Strategic Analysis for Tesco - Assignment Example

Strategic Report for Tesco Table of Contents Question 3 The evaluation of external and internal environment of Tesco 3 The external environment analysis 3 The internal environment analysis 5 Question 2 6 Strategic options for Tesco PLC 6 Expansion of international retail business 6 Differentiation strategy 6 Cost leadership strategy 7 Product development 7 Recommendations for future 7 Question 3 8 Recommendation for structures 8 Recommendation for policies 9 Recommendations for systems 10 References 12 Question 1 The evaluation of external and internal environment of Tesco The selected organization for applied strategic management is Tesco PLC. It is a general merchandise and multinational grocery retailer founded in 1924. The prime aim of this strategic report is to analyze the external and internal environment of Tesco PLC. The external environment analysis The success of any organization is determined by position of management and capability of leaders to establish products and services and operate in market acquisition and profit. The external environment of Tesco PLC can offer openings for co-operation and must not be completely hostile. The external market environment can be analyzed by Porters five forces model. Porter Five Forces Model According to Michael E. porter, five competitive forces acts together to evaluate level of competition with corporate and industry strategy growth. These five forces are threat of substitute, bargaining power of suppliers, threat of new entrants, bargaining power of buyers and intensity of rivalry. Intensity of rivalry The external factors that are reflected in this competitive force are market growth, variable costs, pricing, behaviour, differentiation and capacity. In retail sector, numerous numbers of rivals are J Sainsbury PLC, BP PLC, ASDA, John Lewis, Carrefour S.A. and ExxonMobil Corporation. This resembles the fact that intensity of industry rivalry for Tesco PLC is very high (Palmer, 2012, p.233). Threat of new entrants According to Lam and Davies, threat of new entrants is comparative to consumer loyalty, cost disadvantages, economies of scale, international policies, distribution networks and brand preferences. New competitors have to invest big to establish their mark and be competitive in the retail sector. The threat of new entrants for Tesco PLC is low (Henry, 2011, p.80). Bargaining power of buyers The bargaining power of buyers for Tesco PLC is fairly high. It is believed that consumers are attracted by availability of products online and low prices. In this case, buyers can easily change their taste and perception about the brand (Carollo, 2012, p.5). Bargaining power of suppliers The power of negotiation by suppliers is fairly low. It is believed that suppliers are persuaded in the direction of major grocery and food retailers. Therefore, it can be notified that major retailers such as Sainsbury, ASDA, Tesco, etc. have positive negotiation and further strengthen their position to receive lowermost price from suppliers (Rao, 2009, p.272). Threat of substitute The threat of substitute for Tesco PLC is considerably low. In food retail sector, organic shops and off license shops are small convenience stores that are major substitute of food retailers. These small chain stores are not viewed as threat for Tesco (Peng, 2013, p.42) PLC. The company offers lower price products with high quality. The internal environment analysis It is vital for top retailer of UK, Tesco PLC to build profitability and sustain its position in the retail market. Therefore, it is critical for Tesco to distinguish and assess the capabilities and resources. According to Grant, the capabilities and resources of an organization are range of intangible and tangible capabilities. It is believed that tangible resources of an organization can be easily evaluated and identified. Furthermore, it is the financial and physical assets. The tangible resources of Tesco PLC are 3 billion pound operating income, 60 billion pound turnover, 440,000 employees and 3600 retail stores (Vermeulen, 2013, p.1). On the other hand, the intangible resources of an organization include invisible skills and assets. These resources are corporate culture, reputation, technology, brand name and collected consumer information. According to Grant, the intangible resources are invaluable due to sustainability and possible uniqueness. The intangible resources of Tesco PLC are service innovation, brand awareness, promotion of the brand, varied customer information and reputation. An organization can achieve its strategic capabilities by combining and deploying resources effectively (Sanchez and Henee, 2010, p.220). The threshold capabilities are openly related to the success features. The companies respond towards the customer needs and aim to follow specific strategy by help of resources. For example, Tesco PLC has to attract maximum possible customers by presenting customer-friendly environment. Therefore, it is vital for staff members of Tesco PLC to attract maximum customers and be helpful towards them. The basic requirements of customer are required to be responded by Tesco PLC. Question 2 Strategic options for Tesco PLC It