Tesco Company Core Values and Objectives - Essay Example

0 Introduction Tesco was founded in 1919 by Jack Cohen from a small humble market stall in London, and has grown to be one of the largest retailers in the world. Today, one third of UK’s national food expenditure occurs at Tesco, with its leading food products being Finest and Everyday Value choices each selling over ?1 billion annually (Tesco Plc, 2012). The giant retailer’s current position as a prominent worldwide trademark is well illustrated by its international growth into twelve countries, with a total work force of over 530, 000 employees as per 2013. Indubitably, such as a high level of accomplishment does not materialize coincidental but rather is influenced by a series of strategies, goals, objectives and practices put in place by an organization. It is clear that the high standards set by those in leadership and management positions at Tesco have tremendously contributed to the company’s success. The company’s ‘Every Little Helps’ philosophy ensures that its customers, the community, and company employees form an integral part of its operations. 1.1 Company Core Values and Objectives The most outstanding values of the company are its commitment to providing high standards of service and quality products to its customers by being a responsible retailer. The company continues to offer a great shopping experience to its customers who shop online or it its many other service provisions. This is manifest in the company’s desired future strategic position of reaching zero-carbon operations by the year 2050. In order to do so, the company opened the initial zero-carbon hypermarket in Ramsey in 2010, which led to Tesco winning the tribute as the Green Retailer of the Year in 2012. The continued success the giant retailer enjoys depends on the reassessment and formulation of business strategies in order to remain competitive and increase profitability (David, 2011). Tesco aspires to improve customer loyalty and its core UK business base through various programs such as the club card program introduced in 1995 and is currently the most popular card in the UK. The company also continues to develop various strategies aimed at improving competitiveness and such strategies are mainly driven by price, quality, range of products and innovation. This paper examines corporate strategies at Tesco, the reasons informing each component, how vision and company values interrelate to make the strategies successful, and finally draws on a conclusion on the best alternative strategies that the company can adopt by giving recommendations based on the evaluation. 2.0 Tesco’s Corporate Strategic Position Over the years since it started operations, Tesco has developed a firm and deeply rooted strategy for growth, which is mainly focused on reinforcing the company’s core UK business operations and growth thrust in new markets. The primary tenet of the giant retailer’s strategy, formulated in 1997, encompasses the expansion of scope of operations that allows delivery of a robust and sustained long-term growth. To realize such an expansion of scope of business operations, Tesco constantly pursues existing customers with the aim of introducing them to various other Tesco products and services such as non-food, telecommunications, and financial services. Tesco’s business strategy is based on five principles including desire to remain successful in its global retail business while at the same time developing its core UK business. The company also aims to sustain its business strength both in the food and non-food sectors. Moreover, the company develops strategies that will enhance expansion of other retailing and financial services, and place its customers and communities at the heart of its operations. 2.1 Customer Loyalty Despite the fact that Tesco Clubcard was introduced to the customers in 1995, there has been a higher degree of data collection especially over the last decade manly due to the company’s embracement of technological advances. Currently, the card can collect essential information such as customers’ life stage, shopping habits, product preferences, response to promotions among others, a clear indication of the role of loyalty card in marketing initiatives as argued by Byrom (2001). Based on the gathered information, Tesco is able to effectively exercise ‘reverse strategy’ whereby the company delivers products that the customers want rather than searching for customers to buy their products. A real-time retail infrastructure adopted in 2001 and later improved in 2003 has led to improvements in stocktaking, shelf stacking, and management of the supply chain, thus leading to increased profitability (Rowley, 2005). The company recognizes that as it tries to expand the number and size of its stores, it is imperative to be able to exercise and improve control over its operations. It is argued that acceleration of the supply chain and reduction of the number of ‘out of stock’ items leads to improvement in the level of customer loyalty (Divett et al., 2003). This together with the minimization of costs related to IT management and the ability to take quicker corrective action when a problem occurs has led to increased profit for Tesco. By taking into account the fact that Tesco’s strategy is rooted in customer loyalty, the company has developed personal relationships between the chain and its customers by creating online communities such as eDiets, the Nutri Center, Healthy Living Club among others on its Tesco.com website. The company has recently introduced shopping lists to the website in order to assist customers in navigating on the website therefore making online shopping experience better. 2.2 Diversification into Non-food Lines Another strategy employed by Tesco in order to remain competitive is its diversification into non-food lines that are currently the main drivers of growth of the UK supermarket chains (Henry, 2008). Amid growing competition and decreasing profit margins from its food products, the company began a wide-ranging diversification into non-food sectors such as consumer electronics, financial services, Internet service, telecommunications, health insurance and dental plans, and budget software. In these new areas, Tesco heavily relied on its competencies in building private labels by introducing brands such as “Cherokke” and “F+F” in its clothing line, “Technika” and “Digilogic” in consumer electronics among others (Kenneth et al, 2003). Recently, the company expanded its venture into non-food lines by entering the housing market through a self-advertising website, Tesco Property Market. Other strategic initiatives that have recently been taken up by the company in their diversification programs include, for example, the ‘Apple’ zones in selected outlets where the iPod range is displayed and sold alongside Macintosh computers and other Apple products. 