Tesco PLCs Strategic Planning and Implementation - Coursework Example

? Management Report 2 – Evaluation of the Company’s Strategy Executive Summary Tesco PLC’s strategic planning and implementation has favored the application of various frameworks that have allowed the company to achieve tremendous success in the UK. However, the dynamics of the external environment, competitive pressures, economic instability and drastically changing consumer preferences have adversely impacted the company’s success in recent years. In the financial year of 2011-2012, the company reported a decline in its UK trading profit for the first time since 2008. This observation is indicative of the fact that Tesco PLC needs to effectively address the challenges it faces in the UK and in its international markets. This report assesses the current strategy of the business in the light of the Ansoff Matrix, the BCG Matrix and the SAFS Framework. The discussion also provides pertinent recommendations regarding the development of future business strategy with special focus on emerging markets and the impact of diversification. Table of Contents Executive Summary 2 Introduction 4 Analysis and Critical Evaluation of the Organisation's Strategic Position 5 Analysis of the Organisation's Strategic Direction 6 Ansoff Matrix 6 BCG Matrix 9 SAFS Framework 11 Conclusions and Recommendations 12 List of References 14 Introduction Headquartered in Hertfordshire, United Kingdom, Tesco PLC stands as one of the country’s premier supermarket retail chains while, maintaining its global standing in the category of top three multinational retailers (Henry 2008: 77). Presently, the extensive operations of the organization serve 14 nations and provide employment to around 520,000 dedicated members of the workforce, additionally, the global sales of the business amount to a staggering ?72 billion with a reported increase of 5.3% in the group’s pretax profit from the previous year (Tesco PLC Annual Report 2012). Tesco’s evolution as one of the leading supermarket retail chain of the UK has been documented by strategic analysts for the purposes of assessing the progress of the public limited company in a dynamic and highly competitive business environment. Over the years, Tesco PLC’s adaptation to the changing economic conditions has been marked the initiation and implementation of various strategies. As stated by Hensmans, Johnson and Yip (2013: 5) to ensure that an organization’s future plans yield successfully or desired results, a business must modify or advance its strategic framework in a manner that is compatible with the extent of change in the environment in which its operates, as a failure to abide by this rationale may lead to the creation of a “strategic drift”. Assessing the strategic planning and implementation of Tesco PLC Hensmans, Johnson and Yip (2013: 5) comment that the organization’s process of continuous change did not surface within a specific timeframe; it was in fact a gradual and ongoing process which was characterized by Tesco PLC’s entrance into the non-food market after building a strong presence in the foods category. Additionally, establishment of appropriate distribution channels and development of the company’s supply chain also comprised of this effort of modification to effectively address the market dynamics (Hensmans, Johnson and Yip 2013: 5). The preceding discussion postulates that strategic planning and implementation is a comprehensive concept that must be examined through a multidimensional perspective. In the light of this understanding this report presents an analysis and evaluation of the existing strategy of Tesco PLC by incorporating the assistance of pertinent tools and techniques of strategic management. In conclusion the report also presents recommendations to the Board of Directors to assist the development of future business’ strategy. Analysis and Critical Evaluation of the Organisation's Strategic Position The critical analysis and evaluation of Tesco PLC can be conducted effectively by integrating the factors which exist in the organisation’s internal and external environment with regards to the levels of strategy that are categorized as: corporate level strategy, business level strategy and operational level strategy. From the perspective of corporate level strategy, the business has adopted for diversification by establishing Tesco Bank and Tesco Mobile (Garrick 2011). Furthermore, it can also be suggested that the global economic crisis has had an extensive impact on the expansion and growth prospects of Tesco PLC on an international scale. This observation is reflective of the fact that the business has been forced to withdraw from certain markets while, limiting the scope of its expansion plans in others. An evaluation of the role that these factors have played in impacting the strategic position of the company suggests that external characteristics of the environment have essentially dictated the outcome of Tesco PLC’s strategic plan. The examination of this notion from a financial and economic perspective highlights a downward trend in the spending patterns of consumers on non-food commodities and items that cannot be categorized as necessities. Furthermore, the business has also been facing a significant