Strategic Decisions to in Changing Circumstances in Tesco Plc Companies - Research Proposal Example

Project Proposal The modern day business does not follow the conventional method of management when it was okay to relax. Globalization has necessitated the need for modern day management which requires facing not only domestic or national competitors but also international competitors. As stated by Child (2005) changing demands, complex networks of supply and distribution, constant innovation and open markets without boundaries are some of the characteristics of modern global business environment which has hampered most of the managers to formulate strategies to respond to the crisis. Tesco Plc is one of the most celebrated companies in UK operating under retail industry which has been successful enough gaining higher market share that its competitors in UK (Channer and Hope, 2001). The extent of globalization has not sparred even Tesco Plc which is well established though it is a market leader and makes considerable profit throughout the year. Child (2005) stressed on new forms of organization in present global market in order to meet the customers demand as well as anticipating the changing customer demands. The report is based on Tesco Plc because of the nature of industry in which it operates where the company has to look into the demand of the customers and anticipate the likes and dislikes so as to avoid negative customer feedback. The characteristics of the changing environment suggest that the company should continuously engage in innovation promoting new products and services. This environment makes it necessary for any company to meet the changing demands, ease the network of supply and distribution so as to make the products available to customers at the right time, creating innovating products and expansion of the company in the international markets through merger and acquisition reaching out to the customers instead of expecting them to come and make a demand. Tesco Plc is proposed to be studied because it is the top retail store in United Kingdom and ranks fourth in the global retail industry as released by in the 13th Annual “Global Powers of Retailing” (www.deloitte.com). Though the company has always trying to meet the demand of its customer through innovation and expansion, the possible threat of being ousted by its competitors still prevails due to stiff rivalry between ASDA, Morrison and Sainsbury. Therefore the present paper aims at evolving formidable strategy from Tesco’s point of view as how best it can evict or minimize the competition and maintain its supremacy in the United Kingdom market. Resources 1. Tesco Plc, Corporate Website www.tescoplc.com 2. Channer P and Hope T (2001) Emotional Impact: Passionate Leaders and Corporate Transformation, Palgrave Macmillan, New York. Project Outline Client / Company Profile: A brief introduction about the company which will include its creation, establishment, etc. It will also define the objectives of firm along with its mission and vision. The data will be collected from the corporate website The Firm Today: This section includes current management, organization structure, design and personnel, current financial status. The data will be collected from Tesco website and books related to the subject. Business and Market Environment: This section describes the business and market environment of Tesco Plc in which it operates. Tesco Plc is a retail giant catering to the demands of customer. Therefore it is necessary for Tesco to meet the customer needs through innovation and strategic decisions focused at customer retention. The section highlights the need for necessary transformation in view of changing business environment and its effects on people, work, formal organization, and informal organization also known as congruence model defined by Nadler and Tushman, (1999). Competitors / Challenges: This section presents the competition from its rivals and possible challenges faced by the company. Report: This section contains the detailed analysis of company, its competitive strength, weaknesses, threats and opportunities in view of the changing business environment which also includes specific mentions of political, technological, social, environmental, legal analysis. Summary / Conclusion: This section offers suggestion and measures and the strategy to adopt to be successful in changing business environment. References / Bibliography: This section contains the resources used for preparation of the report like books, journals, articles, online resources like website; annul reports and reference to any other source in the form of visual and print media. Company Profile Tesco Plc was established by Jack Cohen who operated as a street market borrow trader financed by his war pension selling surplus groceries from a stall in East London in 1919. Tesco name was formed after Jack Cohen sold its first own brand which was Tesco Tea brought from T.E. Stockwell. Tesco’s mission is “to create value for customers to earn their lifetime loyalty” through understanding customers and their needs, being first to meet their needs and act responsibility towards community (www.tescoplc.com). The vision of Tesco is to become the world’s economic household supplier of choice. It has become highly profitable and grown rapidly, progressively diversifying from superstores into such areas as non food sales, home shopping, convenience stores, insurance and communication services providing “choice” to its customer which is also one of its core values (Clift, 2007). Tesco achieved significant success by the operation of “Pile it high, sell it cheap” strategy in food retailing where price competitiveness was crucial and fitted well with the requirements of customer (Fernie and Sparks, 2004). With the help of its stringent cost cutting strategy, Tesco was able to build 150 small and physically unimpressive stores by 1950 and by the same time Jack Cohen announced profits of £500,000 which paved the path for first Tesco supermarket in 1956 (Seth and Randall, 2001). According Nadler and Tushman (1999) contingency theory mentioned by Lawrence and Lorsch (1969) mentions that organization are more effective when their design characteristics match their environment which suggests that Tesco achieved success as its characteristics matched the demands of changing