is beneficial to analyze strategic options that are available for Tesco PLC. These strategic options are studied and effectively presented in the paper. Expansion of international retail business This option is viewed as market development approach. It is believed that regulation adopted by government is limiting and restricting the market development of Tesco PLC in local community. The global market expansion can generate potential growth and open new target market. Since 1990s, the company is investing to look for high returns for shareholders, amass long term securities and new opportunities for business expansion. The strategic selection of international alliances can benefit Tesco PLC to exploit current competencies and resources. The expansion of retail business globally can be possible by partnerships and joint ventures. This can benefit the company to gain large market presence and improve economy of scale (Aaker and McLoughlin, 2009, p.128). Differentiation strategy Tesco PLC can offer unique features on their products and services to gain value of customers. Some of the popular approaches that can be implemented by Tesco PLC are quality customer service, special features, advance technology and ranges of product offerings. This is the corporate level strategic option to diversify its products and service in more than one market sector (Thompson and Martin, 2010, p.201). Cost leadership strategy The cost leadership strategy is another strategic option available for Tesco PLC to offer quality products and services to the customers at lowermost prices. The ability of the company to control their operating costs can enable Tesco PLC to implement cost leadership strategy. Furthermore, this can benefit the company to make great profit margin and price their products in accordance to the market scenario (Lynch, 2007, p.182). Product development The product development is another strategic option for Tesco PLC to diversify their market portfolio in to non-food item. In retail market sector, the Tesco PLC holds strong competitive position (Kotler, Burton and Deans, 2012, p.260). Moreover, the company has been serious to look after services such as credit cards and offering accounts. The new products and services of Tesco PLC have to be non-food items. The non-food products that can be viewed in Home plus, Extra stores, etc. are soft furnishing, cook shop, stationary, beauty products and clothing. Recommendations for future In the retail industry, it is crucial for market leader like Tesco PLC to maintain market lead by effective strategies development for future. It is challenging endeavour of a company to enter in to new market. But ability to react in accordance to the situation and effective adoption of future strategy can make huge difference towards success or failure. Being a differentiated and cost leadership retailer, Tesco PLC has to take right and effective strategic direction to trade-off. The market analysis and history of Tesco PLC reveals that the company has chance to brand its product and service to premium customer with high quality products and differentiation strategy (Dransfield, 2001, p.54). One of the most attractive future directions for the company is global retail market expansion. The successful implementation of internal expansion should be effectively held by high financial challenge and strong cash flows (Doole and Lowe, 2003, p.353). The formation of new partnerships with local retail chain is critical to gain experience in international market. Tesco PLC can build distribution in emerging market by acquiring and making partnership with local suppliers. Furthermore, the company should focus on providing diversified, integrated and innovative products to the customers rather than concentrating on lower priced products with discount. It is vital for Tesco PLC to modify and enhance product portfolio in future to maintain dominance in retail business (Fabio, 2014, p.54). The future growth plan of Tesco PLC is non-food products. Therefore, it is pivotal for the company to improve delivery service, innovative inventory system and varied type of non-food products (Ray, 2010, p.148). Question 3 Recommendation for structures The organizational structure of Tesco PLC is hierarchical structure. This class of structure makes employees to understand their responsibility and authority to do what is required to be done. But these discussed strategic options can be implemented effectively by creating innovative and multi-divisional organizational structure. The organizational structure of Tesco PLC should be characterized by proper reporting relationships and creativity. The implementation of differentiated strategic option can be successful by maintaining innovative organizational structure (Hill, Jones, and Schilling, 2014, p.421). The company with multi-divisional organizational structure has division based on geographic areas, markets and products. This resembles the fact that Tesco PLC can acquire small local retail company from emerging country. These divisions on different department can benefit the company to reduce future issues on different geographical areas. The lost ground on foreign market can be nullified by multi-divisional organizational