Pestle Analysis as a Tool for Environmental Scanning - Case Study Example

Supervisor Explain using your own words on PESTLE analysis as being a tool for Environmental scanning. 2).Define TESCO vision and explain its business plans that it has for the future. 3) Explain how the ecological factors, economy and technology has been used as an Opportunity to benefit TESCO's business plans. April, 2009 TABLE OF CONTENTS 1.0Introduction 1.1TESCO and the PESTLE Analysis Framework 1.1.1 Political Factors 1.1.2 Economic Factors 1.1.3 Socio-Cultural Factors 1.1.4 Technological Factors 1.1.5 Legal Factors 1.1.6 Environmental Factors 2.0 Overview of Tesco's Vision 2.1 Tesco's Business Plan for the Future 3.0How ecological factors, economy and technology has been used as an Opportunity to benefit TESCO's business plans. 4.0 Conclusion and Recommendation 1.0Introduction Today, business environment has become not only turbulent but chaotic and challenging than ever before. To survive, it has become vital that a firm understands the strategies underpinning success of rival firms and try to emulate, or do something better than the rivals ( Wonglimpiyarat 2004:1). Globalisation has not only altered the nature and the intensity of competition but has had to dictate and shape organisations in terms of what consumers wants, how and when they want it and what they are prepared to pay for it (Hagan 1996:1). Kanter (1995:71) on his work of "Mastering Change" argues that success in the present day business is not for those companies that re-engineer the way they do things, or for those fixing the past. According to Kanter (1995) such an action will not constitute an adequate response. This is so because success is based on an organisation's ability to create, rather than predict the future by developing those products that will literally transform the way the world thinks and view it self and the needs (Kanter 1995:71). The study first of all scans the market environment using the PESTLE framework; thereafter the study looks at TESCO corporate mission and vision statement in the phase of its new business plan. Finally the study looks into how ecological factors and other environmental factors have been used by TESCO to benefit its business plan. The last section of the paper provides the conclusion and recommendation for the study. 1.1TESCO and the PESTLE Analysis Framework Founded by Jack Cohen in 1919, Tesco Plc today, has established itself as the largest super store in Europe. According to the company 2007 corporate report and the website, Tesco PLC is an international retailer. Tesco principal activities include food retailing having over 2,000 stores in the United Kingdom. The company also has stores and retail outlet in other countries like the Republic of Ireland, Hungary, Poland, the Czech Republic, Slovakia, Turkey, Thailand, South Korea, Taiwan, Malaysia, Japan and China (Tesco 2006 Review). Tesco operates 165 International Express stores. In addition it operates 39 stores in China, 111 in Japan, 13 in Malaysia, 62 in South Korea, 6 in Taiwan, 219 in Thailand, 35 in Czech Republic, 87 in Hungary, 105 in Poland, 91 in Republic of Ireland, 37 in Slovakia and 8 in Turkey. (Tesco Annual Review, 2006). It therefore operates round the clock which demonstrates its commitment to create customer value which in turn generates superior value for its shareholders. Tesco denotes its success to an aggressive global strategy of geographical diversification, product differentiation, cost focus and it use of umbrella branding. In its attempt to renew the brand and keep it in sync with changing customer tastes, Tesco follows various strategies including international diversification, providing value to customers, product diversification, innovation, acquisition and umbrella branding. Its recent strategy is the creation and opening of environmental friendly and energy efficient stores. 1.1.1 Political Factors The PESTLE framework outline in appendix one stipulates that a company is indifferent to the political environment. According to Johnson et al. (2007), the PESTEL framework is a model used to look at the future impact of environmental factors and how this impact might be different from the past. Thus, through an understanding of how the factors in the framework may drive change is a starting point in understanding how a business fits in its environment (Johnson et al. 2007). Though, the political situation of the UK is a stable and unique one, it over dependence through support of the US egoistic policies under the pretext of democracy, the war on terror, the teeth for tat with Iran makes the country looks unstable; with the present republican government in the US loosing popularity because of the war in Iraq, current faith of world politics depends on the US and the United Kingdom (UK) with the two countries likely to be targets of terrorism attack. This institute a great fear especially in the minds of mobile phone investors who are risk averse. 1.1.2 Economic Factors All the economic factors can be regarded to have an impact on TESCO. For example, high unemployment rate, high inflation rates, low GNP trends and slumps in the business cycle will imply low disposable income, more dependence by the citizens on credit facilities, borrowed funds and thus alternative sources of finance. The US dollars is currently falling at an increasing rate, this will mean an increase in the currency exposure. Transaction and translation cost will be high in the US, value of credit facilities if granted in US dollars will fall. The value of TESCO assets in the US will fall when doing reporting in the parent company currency, the British pounds. 