Strategic Management of Tesco Company - Essay Example

? Strategic Management Table of Contents Introduction 4 Getting Ready 4 Choosing Organization 4 Developing Organizational Profile 5 Specific issues to be addressed 5 Key Information to be collected 5 Articulating Vision & Mission 6 Situation Analysis 7 PESTEL Analysis (External Environment) 7 Political 7 Economic 7 Social 7 Technological 7 Porter Five Force Model (Industry Analysis) 8 Rivalry among existing firms 8 Bargaining power of the suppliers 8 Bargaining power of the buyer 8 Threat of new entrants 8 Threat of substitutes 8 Key Industry Trends and Facts 9 SWOT analysis (Internal and External) 11 Strengths 11 Weaknesses 12 Opportunities 12 Threats 12 Core Competencies 12 Developing Strategies, Goals, and Objectives 13 Completing the Written Plan 13 Conclusion 15 References 16 Introduction The word strategy has evolved from the Greek word called Strategia, which refers to the art of a troop leader. Strategic planning can be defined as an art and science of developing, implementing and controlling a set of cross functional business decisions to achieve the desired business objectives. It is the process through which organizations follow a certain path to achieve desired short term and long term goals and can maintain a desired level of output. A proper strategic planning can help an organization to develop a clear long term vision and would help the management to visualize where the organization would be after five to ten years or may be even more than that. Strategic Planning can be treated as a milestone for each and every organization. Without strategic planning, the organization can actually never identify the present position in the industry and cannot develop a strategic guidance for the future (Henry, 2008, p. 89). This study has been conducted with a motive to develop a strategic plan for Tesco, one of the large retail supermarkets in the U.K. The study looks to focus all the aspects related to the development of a strategic plan of an organization including the assessment of the mission and vision statement, situation analysis and final development of the strategy to gain competitive advantage over the competitors. Here it needs to be mentioned that the although Tesco is a global retailer, but still the study has been conducted with respect to the UK market as it happens to be the home country and largest market of Tesco compared to other markets in the world. Getting Ready Choosing Organization Tesco PLC. Developing Organizational Profile Tesco PLC is a multinational retail grocery retailer and general merchandiser. The company is headquartered in Chest Hunt, UK. It happens to be the largest retailer in the United Kingdom and the third largest retailer in the world after Wal-Mart and Carrefour. The company was originally founded by Jack Cohen in 1919. As on April 2012, Tesco had 6,351 stores all over the world. The company has 2,975 stores in UK market. According to annual financial report of 2012 the total revenue of the company is ?64.539 billion. Specific issues to be addressed Over the past few years the retail business in the UK has seen a lot of changes. One of the key issues to look for while developing the strategic plan would be the effect of the changes external environmental factors and the impact of those on the company’s day to day business activity. The present industry scenario also plays a major role in the development of the business strategy and hence this has to be taken into account. Along with the external environment assessment, the internal environmental factors would also be reviewed as it would help the company to identify the core competencies, strengths as well as the weaknesses (Kolb, 2008, p. 92). Key Information to be collected To understand the impact of the external environmental changes, political, economic, social and technological factors need to be assessed. Also to understand the present market scenario especially market competitiveness, Porters Five Forces will be analysed. It consists of bargaining power of the buyers and suppliers, industry competition, threat of substitute products and the threat of new entrants. Add to this the key trends of the UK retail industry in terms of retail expenditure, driver of growth, market share and revenue of the company and its key competitors, consumer behaviour overall customer experience should be analyzed. Also the strength, weaknesses, opportunities and threats of the company along with the core resource and capabilities need to be analyzed. Articulating Vision & Mission The vision statement of an organization can be defined as an inspirational, imaginative, descriptive, projected picture of what an organization wants to be identified in future. A mission statement reflects the core ideology and envisioned future. A mission statement on the other hand reflects the road map and provides strategic guidance to the organization towards continuity and growth. Mission statement once created cannot be changed easily and it becomes a key element of the strategic planning (Brown, 2009, p. 209). The vision statement Tesco says “To be most highly valued business by: the customers we serve, the communities in which we operate, our loyal and committed colleagues and of course, our shareholders.” The vision statement of the company reflects that Tesco wants to carry on business by satisfying the customers, share holders and other stake holders in an ethical manner by delivering value through the offerings. Also the company shows the care for the human resources by reflecting the fact