structure. It is believed that innovation is vital for organization to be flexible and commercially attractive (Bains, 2011, p.210). The integrated functional approach is required to be implemented in the business operations and other activities are required to be coordinated. Recommendation for policies One of the primary issues faced by multinational retail companies is tackling waste. Tesco PLC should continue to work with Worldwide Responsible Accredited production organizations to develop new packing technologies and solution. This introduction of new packaging solution also includes engaging on package design; increase the use of self-dispensing systems, innovative packaging arrangements and decreases the packaging weight. Furthermore, the company should be strict towards the protection of consumer safety and packaging sustainability regarding the packaging and distribution of food products (Proctor, 2011, p.63). The network based route is an emergent approach that can be beneficial for strategic development of Tesco PLC. Moreover, this approach can make strategic options to be implemented successfully. Some of the primary objectives for execution of network based route are cooperation with related industries and exploration of links. It is believed that stakeholders are crucial member for this policy to be successful. The resource analysis of network based route strategy includes internal bargaining between different groups. The strategic options for Tesco PLC can be successful by enhancing their network by cooperation and partnerships. The effective implementation of explored links is primary part of the network based route policy. The negotiation process of this strategic route involves competitive games, network aspects and human resource aspects. Moreover, it is believed that trade-offs and game relating negotiation can be successful by optimum strategic judgments. It is considered that the politics of negotiation is effectively involved in human resource aspects of network based route. Before opening new retail shop in emerging market, Tesco PLC has to focus on negotiation and network aspects to create optimal strategic decisions. The prime objective of this approach is to emphasize on cooperation and persuasion. It can be notified that, Tesco PLC stakeholders play vital part on the process of negotiation (Blewitt, 2008, p.142). The process of discussion and debate has be carefully advised and reported. Recommendations for systems The localization system has become current trend in retail segment. Therefore, it is believed that Tesco PLC can implement localization on their business operation to implemented strategies that are discussed effectively. This notifies the fact that customization of offerings and stores to the local consumer base of the company. In the era of globalization and advancement of technology, it is vital for multinational organization to maintain its dominance on local market. Eventually after gaining dominance, the company can opt to shift their focus towards international market base (Boreham, Parker and Thompson, 2007, p.125). The current retail shop can open several modules for local consumer base. The spilt of format from one large retail shop in to several segments can help to target maximum customer base. In the e-commerce world, the introduction of personalization system can act as crucial strategy. The personalized relationship management for customer can target rapid upsurge of market niches. The introduction of scalable technology can benefit organization to establish a communication channel which can be personalized between retail stores and customers. The triple bottom line is another recommending strategy that can benefit Tesco PLC to achieve sustainability (Choi and Cheng, 2015, p.134). The key areas that are addressed at the process of triple bottom tine model are planet, profit and people. The key element for creating positive value on dimension of planet is to enhance relationship of Tesco PLC in the broader community. On the other, the profit dimension can be maximized by treating profit as sustainable result. Moreover, the long term success of the organization can be determined by identifying the value of work done by employees and people. These recommendations can benefit Tesco PLC to maintain its dominance in retail market and achieve sustainability. References Aaker, D., and McLoughlin, D. (2009). Strategic Market Management. New Jersey: John Wiley & Sons. Bains, G. (2011). Meaning Inc: The blueprint for business success in the 21st century. London: Profile Books. Blewitt, J. (2008). Understanding Sustainable Development. London: Earthscan. Boreham, P., parker, R., and Thompson, P. (2007). New Technology at work. London: Routledge. Carollo, B. (2012). Audit Report for Wm Morrison Supermarkets PLC. Munich: GRIN Verlag. Choi, T., and Cheng, E. (2015). Sustainable fashion supply chain management. New York: Springer. Doole, I., and Lowe, R. (2008). International Marketing Strategy. Stamford: Cengage Learning. Dransfield, R. (2001). Corporate Strategy. London: Heinemann. Fabio, M. (2014). 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Strategic Management: Awareness and Change. Stamford: Cengage Learning. Read More