environment providing multiple products to its customers which was created by dual demand for both “differentiation” and “integration” within the same organization. The company has emerged from changing environment since 1956 and has become the United Kingdom’s leading retailer. The Firm Today Tesco has transformed itself into a diverse international business due its consistency in following its strategy and values. It is the most profitable online grocery retailer in the world and 4811 retail stores worldwide employing around 472,000 people operating in 14 countries with group sales of £62.5 billion. The company has strong presence in United Kingdom with 2482 stores and £38 billion in revenues. Tesco’s international business has delivered a strong performance even though many of the markets were reeling under the pressure of global recession. Most of its international stores are located in United States (145), Europe (954) and Asia (1230). The company has stepped towards creating zero carbon stores supporting the cause of climate change. The present management consists of Non Executive Directors and Executive Directors while David Reid is the Chairman heading the nominations committee. The Plc Board is headed by Executive Committee whereas the main committee consisting of Non Executive Committee members will look after audit, remuneration and nominations. The Executive Committee is head to Operational Committees, Joint Venture Boards and Subsidiary Boards. The management aims to achieve considerable success through its strategy which has five elements that reflects four established areas of focus plus Tesco’s commitments on community and environment. The elements of Tesco’s strategy are to be a successful international retailer, to grow the core UK business, to be as strong in non food as in food, to develop retailing services, and to put community at the heart of services (Tesco Annual Report. 2010). Business and Market Environment According to Nadler and Tushman (1999) “environment drives the strategic architecture of the enterprise, either through anticipation of, or reaction to, major changes in the marketplace”. The conquest of capitalism has spawned a variety of trends with profound consequences in opening of markets, true global competition, widespread industry deregulation, and an abundance of accessible capital. Business is an act by an organization to achieve the company objectives related to production, profit, diversification, technological upgradation, expansion, etc. Business environment refers to all the external factors related directly or indirectly to the activities of the business which can be classified into time, space, forces and factors (Raj and Prakash, 2005). Environmental influences have implications for the organizations direction and strategy which necessitates the need to analyse the organizations environment. Organizations need to analyze internal, industry and macro environment so as to formulate and devise future strategy (Elearn Limited and Pergamon Flexible Learning, 2005). In order to analyze the environment, it is necessary to examine the current capabilities of the organization and trends in the external environment (Elearn 2009). Tesco is the leading retailer in United Kingdom with over 4000 stores employing over 472.000 people in 14 countries in 3 continents. In 2010, the company reported group sales of £62.5 billion with £3.5 billion in operating profit (Tesco Annual Report, 2010). Most of the retail industry operates in oligopoly market with Tesco dominating the scenario with a market share of 30.7% followed by ASDA, Sainsbury’s and Morrison & Safeway (Just-Food.com). Tesco maintains business relationships with over 2000 branded primary suppliers from all over the world. Tesco’s success could be attributed its logistics management strategy that works to its competitive advantage. The physical involvement of retailers in reduced but the use of modern equipments has improved the supply chain management. With regard to customer service, Tesco also operates in virtual environment to provide customer with the opportunity to experience shopping at one place through internet which is one of its greatest strength when considered in terms of analyzing through SWOT. However it could also be used to integrate other operations like sales and logistics (http://ivythesis.typepad.com). According to Child (2005) modern business operates in hyper competitive environment where technology levels the playing field for all producers and at the same time providing information to customers regarding the products available with the organization. Tesco operates in an environment which largely depends upon the consumer demands and tastes where the company has to anticipate the change and meet the needs which is a big risk. The company operates in intense competitive environment with other retail giants vying for the top spot in United Kingdom. According to Global Powers of Retailing 2010, Tesco ranks third in FMCG section in 2008 competing with Carrefour and Wal-Mart. Though Tesco has merged and acquired various FMCG companies extending its services to the international customer which is also part of the cost cutting strategy. However in the United Kingdom, main threats for Tesco are its competitors: ASDA, Sainsbury’s, Morrison and Safeway. The opportunities and threats for the company evoke the need to formulate intense strategy to avoid duplication of products and meet consumer demands in time. There is constant threat of change in environment of business due to the competitive nature of business. The issue of environmental degradation is another challenge that companies face today and have to comply with the national legislation promotion environmental growth and conduct its business operations which may not harm the nature. Tesco opened up its first zero carbon stores which uses 50% less energy and intends to spend £100 million on green technology businesses (Finch, 2010). These environmental changes force the company to compete and innovate simultaneously in multiple venues and in overlapping time frames, evolving creative ways to design and implement new organizational architectures (Nadler and Tushman, 1999). Competition As stated earlier, Tesco faces stiff competition from its rivals in the UK market and also from outside UK. An emerging challenge for Tesco in