that the human resource of the company is the biggest asset. The mission statement of the company states “Creating value for the customers to earn their lifetime loyalty”. The customer centric mission statement clearly shows that the company has kept the customers at the forefront of the business model and satisfying the needs and demands of the customers happen to be main mission of the company. Situation Analysis PESTEL Analysis (External Environment) Political The political condition of the country is very much stable. The political leaders of the country have always welcomed investments related to businesses. This makes the country of U.K. very much business friendly (Belch and Michael, 2005, p. 325). Economic U.K. is one the largest economies in the world. However, U.K. along with other developed nations had to face the wrath of the global economic meltdown of 2008 resulting in a slow economic growth. The economic conditions are slowly getting back to stability. Social As far as social environment is concerned the country is going through a paradigm of shift. One of the major courses of concern of the company has been the aging population. Also the disposable income of the people has gone down. As a result the retail expenditures have gone. Add to this the due to increasing fuel costs and rise of the digital medium the people are looking to stay at home and buy products online as compared to coming to the stores and buying products. Also due the environmental concerns people have become more heal conscious and environment conscious. People today tend to do business with companies that provide healthy and greener products as compared to others (Kotler, 2001, p. 25). Technological U.K. over the years has embraced the rise in technology. Retail companies are looking to make all the departments of technology enabled. The customers have also started to us the digital medium not only to get relevant info correctly, but also to buy products. Such trends are likely to continue keeping the steady rise of tablets and smart phones in mind. Porter Five Force Model (Industry Analysis) Rivalry among existing firms Competitive rivalry among the existing players is quite high; presence of major retailers like Sainsbury’s, Wal-Mart, Aldi, etc. makes the UK retail market extremely competitive. Bargaining power of the suppliers There is very little threat in this case as the large super markets like Tesco mostly dictate the prices paid to the suppliers. Bargaining power of the buyer Bargaining power of the buyers possess high level of threat due to the presence of many players in the market. If the customers do not like any assortments, they can switch to other retailers very easily. Therefore the customer retention would be critical. Threat of new entrants Threat of new entrants is relatively low. The UK retail market is a matured one and already some of the major global retailers like Tesco, Wal-Mart, Sainsbury’s are present in the market. Such companies have been able to gain economies of scale and high level of brand equity which would act as a high level of barriers to entry. Threat of substitutes Small groceries, cloth and apparel stores can be treated as substitutes to the large supermarkets like Tesco. The threat of these substitutes is quite low as in develop countries like UK people enjoy the shopping experience in supermarkets more than that of local street shops due to their high disposable income and brand consciousness. Key Industry Trends and Facts In the year 2012 the retail expenditure witnessed the third lowest growth rate. Economic recession was the main reason for the dip. Figure 1: UK retail expenditure year-on-year growth (%) Food was the largest driver for the growth in retail. In year 2012 the growth figure reached 45%. Non food happened to be biggest looser of the economic downturn as the non food spending got reduced by ?9.5bn. Figure 2: UK retail expenditure value (?bn.) Tesco happened to the market leader in the UK retail industry both in terms of market share and revenue. Figure 3: U.K. Retail Market Share Break-up Figure 4 Revenue analysis Life styles of the consumers have become a lot more complex. Therefore the consumers are beginning to prefer to in home and shop through the digital medium. Figure 5 Typical Day for 21st century customer SWOT analysis (Internal and External) Strengths One of the major strengths of Tesco has been the rise in the market share of the company. The company has been in the business for a very long time and has been able to gain high level of brand value due to the high quality of products and services. The company has been able to develop strong digital presence that can act as a major strength keeping the paradigm of shift in consumer behaviour in mind (Prahalad, 1994, p.3331). Weaknesses Although the present study is focused on retail it must be kept in mind that Tesco is a global brand. However there is far too much reliance on the UK market and hence it is a major weakness. Another major problem that the company is facing is debt reduction. Tesco has made huge investments for business expansion. However, the company has very little free cash for other operations (Burgemeister, 2003, p. 192). Opportunities There is a lot of opportunity for the company to enter the emerging economies. The company can also look to diversify in to the non food retail industry. The rise of the digital medium also provides a lot of opportunity to Tesco to engage the customers directly. There is also opportunity to position the company as a green and sustainable brand. Threats The economic downturn