Business Strategy Implemented at TESCO - Case Study Example

Strategic review report for TESCO Executive Summary The main idea of this report is to create a strategic review report for TESCO an UK based company. Last 20 years company has brought its business practises into a new level. The company is currently positioned at number 1 place in UK and number 2 in global retail industry. This report would give a clear and independent strategic idea to its management by analysing different aspects like external & internal environment analysis. Report is also identifies different issues relating business. A clear cut strategic analysis at business level, corporate level is provided in the report. Strategic implementation modes are also discussed in the report. In the end of the report conclusion is also given. This report would help the management to understand different pros and corns of their strategy with a step by step approach. Contents Executive Summary 2 Introduction 5 Analysis of the external environment 5 Macro Environment Analysis 5 Political Analysis 5 Economical Analysis 6 Social Analysis 6 Technical Analysis 6 Micro Environment Analysis 7 Competitive Rivalry 7 Power of Suppliers 7 Power of Buyers 8 Threat of New Competitors 8 Threat of Substitutes 8 Analysis of the internal environment 8 Resource Based View of the Company 8 Value Chain Analysis 10 Analysis of PR issues 12 Utilitarian theory 14 Strategic Analysis 14 Business Level Strategy 14 Corporate Strategy 15 Market penetration 15 Product development 16 Market development 16 Diversification 16 Strategies Suggested for future/Evaluation 16 Product Development Strategy through SAF & RACE Model 17 Market development Strategy through SAF & RACE Model 18 Conclusions 18 References 20 Appendices 22 Appendix 1: Tesco Governance Model 22 Appendix 2: 23 Introduction TESCO is one of the biggest retail companies present in the global retail industry. The company has almost 2491 stores around different parts of the world. Company is having a huge diverse work force which is almost 3, 50,000 people. The UK is the company’s largest market while it has expanded its business in Central Europe, Thailand and in US. Company was founded in 1924. Innovation is the key factor for Tesco. Company believes that innovation is important for customer satisfaction and business needs. Continuous innovation in Tesco has given success in terms of managing margins. The organization is very efficient and dedicated to offer the lowest possible price to its customers. Analysis of the external environment Environmental analyse are divided into two parts those are discussed below in the report. Macro Environment Analysis This analysis will be done with the help of PEST analysis. Political Analysis Tesco is doing business in 14 countries around the world. Performances of the company in those different countries are directly influenced by the local legal and political situations. Employment related legalities mentioned by local law making authorities are must be followed to maintain smooth business (Kotler, 1997, pp. 54-57). Every foreign government urges organizations to create employment for local people. In this way local would get more and more job and the employment rate of that country would increase. Tesco stores are having all kinds of jobs like low-paid, high skilled, highly flexible, local based and well-paid. Tesco generally employed different demographics of people as disabled people, students and workers with increasing age. Generally Tesco follows foreign employment legislation and other laws properly in every foreign country. Retail industry is very much dependent on the local political scenario of any country (Coade, 1997, pp. 98-101). TESCO identifies it very well and makes its strategies related to that. In globalised business no company can undermine the political scenario. Economical Analysis Economic factors are very important for demand of a product in market. Country’s inflation rate, interest rates and currency value these are very important aspect for price of different products and profits of an organization (Boulding, 1950, pp. 110-113). These are some unavoidable factors TESCO cannot control but would influence performance of organization. Company is having very strong hold in UK market. Its global holds are not as strong as UK market. Company is very much dependent on UK economy. Social Analysis As the demography changes customer’s buying behaviour also changes (Aldrich, 1979, pp. 43-46). Tesco is in food business and recently in this business a trend is there of eating healthy food. Tesco must consider all the local social and cultural issues. Company has to examine the customers constantly relating with different products. Every country is having different local social cultures it would underline the education, buying behaviour, language, cast and creed. These are very much important to understand. These kinds of things can directly and indirect influence the business of Tesco. Technical Analysis Inclusion of modern technologies into business can be a two dimensional advantage for Tesco and its customers around the world. Modern technology can improve customer satisfaction. Electronic shelf labelling, Radio Frequency Identification, Electronic Point of Sale, Electronic Fund transfer system and self check-out machines are some of the very modern technologies used by Tesco in its stores globally. It provides customer very good experience of shopping. It shows that technological factors are also very important for Tesco. Micro Environment Analysis This analysis will be done with the help of Porter’s five forces. Competitive Rivalry Company has an intense competitive rivalry in different aspects of the retail market. Major competitors in the food retail Industry are Waitrose, Morrison and Sainsbury. The competition is in terms of price, product lines, distribution and promotions. In retail sales the location