1.1.3 Socio-Cultural Factors Under the social factors for example, population demographics have a great impact on the future of it activities in the US and the UK. An increase in social crimes, immigration and emigration will affect the activities of the company. A social welfare policy of the government is also another important consideration. 1.1.4 Technological Factors Today, companies must dance to the tune of changing technology. The Tesco Metro stores in China are a good example. Under technological factors, I consider government spending on research and development, Government spending on research and technological focus efforts, new discoveries and developments, speed of technological transfer as having an impact on the activities of TESCO not leaving out Rates of technological obsolescence. 1.1.5 Legal Factors Under legal factors, companies are affected by all the country and environmental laws. Laws pertaining to waste disposal minimum wages, competition law, health and safety not leaving out product laws relating to quality and products certification. 1.1.6 Environmental Factors Today with increasing call and consumer's preference for green marketing, companies must develop environmental friendly products, products that are environmentally certified. Facilities and provision to collect old electronics, recycling facilities must be put in place to scrap off these items. In the absence of these options, companies will be considered socially irresponsible. Under environmental factors I consider waste disposal, energy consumption and environmental protection laws in the UK to have a great impact on the retail industry and Tesco. 2.0 Overview of Tesco's Vision Mission and vision statements are two strategic management concepts (SMCs) (Soyer & Asan 2007). These are important concepts that define organisations' values, competencies and are quite useful in the strategic planning and management of the organisation (Soyer & Asan 2007). In their work "Identifying strategic management concepts: An analytic network process approach" Soyer & Asan (2007:1) echo that, "SMCs together provide a common language and help stakeholders and other interested parties understand the business and its position in a competitive environment. This same view was earlier aired by Raynor (1988) where the researcher refers to mission and vision statement as an organisation cornerstone that guide and provide actions, directions and aspirations for the future. Vision statement refers to the desirable (O'Brien & Meadows 2001). In other words, a vision is the articulated goal for the organisation. Unlike mission statement, vision statement is a core goal. Once this is achieved, a direction will be set for the next vision (Soyer & Asan 2007, O'Brien & Meadows 2001, Thomas et.al., 1993). In all, in an organisation the creation of its mission and vision is an important first step in the development of modern, strategic management (Forman & Componova 2004). The researchers argue that, today many crises in organisation is actually due to "a fundamental direction and that some carefully crafted and publicly promulgated statement of an organization' s mission, purpose, values, goals, and vision" (Forman & Componova 2004:10) In Tesco, the mission and vision statements are defined within five core business principles which include, outstanding customer service, effective and efficient operations, strong capital and liquidity, prudent lending policy and strict expense discipline (www.tesco.com). However, vision and mission statement are frequently abused by the people trusted to implement it. According to Fama & Jensen (1983) managers of organisations will always act at the expense of the institution because of their personal interest. This is true because bonuses have become a thing of the past (Forman & Componova 2004). Mission and vision statements message must be communicated in precise simple and clear language supported through out the organisation. In today's organisation, this is not often the case due to misalignments; the mission and vision were overstated. Forman & Componova (2004) argued that misuse of this statement is so common and over time hard work is necessary for revival. They caution that, "Unless mission and vision reflect the core values, capabilities, and goals of individual organisations, they cannot shape current and future operations and therefore soon become clichs" (Forman & Componova 2004:7) 2.1 Tesco's Business Plan for the Future Forman & Camponovo (2004:1) referred to mission statement "as the most basic embodiment of business strategy.. for mission statement is often at the heart of strategy formulation for successful organisation. Raynor (1998) further outlined the role of vision and mission statement which include Mission and vision statements are pivotal in defining and communicating an organisation's "enduring core purpose" (Raynor 1998:2). Mission and vision statement set the pace for the activities of the organisation as these statements are usually defined within the boundaries of the organisations core competencies (Raynor 1998). In addition, Mission and