rise in its operational costs due to the surge in interest rates (Ger 2000). This aspect has adversely impacted the profit-maximizing capabilities of Tesco’s business units that operate in the non-food category. For example, the trading profit of Tesco Bank declined considerably from ?264 m in 2010-2011 to ?168m in 2011-2012 (Tesco PLC Annual Report 2012). Moreover, the company also achieved an unexpected declined in like-for-like growth in the UK market as a consequence of which the retailer’s position in relation to its competitors has become weak (Tesco PLC Annual Report 2012). Analysis of the Organisation's Strategic Direction This report utilizes the provisions of the Ansoff Matrix and the BCG Matrix to examine the strategic direction of Tesco PLC. Ansoff Matrix According to Henry (2008: 1), the Ansoff’s product matrix allows a business to develop an association between the existing and new products with regards to the competitive advantages and competencies it holds. Once an organization is successful able to determine these links, the strategic implications of an action or decision can be comprehended in a comprehensive manner to minimize any negative or risky outcomes (Henry 2008: 1). The Ansoff Matrix highlights the strategies of market penetration, market development, new products and services and diversification once the link between existing/new market and existing/new product is identified. Market Penetration This strategy advances the company’s potential for expansion and growth by focusing on achieving increased sales of an existing product in the present market segments. Henry (2008: 77) understands that the entire business strategy of Tesco PLC is essentially based on four important aspects, one of which relates to its dedicated commitment towards developing its central business in the United Kingdom. Tesco PLC’s strategy in action, in its country of origin rests on 1) providing its customers with an unparalleled shopping experience and 2) revamping the look of Tesco stores by working to create a friendly, welcoming and warm environment to attract customers (Tesco PLC Annual Report 2012). According to Tesco PLC Annual Report (2012) the company aims to incorporate new techniques in retailing that have been proven to be successful across Europe. For instance, the organization intends to accommodate shoppers by amalgamating the internet-based shopping experience with the one they can have in stores. This also involves the launch of Express stores to catch the attention of those customers who value the experience of online shopping because of its convenience and timesaving features. Market Development As stated previously, the current scope of the group’s activities encompasses 14 countries (Tesco PLC Annual Report 2012). The company has been able to identify and address the needs of consumers in diverse markets that cover the continents of Asia, Europe and North America. The company’s operations in China currently focus on the Northern, Southern and Eastern parts of the country which comprise of a target market of 600 million citizens (Tesco PLC Annual Report 2012). Tesco’s operations in the U.S are based on a unique selling point which promises a ‘a fresh and easy’ shopping experience, the financial reports of the previous year depict that the business this initiative has yielded some success by reducing the company’s US trading loss by ?33m in 2011-2012 (Tesco PLC Annual Report 2012). Moreover, Tesco PLC has also entered the Slovenian retail market because it is characterized by low risk features and steady economic growth (Mentis 2013: 1) in addition to the retail market of Taiwan (Ho and Temperley 2011). New Products and Services In 2008, the company launched the Tesco Bank in affiliation with the Royal Bank of Scotland in the United Kingdom. According to the Tesco PLC Annual Report (2012), the trading profit trend of the service reported an increase throughout its launch in 2008-2009 till 2011-2010, however, the period of 2011-2012 impacted the trading profit of the service severely as it diminished to ?168m from ?264m in the previous financial year. Diversification According to Henry (2008: 77) Tesco has planned and executed expansion into developing regions in order to eliminate its dependence on a specific market. However, this strategy involves the presence of both positive and negative attributes because even though, developing markets offer a range of opportunities for a business the dynamics of the industry in such nations are unpredictable and rather unstable. Tesco’s diversification strategies in international markets involve the launch of the life space mall in China and the launch of the F&F clothing line in the international market. BCG Matrix The BCG Matrix also known as the Growth Share Matrix explores the various strategic business units (SBUs) of a company in the light of the features of market share and market growth. The determination of market growth and market share allows a business to categorize its SBUs in accordance with the category of stars, question marks, cash cows and dogs. Since the operations of Tesco PLC are marked by the presence of diversification and extend to an international scale it can be stated that the SBUs of the company are diverse and distinct in nature. Star