during the year 2008 is a major threat. Although the economy is on the way of becoming stable, but still the scars of the meltdown are very much visible. Also the presence of strong local and global competitors like Sainsbury’s and Wal-Mart possess major threat to the company. The environmental regulations are also a major threat as due to the threat of global warming the government agencies and the social activists tend to keep a stern look on the companies. Core Competencies Tesco products are environment friendly in nature. The company has also adopted a customer friendly strategy in the form of Tesco club cards (loyalty schemes). The company provides quality products at a relatively low price. The company has also introduced the concept of self check out. Developing Strategies, Goals, and Objectives Based on the above analysis it can be recommend that the company should focus on the areas such as the improvement of the percentage of customer retention, strengthening the presence of the digital medium, incorporation of sustainability, defending the present market share while development of strategy. Based on the above description the objectives of the company for the next fiscal year would be: To increase in digital sales at least by two to five percent. To increase customer retention activities to increase the rate of customer retention at least by five percent. To increase market share at least by two percent at the end of the next fiscal year. To position itself as an environment friendly and sustainable brand. To open at least one more store in UK and make it fully operational at the end of the next fiscal year. Completing the Written Plan One of the major strategies for Tesco to focus on would be increasing the digital presence of the brand. Here it needs to be said that the company already has a strong digital presence and hence should be made to make it stronger. The company should focus on each and every platform including search engine, social media and also mobile. When it comes to social media presence of Facebook, Twitter and Pinterest would be the key. Quality content would be the key to engagement (Drucker, 2009, p.223). Customer retention strategy is going to be extremely important keeping the fact mind in mind that there are a lot of competitors in the market and hence customers can switch quite quickly. Tesco already has Tesco club cards, which has happened to be quite successful. However, this needs to be complemented by other activities. The social media can be an important tool for customer engagement. Events like contests or opinion polls are simple yet quite effective strategies. Winners of such contests can actually be provided some certain offers or memberships and thus it can work as a successful customer retention and engagement techniques. In this way the company can not only retain the customers but also increase the customers; as such initiatives can help the offerings go viral. Also the customer service of the company has to focus promptness keeping retaining the customers (Zarrela, 2010, p. 45). Another major objective of the company would be positioning itself as a greener and sustainable brand. Already the offerings of the company are known to be environment friendly; hence Tesco should focus on building on such reputations. Product packaging, store branding in the form of ambience, merchandizing and lighting, various corporate social responsibility activities can help Tesco to position itself as a socially responsible and sustainable brand. Also incorporation of sustainability in the mission statement can help in achieving brand image sustainability. As it has been mentioned before that companies like Wal-Mart, Aldi, etc, are already present in this market. Therefore it would be important for Tesco to open some new stores. While opening stores, Tesco should always keep the customer convenience in mind. This would most certainly help the retailer in gaining strategic leverage (Churchill, 2009, p.211). Conclusion Strategic planning would very critical for the success of Tesco in UK keeping the presence of the competitors like Aldi and Wal-Mart are present in the market. Also to combat the external environmental threats such as the economic, social and environmental issues Tesco needs to have a strategic plan. Due to the high degree of competition customers can switch to other companies very quickly. Also due to complex life style and rise of digital medium the customers are looking to stay in house and shop through the internet. The customers also like to be with brands that are a lot greener in nature. Therefore keeping all these factors in mind it is suggested that, while developing the strategic plan however the company should mainly focus on increasing digital sales, customer retention and sustainability. References Belch, G and Michael, G.2005. Advertising &Promotion-An Integrated marketing Communications Perspective. McGraw-Hill: UK. Brown, L. 2009. Marketing and Distribution Research. Ronald Press Company: US. Burgemeister, S. 2003. Market analysis. GRIN Verlag: DE. Churchill, G. 2009. Marketing Research. Cengage Learning: UK. Drucker, P. 2009. Managing in a Time of Great Change. UK: Harvard Business Press. Henry, A. 2008. Understanding Strategic Management. Oxford University Press: UK. Kolb, B. 2008. Marketing Research: A Practical Approach. Sage: UK. Kotler, P. 2001. Marketing Management. Prentice Hall: UK. Prahalad, C. 1994. Competing for the Future. UK: Harvard Business School Press. Zarrela, D. 2010. The Social Media Marketing Book. CAN: O'Reilly Media, Inc. Read More