poorly rated in comparison with close competitors in other markets. This will enable this company to ensure that customer loyalty is maintained in the long-run. Further, Tesco should make maximum use of the “Clubcard.” The “Clubcard” can be used to gather information that can be utilized in various ways including improvement in customer convenience, improving layout of stores and reducing shopping times. Finally, it will be essential for Tesco to implement a dual delivery stream by implementing an effective online retailing system. Most of Tesco’s competitors have specialized products in either in-store or online retailing. Tesco should consider broadening its delivery stream by offering all of its products in online and in physical stores. Corporate governance One corporate governance mechanism in use in Tesco is Board of Directors. The board of Directors is a corporate governance mechanism responsible for protecting the interests of the shareholders in a company (Solomon, 2011). For example, in 2012, the 10 members Tesco Board held more than ten sittings, and a strategy off site meeting. The main aims were to ensure the value of the shareholder, governance and societal issues are well articulated and looked into in all operations of the company. The main task of the board is to hold the hangmen accountable for their decisions by following regular updates and offering the board enough information to assist them in investigating all issues deeply. Thus the board will receive reports of the Group’s key business, approving any budget, and any long term plan, considering available opportunities for the Group operations and their viabilities, receiving reports on all governance issues among other factors aimed at protecting the interests of the shareholder (Tesco Plc, 2013). Balance of power is another corporate governance mechanism applied in Tesco Group management. This mechanism ensures that no individual has the sole responsibilities of overextended resources through distributing of duties to board members and directors, managers and other individuals. The company has a board of 10 members, 6 of whom are non-executive while four hold senior roles in the Group of companies. Moreover, the company has a team of 17 executive committee members who hold different senior portfolios ranging from directors of continental franchises such as Asia, and directors of other major departments and portfolios in the Group (Tesco Plc, 2013). Duties and responsibilities are shared among all the executive committee members, preventing accumulation of responsibilities and resources among few individuals, which leads to misuse of such powers. Leadership effectiveness Leadership in Tesco Plc is highly effective, and has catapulted the company into being a major internationally considered grocery and seller of other general products. Tesco is currently the largest retailer in the world, and the highest private sector employer in the UK (Nwagbara, 2010). Moreover, Tesco in 2004 acquired another major superstore, T&S Plc with more than 900 stores across UK. In the last decade, Tesco through a visionary leadership was able to undertake experimentation with e-commerce, serious product diversification, including opening of clothing brands and major expansion programs in its stores in more than 13 countries in the world (Nwagbara, 2010). Leadership in Tesco has been mainly transformational and not transactional leadership; most of Tesco’s operations have been people oriented. However, Tesco has been experiencing a decline in its profits over the last decade. This may be solved by expanding the Group’s business from over relying on grocery retail to include other consumer goods, which will increase its product portfolio leading to profits. Corporate responsibility Boeger (2008) explains CSR to involve ensuring that all business activities carried out within a firm meet or exceed the interests and the requirements of staff, customers, shareholders, suppliers, the surrounding community and the natural environment. Tesco offers competitive products and services their customers to get the most out of their money (Boeger, 2008). They give paramount importance to minimize the waste they emit, in order to conserve environment. They engage in charitable activities by giving donations to various institutions in the surrounding community. In addition, they treat their employees fairly and make them feel to be essential part of the enterprise. As Tesco (2011) explains, this is one of the key factors that have enabled the firm to increase earnings over time. However, the recent case in which Tesco was involved in increase the prices of milk and cheese goes against the corporate responsibility requirements and as mentioned earlier, it tainted the image of this company and the grocery industry. Conclusion The vision statement, mission statement and key stakeholders of Tesco, particularly leaders and employees have played an important role in developing consumer loyalty and hence contributed to the successful performance of this firm. The macro and micro-economic factors play an important role in shaping the decisions taken by this company and developing competitive edge of Tesco, as noted in this report. The SWOT analysis conducted on this firm indicates that the company has a bright future in case it employs appropriate strategies to invest in the available opportunities. Finally, Tesco is widely known to adhere to corporate responsibility requirements, though a recent case of misconduct threatened to destroy its reputation. , Tesco should always avoid engaging bad acts or in conflicts with legal bodies, which usually leads to loss of credibility before all stakeholders References Boeger, N., (2008), Perspectives on Corporate Social Responsibility, London: Kogan Page Publishers Humby, C, Hunt, T. & Phillips, T., (2008), Scoring Points: How Tesco Continues to Win Resignation, e-Journal of Organizational Learning and Leadership, 9(1), pp. 56-75 Nwagbara, U, (2011), Managing Organizational Change: Leadership, Tesco, and Leahy's Publishing, Cheltenham Solomon, J., (2010) Corporate Governance and Accountability, West Sussex Wiley Publishing Tesco (2011). Corporate Responsibility Report. www.tescoplc.com/media/60113/tesco_cr_report_2011_final.pdf Tesco (2012a). Annual Report 2012. http://www.tescoplc.com/files/reports/ar2012/files/pdf/tesco_annual_report_2012.pdf Tesco (2012b). Our Brands. http://realfood.tesco.com/our-food/our-brands.html Tesco (2013) Board and Executive Committee http://www.tescoplc.com/index.asp?pageid=172 Thompson, J.L., & Martin F., (2010), Strategic Management Awareness and Change, Hampshire: Cengage Learning Read More