Corporate and Global Strategy - Case Study Example

Supervisor Corporate & Global Strategy. TESCO PLC March, 2009 TABLE OF CONTENTS 0 Introduction 1.1TESCO Corporate Strategy Section 1.2 TEXCO Internal Analysis the SWOT Matrix 1.3 TEXCO External Analysis-The Five Forces Framework 2.0 Tesco Strategic Fit Analysis-Conclusion and Recommendation 3.0 References Executive Summary Today, business environment has become increasingly turbulent, chaotic and challenging than ever before. To survive, it has become vital that a firm understands the strategies underpinning success of rival firms and try to emulate, or do something better than the rivals. This study is initiated to investigate and analyse Tesco corporate strategy. The study first of all scans the market environment using Porters Five forces framework, Porters value chain strategy and the SWOT matrix the study analysis Tesco in order to identify those invisible taken for granted assumptions, capabilities and resources that competitors have found difficult to emulate. The study made three important findings. Firstly, Tesco unlike the competitors is focused on cost leadership, generic focus and product differentiation. This has become part of the company's culture. To the company lower cost does not mean lower quality. Secondly, the company's management emphasizes on its core values, lay emphasis on product differentiation and lower cost; that is using the cash cows and stars to reduce the company's question marks. Also, it has been argued in this paper that, the company should enter into exclusive long term relationship with suppliers, co-branding with celebrity, artist and designers to create a unique product. It should be so, because taking a lead of innovation might mean innovation in branding, innovation in product variation and innovation in other formats. 1.0Introduction Andrews (1997: p. 52) defines corporate strategy as "the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organisation it is or intends to be and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities". Corporate strategy in effect maps out the businesses in which an organisation intends to compete in a way that focuses resources to convert distinctive capabilities into competitive advantage. (Andrews, 1997). In the present challenging context of today's global competition, businesses and firms no-longer compete as individual companies but try to corporate with other businesses in their activities (Wu & Chien 2007:2). Kanter (1995:71) on his work on "Mastering Change" argues that success in the present day business is not for those companies that re-engineer the way they do things, or for those fixing the past. According to Kanter (1995) such an action will not constitute an adequate response. 1.1TESCO Corporate Strategy This paper focuses on the corporate strategy of TESCO. Founded by Jack Cohen in 1919, Tesco Plc today, has established itself as the largest super store in Europe. According to the company 2007 corporate report and the website, Tesco PLC is an international retailer. Tesco principal activities include food retailing having over 2,000 stores in the United Kingdom. The company also has stores and retail outlet in other countries like the Republic of Ireland, Hungary, Poland, the Czech Republic, Slovakia, Turkey, Thailand, South Korea, Taiwan, Malaysia, Japan and China (Tesco 2006 Review). Tesco operates 165 International Express stores. In addition it operates 39 stores in China, 111 in Japan, 13 in Malaysia, 62 in South Korea, 6 in Taiwan, 219 in Thailand, 35 in Czech Republic, 87 in Hungary, 105 in Poland, 91 in Republic of Ireland, 37 in Slovakia and 8 in Turkey. (Tesco Annual Review, 2006). It therefore operates round the clock which demonstrates its commitment to create customer value which in turn generates superior value for its shareholders. Tesco denotes its success to an aggressive global strategy of geographical diversification, product differentiation, cost focus and it use of umbrella branding. In its attempt to renew the brand and keep it in sync with changing customer tastes, Tesco follows various strategies including international diversification, providing value to customers, product diversification, innovation, acquisition and umbrella branding. Tesco, stresses on innovation. This was quite crucial specially when entering the US and Chinese markets, because the same success formula does not work for every region. Their mission statement revolves around the need to treat people the way you want to be treated. They have defined their workplace values, "Every Little Helps a great place to work". Their workplace culture is formed on the basic principle that "Treat people they way you want to be treated" i.e. with respect, helping manager, an interesting job and an opportunity to get on. Mission and vision statements are two strategic management concepts (SMCs) (Soyer & Asan 2007). These are important concepts that define organisations' values, competencies and are quite useful in the strategic planning and management of the organisation (Soyer & Asan 2007). 