2.3 Store Formats Although Tesco faced obstacles in obtaining permits to build stores located outside towns and cities, the company saw an opportunity in convenience shopping, and opened up Tesco Express and One Stop units in line with their core-marketing slogan of “The Tesco Way”. The stores stay open until late, feature a differentiated pricing, and offer system in an attempt to shift their focus on the corporation to a focus on people. The stores, located in busy areas, require less capital investment and provide higher profits margins and quicker returns. The idea to start up these convenience stores was informed by the growing fast pace of the society where people are forced to resort to on-the-go services and are willing to pay higher prices for this convenience. 2.4 International Expansion Tesco’s expansion into international markets started in late 1970s with the purchase of a small company in the Republic of Ireland, and in the 1990s, the company strongly amplified its expansion strategy by increasing investments into emerging markets such as South Korea, Thailand and Hungary. The expansion was based on the feasibility of finding a joint venture partner, the ability to locate new markets that would ensure enhanced growth, and the new market’s composition in terms of competition from potential rivals. Although the company renewed enforcement of its international growth strategy in 1997, outside of the UK, the retailer failed to dominate and continued to remain in the shadow of larger, more high-profile global giant retailers such as Wal-Mart and Carrefour. With this in mind, Tesco reconsidered its expansion strategies and through analysis of international markets, put more emphasis on the market potential for growth and the competitive nature of such new markets. This strategy meant that only markets characterized by relatively high growth potential and low competition were considered as real targets for expansion and then approached systematically. 3.0 Key Drivers: PESTLE Analysis A proper analysis of the political, economic, socio-cultural, technological, environmental and legal dimensions within the environment in which a company operates is vital in exploiting the available opportunities and minimizing threats (Dransfield, 2001). Such an analysis not only helps in understanding opportunities and threats but is also a valuable means for appreciating the relationship between market growth or decline and the business potential, position, and direction of a firm. There are many political, economic, technological, environmental and legal factors that have shaped Tesco’s corporate strategies and are critical determiners of its current market position. The retailers operations are often under the influence of political conditions and developments within the UK market and its international markets. For example, the retail giant might be forced to respond to British and Columbian politics in order to protect its coffee supplies. Due to the recent economic downturn that caused global recession that mainly affected Europe, unemployment levels in the UK significantly increased. Such adverse economic conditions have the potential of affecting negatively on consumer spending, prices, costs, profitability and demand and supply, and as evidenced in the case of Tesco. The company’s UK retail turnover, for example, decreased 0.7% during January 2010 in comparison to the figures of January the previous year when sales had increased by 1.1% (Tesco, 2012) The prevailing sociological factors within the markets in which Tesco operates also greatly influence its operations and defines some of the strategies it has to adopt. Factors such as immigration and changes in fashion and consumer behaviour play an important role in shaping strategic decisions firms make. Due to the changing behaviour of British consumers into ‘one stop’ shoppers, chain stores have been forced to stock an ever increasing range and variety of goods, a factor that greatly influenced Tesco’s decision to open up such stores as Tesco Express and Tesco Extra. Tesco applies various technologies to drive its business and has continued to use anticipated weather patterns to assess the demand and supply of its various products and services. Through the use of a software developed after 3 years of intensive research, the company can closely monitor changes in sales of particular products and services occurring as a result of a temperature increases or extended sunshine (Doyle, 2000). In addition, technology and innovation facilitate services such as the company’s interactive website and self-checkout facilities. In line with the company environmental policy of commitment to a safer and cleaner environment, Tesco adopted measures aimed at lowering carbon emissions that would ultimately see the company retailer become a zero-carbon business entity by 2050. Considering the legal dimensions in play within the market environment in which Tesco operates, it is important to note that the company is subject to various government policies and national legislatives, especially in areas of health, safety and labour. Failure to adhere to such legal requirements can have a direct negative impact on its performance and overall success. 