and size of stores are very important competitive factors (Chaston, 2004, pp. 97-100). Company has the largest selling space giving an advantage to the company in terms of intense competition. AS the competition is very high and the market size is fixed can cause saturation in terms of market share of Tesco. Power of Suppliers This threat is low. Maximum suppliers rely on the large supermarket like Tesco. The company has lots of options of suppliers and play with prices. Tescos has advantage in terms of suppliers. Tesco has lots of suppliers to supply their raw material. . Company like Tesco follows very strict supplier’s policy. Suppliers usually don’t bargain that hard in the market. In other words supplier is having very less scope of bargaining. Suppliers are very serious related with this kind of organization. Power of Buyers This threat is very high. Customer very easily can change supermarkets without any problem. As all the competitive information is easily available to the customer, they easily can switch from one supermarket to other (Argenti, 1976, pp.71-73). It is being seen that as the buyers are with lots of options in their kitty they tries to dictate terms in the market. They can easily make or break any brand easily. It can force the organization to keep its prize down. Power of buying is a very high in terms of Tesco. Threat of New Competitors This threat is very low. Market is dominated by other big players. Big players dominate almost 80% of the UK market share. In foreign market this threat is little bit higher. This kind of business needs lots of investments. It is very difficult for a new player to invest that much. Threat of Substitutes This is also low. Tesco also operates its own Tesco-Local stores. Substitute of the food products are very low. Prices of Tesco products are very low. It lowers threat from substitute products. Analysis of the internal environment Resource Based View of the Company The resource based view of Tesco is analyzed in order to evaluate the strategic management position of Tesco Plc. The resource based view is based on the organization itself and is used as a main tool for internal analysis (Veliyath and Fitzgerald, 2000, p.44). Tesco has many resources and capabilities within the organization which has enabled it to create sustainable competitive advantage for itself in the market. Tesco has been a capable organization in terms of resources and core competencies that have helped it to remain competitive through years of its operation. Primarily Tesco has implemented and established a robust operations supply chain which has helped the company to provide reliable and quality service to the customers through a high level of interconnection between stores, headquarters, warehouses and the business website. Other companies in the retail industry lack in the capability of designing such efficient system which has acted as a completive advantage for Tesco Plc. Tesco has established an efficient delivery system as well as a high scale digital shopping experience for the customers by creating a high ended business interface for the electronic commerce segment of Tesco. The product collection and delivery systems of Tesco are the additional capabilities driving the success of the business. The strong brand image of Tesco Plc. is another main source of competitive advantage for the company. Tesco is efficient in maintain customer relationships through customer relationship management software. The company uses the latest technologies in its supply chain and operations management as well. The tangible resources of Tesco include around 4000 retail stores, a turnover of GBP 70 million and more than 550,000 employees under the brand. Similarly the intangible resources of the company include the employee know how, the strong brand reputation, the wide knowledge and experience in the retail industry, maintenance of huge database of customer information, high brand awareness among the consumers , relationship maintenance with the suppliers and many service innovations like 24 hour opening. The core competency of Tesco is visible in the loyalty card system. The loyalty card was introduced to enhanced customer satisfaction and increase customer value creation (Rowley, 2005, pp.194-206). The loyalty card has helped Tesco to become more competitive in the retail industry. The provision of high quality of goods and services by Tesco are other major competencies that have enabled better competitiveness of the firm. Tesco has been efficient in meeting the needs of the customers at low costs. Also, the corporate strategies and management abilities are other capabilities of Tesco that add to the value of the strategic position of Tesco. Value Chain Analysis The value chain of Tesco is an efficient and integrated process in which value is created for the customers in every step of the process. Primary Activities Inbound logistics: Tesco focuses on maintaining the customer choice levels in their stores while enhancing the efficiency of the distribution and logistics system, on applying proper quality control systems to manage the damaged products and ensure the proper management of inventories and on provide opportunities to reduce any costs that are redundant for the operations of the company so that the costs are not moved across the value chain to add up to the cost of the final product for the consumers. The procurement and distribution processes of Tesco involve a service oriented approach. Tesco focuses on reducing the costs and increasing the reliability of the procurement phase in the value chain. Operations Management: The operational phase creates operational opportunities in the business that allows for the smooth function of the supply chains and operations and helps in maintaining the stocks in the inventories and warehouses. The operations systems of Tesco Plc. have a number of facilities and technological system