early 1990s was hard discounters with new entrants coming into the business. Later, the takeover of ASDA by retail giant Wal-Mart in a bid to enter UK market was another serious challenge to Tesco (Ryans, 2009). Though Tesco operates in oligopoly market, the competition is stiff from its rivals who constantly revive their strategy to beat Tesco in terms of sales and profit which compels Tesco Plc also to keep changing their organization strategy and change their objectives keeping in line with the mission and vision of the company. As stated by Nadler and Tushman (1999) environmental changes have greater impact on the strategy of the organization simultaneously effecting people, work, formal organization and informal organization. Report Tesco being operating under retail industry needs meet the customers demand and taste which is ever changing in view of the increasing technology, variety and accessibility. As stated by Child (2005) knowledge has become the main driver of productivity in business and knowledge based services have overtaken manufacturing processes in importance and value in the economies of most developed countries. Advancement in technology and the development of global supply chains have led to ever greater competition and increasing efforts to secure an advantage over their rivals in the market. Customers expect products and services that are competitively priced, well in quality, well designed and fashionable that is to stay for some time. Tesco faces continuous threat from the strategic decisions of its rivals like ASDA, Sainsbury’s, etc and from other new entrants forcing the company to make adequate changes in its strategy and way of approach to achieve its goals and objectives. In order to compete with external and internal forces with regard to environmental changes, it is suggested to: 1) To create new forms of organization structure or architecture so as to enable Tesco to meet the consumers demand as well as anticipating the changing trend in likes and dislikes of the consumer. It is necessary to break down the traditional structures into flexible, responsive organizations for long term success and future growth (Child 2005). 2) To improve the capability and resources of organization so that it can understand, anticipate, and respond appropriately to those external changes (Nadler and Tushman, 1999) . 3) The congruence model of Nadler and Tushman (1999) suggest the changes in business environment effects work, people, formal and informal organization. Therefore employee motivation is the key to success of any business organization. Similarly Child (2005) states that developing a system which will properly motivate the employees to give their 100% during the period of crisis. Ii is further suggested that better compensation plans, incentives, promotion, other rewards, etc. will act as a tool of motivation for employees. 4) Revising the strategy to meet the customers demand and offer strong competition to the rivals. Tesco aims at providing best products to its customers at cheapest cost available as compared to its rivals. However, Tesco has to provide the customer with best and better shopping experience through improved customer service online and offline, on internet and while in stores so that customers come back again and again to experience the shopping fest which will also work as advertising medium to attract future customers. 5) Tesco’s expansion strategy is strong enough to compete with its rivals in terms of overall sales in UK and worldwide but Tesco still has to conquer developing markets like India and continent of Australia which is a good market for retail industry. 6) Tesco should provide innovative way of customer service by providing new products to the customers which are not available elsewhere. Child (2005) stated that “while the need for creative and innovative thinking is important, the organization must also have in place a system that can turn those ideas into actual development” which will benefit the company. The management structure must allow for flexibility for thinking, creativity and innovation. Summary / Conclusion Tesco achieved significant success by the operation of “Pile it high, sell it cheap” strategy in food retailing where price competitiveness was crucial and fitted well with the requirements of customer. The strategy needs to be continued in view of emerging competition from new entrants and should focus of providing innovative products through continuous research and development process. Expansion in South Asian territory is essential to gain competitive advantage in the international market as no retail giant has entered the market and customers are addicted to retail shopping in these countries as most of the big business houses in India are entering the retail industry like More, Big Bazaar, South India, etc. It is necessary to take strategic decisions to in changing circumstances to stay and survive in the market. References 1) Channer P and Hope T (2001) Emotional Impact: Passionate Leaders and Corporate Transformation, Palgrave Macmillan, New York. 2) Clift D (2007) Lean World: The DNA of Success and the Path to Prosperity, Lean World Ltd, UK 3) Delloite, (2009) Emerging from downturn: Global Powers of Retailing 2010, http://www.deloitte.com 4) Elearn Limited (2009) Business Environment, Elsevier Butterworth-Heinemann, Hungary 5) Elearn Limited and Pergamon Flexible Learning, (2005) Business Environment, Elsevier Butterworth-Heinemann, Italy 6) Fernie J and Sparks L (2004) Logistics and Retail Management: Insights into current practice and trends from leading experts, Kogan Page Publishers, US 7) Finch, J (2010) Tesco opens its first zero carbon store, http://www.guardian.co.uk 8) Just Food.com. UK; Tesco, ASDA “lose market share” – Kantar, http://www.just-food.com 9) Raj M.G. and Prakash V (2005) Business Environment, Anmol Publications, New Delhi 10) Ryans, A (2009) Beating low cost competition: How premium brands can respond to cut price rivals, John Wiley and Sons, United States. 11) Seth A and Randall G (2001) The Grocers: The rise and rise of the supermarket chains, Kogan Page Publishers, US 12) Tesco Annual Report 2010, Tesco Plc, www.tescoplc.com 13) Tesco Plc, Corporate Website www.tescoplc.com 14) Typepad, (2010) Managing Business Environment: The Case of Tesco, http://ivythesis.typepad.com/ Read More