1.2TESCO Internal Analysis - The Value chain and The SWOT Matrix Market analysis of competitors, suppliers, customers and potential opportunities has long been a competitive preparation of the staple firm (Bauerschmidt & Bloodgood 2002). To re-launch existing/new products, enter new markets and strengthen market segments, firms often perform market analysis of their competitor's strength, opportunities, and weaknesses and threats (Johnson et al. 2007). Under the assumption in some major strategic theories firms know their industry and competitors fairly well. Firms engage in competitive analysis to gain a better understanding of their competitors' resources, capabilities, and strategies (Porter, 1980). Smith et al. (1992) for example detailed how firms in the airline industry initiate strategies and respond to competitors' strategies. Smith et al. portrayal of the dynamics of strategy illustrates the importance of understanding competitors. The perception of similarities and differences among competing firms can drastically affect the types of competitive behaviors in which a firm engages (Thomas et al., 1993). In addition, through an analysis of Tesco value chain process we also recommend the organisations management, to cut on non value adding items within the chain. Through an analysis of Tesco value chain, it can be noted that at the level of the secondary activities, Tesco lean manufacturing technology, internet marketing technology, production technology, the just in time production line, customer relationship management (CRM) represents a big source of Tesco competitive advantage. This is because it will cost time and money for a competitor to replicate this. At the level of the primary activities, the relationship existing between Tesco and its suppliers is a strategic and competitive advantage. They own most of the suppliers thus given room for just in time production manufacturing method, Total quality management etc. they have cost advantage, exhibited in the form of lower prices. Thus a key advantage is source through the inbound and outbound logistics accelerated by the marketing information technology. Tesco and the SWOT Analysis Strengths Better Value, in the form of lower prices. Fresher merchandise and wider assortments. Superior Locations Better physical appearance of the stores themselves. Good will, exclusive rights with some of their suppliers. Maximisation of the four Ps of Marketing at all front. High capital and a pool of reserves, and cheap credit facility offered to some items. The Employees, 3,000 stores around the world. cheaper, better products and providing more choice 2,000 own-brand primary suppliers in 98 countries. Best overall benefits package in the industry charitable giving and community-based education programmes Opportunities A pool of cheap credit facilities China is a big trading partner of the US, an alternative and better source of cheaper items. The impact of Wall-Mart has not been felt in all the states. Many small groceries stores are closing down. The growing pool of technology. The heavy investment on Research and Development (R&D) by the US government Fall of the US Dollars, will mean cheaper operational cost within the US. Threats Anti Grocery stores campaign Loyalty of some consumers to old established merchant and grocery stores. The likelihood of terror attack of some TESCO locations in the US. Natural disaster such as the hurricanes, tornadoes, tsunamis, are now on the rise Exclusive rights enjoyed by Wal-Mart with some of its suppliers Difficulties finding their own suppliers, or owning their own farms. Current market leader, Wal-Mart had $245 billion in revenue last year. Weaknesses Some dissatisfied customers Sole right to some products by competitors Key Niche players The lack and absence of unique product with total differentiation from those of competitors. The lack of ownership of exclusive patents. Dropped and sold of many products that have not delivered reasonable profits The above matrix was originally developed as a means to access and assess organisation resources and capabilities potentials. 1.3 TEXCO External Analysis-The Five Forces Framework Porters Five Forces Approach Application to the clothing industry Relationship with suppliers The suppliers constitute independent artist, cotton farmers, designers, customers. Bargaining power of buyers Low switching cost due to numerous options available to buyers. Threats of new entrants Low threats of new entrants because of the human, time, material and financial resources necessary to set up retail store. However, and entry of a new entrant from other continent like Asia remain a big threat. With individual designers and niche players increasing everyday. Threats of substitutes products or services The industry is characterized with many niche players. Rivalry amongst established firms Fierce competition with flat cost. No major player able to dominate the market. How ever with continuous innovation and design of new products, Tesco has taken over the lead. Porter (1985:4) contends that the Five Forces define the rules of competition in any industry and at the same time marks the bases for understanding a company's success. Porter (1985) went further and argues that, competitive strategy must grow out of a sophisticated understanding of the rules of competition that determine an industry's attractiveness (Birkinshaw, 2000). The researcher further claims that, "The ultimate aim of competitive strategy is to cope with and, ideally, to change those rules in the firm's behaviour." (Porter, 1985: 4). In addition, through a firms' own strategy a firm can take hold of these five forces. At the most fundamental level, Porter (1985) contends that firms create competitive advantage by perceiving and discovering new and better ways to compete in an industry which is ultimately an act of innovation. In this regard Porter assumes that innovations shift competitive advantage when rivals either fail to perceive the new way of competing or are unwilling or unable to respond. This is the situation of Tesco has done and can replicate at China and Malaysia in which the company has shifted in to a generic focus and cost leadership position through understanding of Porter's five forces and use of competition. 2.0Tesco Strategic Fit Analysis Strategic advantages are not always achieved by competition alone. Collaboration between potential buyers and sellers and some other dealers turn to be very beneficial and advantageous when negotiation and contracting costs reduces (Johnson et al. 2005:261). I believe by developing and capitalizing on its service minded employees and reliable service, the company stands a better chance to sail through the five forces framework (Johnson & Scholes 2007). Here, if Tesco realizes that a competitor is operating following the BCG growth matrix, the company should capitalize on it core values. These values are defined with regard to quality, time and cost tied down to innovation. The higher the accessibility to technology and cost leadership the higher will be the customer base and thus the competitive advantage of the firm. Effective communication plays an important role in that it explains the product as well as it positions the company and the product (Storey and Easing wood 1998: p. 344-). Staff/customer interaction is a measure of service quality as opposed to product quality. This will mean assessing the quality of the service products as customers also tend to evaluate how the service was delivered by the staff. Customers look in particular at the welcoming nature of the staff, their physical appearance or outlook, consciousness, promptness and efficiency. Attention could be shifted to these taken for granted assumptions. Tesco should cut down on the number of question marks. These could be easily turned in to stars and cash cows with excesses from cash cows. For any business, customers are the main strengths and means of success. Tesco has gained advantage from this fact. Thus, it can be stated that the SWOT is surely compatible with its success factors. This could also be capitalized upon. Tesco as a company should use clear values to underpin what they do. Their core purpose is based on customers' value creation. In all, cost-leadership has become part of the organization's culture through symbols and effective processes being respected. Our caution to Tesco's management is that, such a strategy will only work effectively in situation where the organization can provide products or services at a lower cost than competitors. It is not a try and error exercise. It is a commitment and a culture. Here I have also recommended that, to react to competitors actions with respect to the growth matrix, the company should remain keen to its core values and cost leadership and differentiation strategy. This should become part of the company's culture. According to Johnson & Scholes (2007), organisational culture is a tool in management strategic armory which appears to be invisible yet it influences "why" "how" "what" and "when" things are done in an organisation or "it is the way things are being done here" (Johnson & Scholes 2007:66). In all, we recommend Tesco to see such an action from the marketing concept which lay on the premise that, achieving organizational goals depend on determining the needs and wants of the market target and delivering the desired satisfaction more effectively than competitors (Kortler 2002). From the above analysis, one will not hesitate to say that Tesco through its umbrella branding, products differentiation, diversity programs and core values on the principles of putting customers first has earned the company a strategic position in the global retail industry. For example, as a vehicle and tactics of market entry, Tesco stresses on innovation, innovations such as metro format Tesco stores. Management also stresses on innovation in products format and variation. Tesco success in the industry can be attributed to its vast experience in the market, product differentiation, assorted brands and cost leadership. It business concept of "No-one tries harder for customers, and we treat people as we like to be treated". As one of the supermarkets that place values on the employees, workers are put at the forefront of the business. "If the Tesco team find what we do rewarding, they are more likely to go that extra mile to help our customers". This has become part of the company's culture. Bibliography Andrews K. (1997). Resources and Strategy: A Reader, edited by Nicolai J. Foss. Oxford University Press, ISBN 0198781792, 9780198781790 Cravens, D. and Piercy, N., (2006). Strategic Marketing, McGraw Hill, 2006, 8th Edition p 90-91. Johnson, G. and Scholes, K., (2007). Exploring Corporate Strategy, Prentice-Hall, Europe Kanter, R. M. 1995. "Mastering Change." 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