implemented in order to improve the efficiency and capabilities of the business in its day to day operations management functionalities. Outbound logistics: Tesco has created much value from the outbound logistics phase where it has maintained an efficient home delivery system. Tesco Plc. has implemented a wide range of formats of stores and merchandising in the stores. The company has employed suitable distribution networks to ensure that more segments of customers are gained for the business. Marketing and Sales: The marketing and sales activities of Tesco are the most efficient part of the value chain. Tesco employs the club card system to give discounts and offers to its customers. Also, the company is promoted through a high degree of brand reputation and word of mouth publicity (Martinell, 2003, p.577). Tesco has tried to improve the sales by introducing the offers and loyalty cards. Services: Tesco employs a high level of customer service and provides additional services like parking, facilities, till staffs and trolley collectors to create more efficiency as well as increase the level of shopping experience of the customers. Value is added by saving the time of the customers and by increasing the turnaround times for the business. Support Activities The support activities of Tesco are also well integrated with the primary activities to boost the performance of the business. Infrastructure: The infrastructure of the company helps in increasing the turnover whole adding value to the final products. Tesco employs superior technology, infrastructure and networks in the company to ensure that value creation is supported. The company maintains a robust operational infrastructure as well as suitable information and communication technology infrastructures to support the functioning of the business processes. Human Resources Management: The Human resource management of Tesco is highly robust with different training schemes and effective recruitment processes that create a well-trained and skilled employee resource in Tesco (Ogbonna, 2004, pp.75-80). The proper human resource management ultimately helps Tesco to improve the performance of its operations. Procurement: The procurement process in Tesco Plc. is an important part of the value chain. Tesco ensures that it maintains a suitable network of reliable suppliers from which the company can source materials at low costs without compromising on the quality. Also, effect suppliers are worked with in order to maintain the continuity of the everyday business processes smoothly. Technology development: Tesco has always been a leader in employing new technologies for creating innovative products that are used to anticipate and fulfil customer requirements (Palmer, 2004, pp.1075-1101). The brand name of Tesco gives vitality to the products and the integrated processes of the value chain help in delivering better service and value to the customers. Tesco uses advanced software, Information and Telecommunication systems and technologies like Radio Frequency Identification in place of the traditional barcode scanning, internal satellite systems as well as proper purchase order tracking and inventory management software’s in the inventories, distribution hubs and retail outlets. Analysis of PR issues The company has able to provide very easy simple shopping experiences to its customers. Company has done this in different way like hypermarkets, online and in small stores. Tesco also aims to improve services and offering superior value rather than focusing on pricing only (Coleman, 1988, pp.101-105). Tesco is making important changes in different domains such as international warehouse management, international logistics and continuous replenishment. The country is making these kinds of changes due to the legal and cultural aspects of foreign countries. In recent years company has transformed into strong global player from only UK based Company. Organization has also diversified in terms of their products. Company is producing lots of other products apart from their traditional products. Company is making serious efforts to be a competitive global retail player. The company generally do business in food, clothing, beverage, electronics goods, household products and financial services. Important part of Tesco’s growth is the use of well-targeted own-label brand. Company has targeted emerging economies also apart from developed economies to expand (Mitchell, 1996, pp. 203-205). Trying new things, well prepared to change not to be complacent and determination towards achieving customers are main mantras for TESCO. This report would provide a clear picture about the company’s strategic review. Report will be guidance for the management of TESCO to take any decisions regarding their existing and new strategies. In spite of all good reputations Tesco is not at all free from the PR crisis. Some of the Pr crisis of Tesco is discussed. Tesco shares falls after the horse meat crisis rocked the market. Horse meat was found in beef burger. Scandal was going viral by TV, radio, news paper and in social media. Immediately company came up with apology. Company came up with full page news paper advertisement wanting apology from its customers (Bookbinder, 1993, pp. 301-305). Customer service of Tesco tweeted and apologised. Company assured for an investigation in to the matter and allegation was right. Tesco recalled all those burger from the market. In this way company handled that PR crisis. Another PR issue is related with Tesco’s night staffs payment. The structure of the payment was very poor. It was Job Seekers Allowance + expenses. It means no payment for staff’s full time job. It creates an immediate pandemonium among the jobseekers in the market. People were very angry with it. It was considered as a modern version of slavery. It was related with a government policy but people were not ready to forgive Tesco for this. People