4.0 Tesco’s Generic Strategies Strategy, according to Johnson and Scholes (2002) is the direction and scope of an organization over the long term that facilitates growth through and ensures that the organization gains competitive advantage using its various resources available to it. Porter (1985) argued that for an organizational to be successful, and it needs to practice one of three strategies that he categorized into cost leadership, differentiation and market segmentation. He further argues that firms that fail to make a conscious choice about the competitive advantage they seek to develop risk being ‘stuck in the middle’ in the middle of the two major initiators of economic advantage, explicitly low prices and differentiation, and may end up with no competitive strategy at all (Acquaah & Ardekani, 2006; Miller, 1992). He asserts that it is difficult for firms to simultaneously become differentiated and low-cost, and further recommends that firms with high market share should adopt cost leadership strategies to become profitable, while companies with lower market shares should target profitability through market differentiation. Porter (1996) further argues that being stuck in the middle leads to low profitability for companies while competitors having a well-defined strategy do better than those with unclear strategies or attempt a blend of strategies. The strategies in place at Tesco do not however seem to follow on Porter’s model and recommendations. Even though the company controls 30% of the UK grocery retail market share, as it neither offers discount shopping to its customers nor is it the cheapest amongst major supermarket chains in the country. The company utilizes low costs to offer superior differentiation and subsequently follows with reinvestment of the returns in order to facilitate further reduction of the costs. Moreover, Tesco’s strategies are geared toward differentiating through its community building approach. The retailer’s customer base cannot be categorized into distinct social groups as it offers both cheap and expensive products and services, thereby being able to provide to customers with thin budgets and those with more purchasing power. Although this strategy appears to be in contradiction of Porter’s model and recommendations, it seems to be effective at Tesco and the success results indicate that it works in its favour. 5.0 Tesco’s Strategic Options and Strategy Implementation In respect to the generic strategies put forward by Porter, the first alternative strategy is for Tesco to meet its desired future strategic position is that of cost leadership in which the company can strive to have the lowest costs n the market. The company can further strive to offer its various products and services to a wider customer base at the lowest prices in order to achieve competitive advantage. This strategy will be dependent on the company’s ability efficiently minimize their operating costs so that they can have competitive pricing for their products and services while at the same time generate high profit margins. On the other hand, the company can also adopt another differentiation strategy by offering services and products with unique features that their customers value. This differentiation strategy can be approached through various ways including wide variety of products, use of technology, incorporating special features, and customer service. In consideration of the generic strategies discussed above and Tesco’s strengths in the retail industry, entry into new emerging markets such as China and Japan can serve as key growth drivers of the company’s expansion strategy that would enable it to meet its desired future strategic position. These Asian markets are showing increasing levels of consumer spending and increased trends towards retailing and are thus favourable for the company’s cost leadership strategy. The company can exploit the wide markets by offering competitive pricing while at the same time maintaining high profit margins through control of operating costs (Bingxin and Li, 2008). When entering these new markets, one strategic option available to Tesco is in international alliances with the local retailers. By entering into joint ventures, the company will gain from the extensive knowledge and the operating expertise of the local partners while contributing with its own supply chain, product development and operation skills so as to achieve a larger economy of scale. However, given the huge scale, potential and complexities of these Asian markets, the success of any alliance entered into will depend on three main success criteria namely sustainability, acceptability and feasibility (Johnson and Scholes, 2002). Sustainability of the strategy concerns whether the strategy to be implemented efficiently addresses the circumstances in which the company is operating, in this case the new Asian markets. In this regard, the recommended strategy would be sustainable since it takes into account the market situation that in this case is characterised by a consumer base that has a high spending potential. The rationale behind this expansion-market development strategy therefore qualifies the strategy to pass the sustainability test. Acceptability, on the other hand, is concerned with the expected returns from the strategy, the level of risk and the projected response from stakeholders, which in this case is expected to be positive with high returns. Drawing from experiences, the strategy is feasible given the fact that Tesco has the required resources and competence to deliver the strategy, and the implementation should take place at various levels within the hierarchy of Tesco given the large size of the company. The various levels should be related and mutually supporting, with the company’s strategy at corporate level defining the businesses in which Tesco will compete by focusing resources in a way that will ensure that distinctive competences are converted into competitive advantage. The quality of formulated strategy and rate of implementing it will be directly dependent on the quality of the company’s perceptive and developmental learning process. 6.0 Recommendations and Conclusion Tesco has actively and persistently worked in different areas of strategy formulation to in order to realize its goals and reach desired strategic positions. Over the decades, through a strong commitment to customer satisfaction and loyalty, the company has remained sustainable by deploying its core competencies and integrating all its functions across the board. In addition, the company’s success has largely been informed by its market entry strategies that not only take into consideration the growth potential of a target market but also the level of competition in that particular market. The sustainability of the giant retailer’s strategic position is further evidenced by the company’s firm intention to achieve zero-carbon levels by the year 2050. However, due to the rapid changes in business environment with increasing competition, Tesco has to come up with new strategies to meet their desired future strategic position. By constantly adapting to the fast changing circumstances, the company needs to analyse its core competencies in order to formulate strategies that are not only sustainable but also acceptable and feasible. 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