This SBU is characterized by the presence of high market share and high market growth. Even though, Tesco Bank experienced a decline in trading profit in 2011-2012. The Tesco PLC Annual Report (2012) states that the baseline profitability of the service amplified by 29%. This notion points towards the possibility of an increase in market share, as the service has not recorded a trading loss since its inception in 2008. Question Mark Tesco Mobile, the company’s communication service remains an issue for the organization because of the highly competitive nature of the market. The preceding observation accounts for the stunted market share of the firm in the industry. Moreover, the rise in cellular technologies and the enhanced accessibility of mobile phones amongst the general public indicates that the market growth of the industry is high. Unfortunately, Tesco Mobile has not been able to gain advantage from this trend to enhance company profitability. Cash Cow Tesco PLC’s strength in the food business has remain unparalleled within the UK. According to Dawar (2004), Tesco PLC has established a strong customer relationship management framework, within this category. Furthermore, Tesco’s brands have dominated the UK market for a significant period of time thereby, enhancing the ties of customer loyalty. This has made Tesco PLC the most profitable supermarket retailer of the UK (Dawar 2004). Dogs The SBUs which are categorized as Dogs are marked by low market share and low market growth. Currently, Tesco’s products have been launched in the market after considering future growth prospects of varying market segments. It is expected that when the cellular industry reaches a maturity stage. Tesco Mobile maybe categorized as a Dog product. SAFS Framework The SAFS framework will assess the strategy of Tesco PLC in the light of its suitability, acceptability, feasibility and sustainability. Suitability As stated by Henry (2008: 77) one of the four dimensions of Tesco PLC’s strategy aims to advance its business in the principle UK market in which the company is the current market leader. Tesco’s current strategic plan acknowledges this notion and places great emphasis upon its UK clientele by engaging a more dedicated workforce, developing new stores and providing efficient customer service to transform the experience of the shopper. Acceptability If Tesco continues to abide by its ethical practices and takes into account the interest of various stakeholders groups, then the acceptability of current strategic options can be maintained. Feasibility According to the Tesco PLC Annual Report (2012) the company aims to increase its future investment in the UK for the purposes of reviving its dominance in the market. Even though, the UK business of the firm reported slower growth in 2011-2012 the group recorded a 1.3% increase in its profits (Tesco PLC Annual Report 2012). This notion implies that Tesco has the potential to invest in various initiatives by utilizing its overall financial strength. Sustainability Tesco PLC’s strategic campaigns in overseas markets have been characterized by the notion of sustainability. For example, this concept has been advanced in the United States through the fresh and easy experience. The success of this initiative has significantly reduced the losses that the company had been incurring from its operations in the region. Conclusions and Recommendations The proposed recommendations to the Board of Directors specifically address two critical aspects regarding the existing strategy of Tesco PLC. These suggestions are based on; 1) the company’s operations in emerging markets such as China and 2) the diversification strategy which the organization has advanced in recent years. The current operations of Tesco PLC in the Chinese market only cover the southern, northern and eastern regions of the country as a result of which the target market stands at 600 million. The company’s presence in the nation shall complete 10 years of successful operations in 2014, and it is recommended that Tesco take benefit of this situation by marking its introduction in the western region of the nation to generate greater revenues. Furthermore, the report concludes that Tesco PLC’s diversification practices have yielded unsatisfactory results in recent years. Therefore, before any further proposals regarding this strategy are approved the company should opt for market penetration and market development strategies instead. List of References Garrick, G., 2011. The evolution of organisational psychology in the 21st century. Journal of Organisational Research, 36(5), pp. 3-8. Ger, G. 2000. Localizing in the global village: Local firm competing in global markets. California Management Review, 4(5), pp. 64 – 83. Henry, A. 2008. Understanding strategic management. Oxford, Oxford University Press. Hensmans, M., Johnson, G., & Yip, G. S. 2013. Strategic transformation: changing while winning. Ho, C. W., & Temperley, J. 2011. CONSUMERS REACTIONS TO TESCO'S MARKET ENTRY IN TAIWAN A COMPARIS ON WITH THE UK EXPERIENCE.International Journal of Management Cases, 12(3), 62-76. Mentis, P. 2013. Tesco PLC's entry mode in the Slovenian retail market. GRIN Verlag. Tesco PLC 2012. Annual Report. Accessed 13th September 2013 from Read More