in the UK took it as an attempt of exploitation from the part of Tesco (Akehurst, and Alexander, 1996, pp. 65-71). Situation like this are very precarious for the image of any organization. Every organization should take quick responsive measures for these kinds of crisis. Organization must not allow this kind of crisis for longer period of time. This kind of crisis can tarnish the image of any organization. Company must be very careful in terms of public relationship. Public relationship is very sensitive in nature. It should be clear and must not raise any controversy. Utilitarian theory There are lots of theories are available in management. Company can use Utilitarian theory. This theory can yields maximize net benefits and minimizes overall harms for all stakeholders related with Tesco. With the help of this theory organization can go for its desired goals by meeting all the above written challenges and it would harm all stake holders related with the company in a lowest possible manner. Stake holders related with the company are very important part of any business. With the help of this theory Tesco can secure the fate of its stakeholders. This theory would help the company in two dimensional ways from company’s perspective as well as stake holder’s perspective. This theory would provide an inclusive growth for Tesco. Strategic Analysis Business Level Strategy Tesco has used excellent business strategies to gain sustainable competitive advantage in the retail market. Tesco has mainly adapted a hybrid strategy as the business level strategy for the company (Thomsen, 2004, p.30). The main business strategy of Tesco is to differentiate itself from the competitors by proving excellent quality products and service while maintaining competitive prices. Tesco focuses on selling products at a cheaper rate as compared to the other players in the retail market. Therefore, Tesco follows a combination of differentiation and cost leadership in its business strategies. Another major business strategy used by Tesco is the employment of excellent customer service. Tesco holds the Customer Champion services in which almost 800 personnel of Tesco assist the customers without any questions in their buying processes starting from selection to billing and after sales services. Tesco has always tried to gain market share by increased differentiation in pricing of the products. But the changing dynamics of the retail market has created the need for identifying and implementing new strategies in the business to revive the reducing sales and competitiveness of Tesco as compared to other retail companies (Ritz, 2005, pp.22-23). Corporate Strategy Strategies are plans which set out how a business would be run to reach its desired goal. In this section of report corporate strategy of Tesco are going to be discussed with the help of Ansoff’s Matrix. Market penetration Company is more UK centric than its international market. It would remain same in the future. Company has focused heavily on its domestic market as UK markets provides lion share of total revenue (Fitzroy, Herbert, 2007, pp. 56-61). Tesco wants more and more domestic market penetration. The market is established and the products are also established in this market. It would have lowest possible risk for Tesco. This is the strategy which would strengthen the base of Tesco. This strategy does not need that much of investment. Product development Tesco would come up with new products into its existing market. It would give new products a great plat form to perform well. In this strategy risks are medium for Tesco. New products would cause for lots of investments but there would no cost for preparing a suitable market for those new products. This would be a very well calculated risk for Tesco. It would help Tesco to compete more vigorously in the market. Market development Tesco can go for both its domestic and international market expansion. Company can sale its established products into new markets. Risks are medium in terms of this strategy. This type of strategy would help Tesco to generate new customers. Existing market is saturated by different players. This strategy would open new market for Tesco. It would increase the international image of the company. It would help the company to gain more market share. Diversification This is a very risky strategy for Tesco. Here products and market are not established. This kind of strategy is very risky with any company. Company has to monitor the market very well. Lots of research should be done before coming up with this kind of strategy. Tesco need to start from the scratch. Lots of effort must be given to gain profit out of this strategy. Challenges would be more for this kind of strategy. Strategies Suggested for future/Evaluation Tesco should try to implement suitable strategies to adapt to new competitiveness in the market. Tesco needs to employ suitable pricing strategies in order to create distinctiveness and develop the range of products to retail its market share and capture new market shares. Tesco should take effective measures to improve the turnover from the stores by creating extended differentiation and by developing suitable offers to attract more customers in the stores (Okumus, 2003, pp.871-882). Other than these Tesco should establish suitable alliances with partners and related businesses to capture new markets and also capitalize on the boom of electronic commerce through effective digital marketing. Thus to ensure competitiveness, Tesco should implement suitable strategies in pricing the products and in creating extended promotional activities in order to retain the existing customers and attract more customers to the business. Since the retail industry has become extremely concentrated and competitive due to the successful functioning of a number of companies like Tesco, Wal-Mart, Sainsbury, ASDA etc., it is critical for Tesco to employ new strategies to ensure the sustainability and competitiveness of the business. It is difficult to employ the strategy of differentiation in the highly competitive and dynamic retail segment. Therefore, Tesco should try to implement the cost leadership strategy more by offering products at a much lesser price than its competitors. This strategy would help Tesco Plc. to attract customers from a wide range of income groups and to acquire new customers as well as retain existing customers on the basis of high value provision for lesser amount of money spent by the customers. Product Development Strategy through SAF & RACE Model This strategy is highly suitable for Tesco because Tesco has strong presence in UK. It would be easy for Tesco. Tesco would not face great amount of difficulty to market its new products. Acceptability would be very high as the brand is well known. It is also very feasibility for Tesco to follow this strategy. From the feasibility point of view every stage is set for Tesco to market its new products in the existing market. Tesco can do lots of research for developing new products. After the extensive research company can produce new products. Company can place those products into its existing stores in the market. Those new products have to be communicated among customers of existing markets. Tesco must promote those new products very well. After the launching of new product Tesco must evaluates the performance of that product on a regular interval. Continuous evaluation is very much important for this strategy. Any misevaluation can prove to be very counterproductive for Tesco. Market development Strategy through SAF & RACE Model This strategy is also suitable for Tesco. Products are very well known can be very suitable for new markets (Alexander, 1997, pp.99-103). Acceptability can be a challenging at the beginning. It is highly feasible. Over all this strategy is very can be very productive for the company. Company can go for extensive research for the development purpose of the market. Every market is different in nature. After selecting the market company can launch its existing products line into that market. Communications with the customers would be very high in this strategy. Tesco must promote its products in the newly developed market. After the launching of the product company must evaluate its strategy by monitoring the new market very closely and regularly. There is no substitute of continuous evaluation. Continuous evaluation can give clear picture about the strategy. Continuous evaluation can measure the performance of the strategy in the market. Organization can take preventive measures after the evaluation of the strategy. Conclusions Modern business world is ever changing in nature. Change is the only constant thing in the world. Company must be very proactive in nature. Management of the organization must monitor each and every development related the business world. There is no place for relaxation for the company as other players in the industry are competing very hard. Tesco must follow all the legalities, norms, regulations related with the industry and must be very transparent in nature. Tesco must keep its every step in business in well calculated manner. Good quality products and satisfied customers are the difference makers for any organization. Tesco must remember these basic but most important factors. Global players like Tesco understand the local culture of every foreign industry and must design its business according to those local sentiments. References Akehurst, G. and Alexander, N. 1996. The Internationalization of Retailing. London: Frank Cass. Aldrich, H.E. 1979. Organizations and Environments, Englewood Cliffs. NJ: Prentice Hall. Alexander, N. 1997. International Retailing. Oxford: Blackwell. Argenti, J. 1976. Corporate Collapse: The Causes and Symptoms. London: McGraw-Hill. Bookbinder, P. 1993. Simon Marks: Retail Revolutionary. London: Weidenfeld and Nicholson. Boulding, K.E.1950. A Reconstruction of Economics. New York: Wiley. Chaston, I. 2004. Knowledge-Based Marketing: The 21st Century Competitive Edge. India: SAGE. Coade, N.1997. Managing International Business.UK: Cengage Learning EMEA. Coleman,W. D.1988. Business and Politics: A Study of Collective Action. Canada: McGill-Queens Press. Fitzroy, P.and Herbert, J. M. 2007. Strategic Management: Creating Value in a Turbulent World. USA: John Wiley & Sons. Kotler, P. 1997. Marketing Management: Analysis, Planning, Implementation, and Control, Ninth Edition. London: Prentice Hall. Martinell, E. 2003. Food retailers and financial services in the UK: a co-operative perspective. British Food Journal. Vol. 105(9), p.577. Mitchell, J. K. 1996. Long Road to Recovery Community Responses to Industrial Disaster. Tokyo: United Nations University Press. Ogbonna, E. 2004. Strategy, culture and HRM: evidence from the UK food retailing sector. Human Resource Management Journal. Vol. 9(4), pp.75-80. Okumus, F. 2003. A framework to implement strategies in organizations. Journal of Management Decision. Vol. 41(9), pp.871-882. Palmer, M. 2004. International retail restructuring and divestment: the experience of Tesco. Journal of Marketing Management. Vol. 20(9), pp.1075-1101. Ritz, L. 2005. Store wars. Business Review. Vol. 11(1), pp.22-23. Rowley, J. 2005. Building brand webs: Customer relationship management through the Tesco Club card loyalty scheme, International Journal of Retail & Distribution Management. Vol. 33(3), pp.194-206. Thomsen, S. 2004. Corporate Values and Corporate Governance. International Journal of Business in Society. Vol. 4(4), p.30. Veliyath, R. & Fitzgerald, E. 2000. Firm Capabilities, Business Strategies, Customer Preferences, and Hypercompetitive Arenas: The Sustainability of Competitive Advantages with Implications. London: Routledge. Appendices Appendix 1: Tesco Governance Model Appendix 2: Figure 1: Porters five forces Read More