vision statement by defining an organisations' boundaries draw demarcation between one organisation and the other by exhibiting the organisations salient features (Soyer & Asan 2007, O'Brien & Meadows 2001, Forman & Componova 2004). In all, in an organisation the creation of its mission and vision is an important first step in the development of modern, strategic management (Forman & Componova 2004). The researchers argue that, today many crises in organisation is actually due to "a fundamental direction and that some carefully crafted and publicly promulgated statement of an organization' s mission, purpose, values, goals, and vision" (Forman & Componova 2004:10) In Tesco, the mission and vision statements are defined within five core business principles which include, outstanding customer service, effective and efficient operations, strong capital and liquidity, prudent lending policy and strict expense discipline (www.hsbc.com). In, all Tesco future business plan is geared as a response towards increasing call by environmental organisations, government authorities and consumers preference for environmental friendly activities. Its vision is geared towards making every body a winner. 3.0How ecological factors, economy and technology has been used as an Opportunity to benefit TESCO's business plans. An organisation does not exist in isolation. Under the resource based view, it is thanks to the environment that new resources are sourced out; stakeholders interactions are facilitated, new partnership develop and created. Through an understanding of the external environment, firms take advantage of the resources available in its environment; define the nature and structure of its activities. In order to maintain service, quality and logistic standards, companies periodically audit their environment and compared to overall corporate performance through benchmarking. Companies that, fail to take advantage of its environment will lag behind. Today, the requirements of an organization's stakeholders including, customers, employees, suppliers, shareholders, government, etc are on a continuous rise. It is only through an environmental assessment that companies understand and take advantage of this. In addition, , to providing an annual report to the company's shareholders organisations are expected to provide alongside a corporate social responsibility report that details how they interact with society and the environment in which they operate. Failure would be interpreted as irresponsibility. Tesco has taken an edge over other corporations Being aware of this environmental pressure, the management of TESCO is doing the right thing at the right time, in the phase of a series of environmental problems and consumers call and pressure from other stakeholders for organisation to be more socially responsible in their activities. The management of TESCO has redefined its corporate governance structures. Corporate governance represents the set of policies and procedures that determine how an organisation is directed, administered and controlled. It sets the broad framework or parameters within which the people in the organisation must operate (Keeling, 2008). A stakeholder approach to managing the economy is reflected in the writing of Hutton (1996) and British Prime Minister Blair has spoken of the 'stakeholder society' (Bishop, Connors & Sampford, 2003). Stakeholder theory is invoked to contribute to the effectiveness of the public organisation or the policy program. At another level, 'stakeholders' are a given. They are recognised because of statutory requirements, because there is a political imperative behind their involvement. Through corporate social responsibility Tesco intends to improve on its performance. Today, customers have become more concern about CSR and as such tend to promote the products of companies that have improved CSR structures. Employees too would love to work in a company with well-developed corporate social responsibility structures. A study by Bansal and Roth (2000) analysing 53 firms in the United Kingdom and Japan reveal that there are three motives for engaging in CSR: competitiveness, legitimation, and ecological responsibility. Therefore a company that has a good CSR policy is likely to be more competitive than one that has a poor CSR policy. In addition, such a company will quickly gain legitimation which will go a long way to increase acceptance of its products by the community and thus increase its sales performance as well as overall profitability. Many customers today have increased their concern for CO2 emission. In response car makers have began manufacturing hybrid cars that emit lower levels of CO2. For example, German car makers, BMW, Porsche, Volkswagen and DaimlerChrysler displayed cars with low-emission diesel engines and hybrids that use electricity to augment traditional fuel motors, as well as hydrogen fuel cell concepts that BMW is researching. (Mildenberger and Ashuman, 2000). No wonder, TESCO has geared its operations towards this direction by opening its first energy efficient store. If now you go Lexus website, LS hybrid just jumps into your eyes, "the most advanced luxury hybrid, would lead its class, if one existed. The luxury hybrid pairs remarkable power with extraordinarily intelligent engineering. This vehicle produces about 70% fewer smog-forming emissions than the average new vehicle" Lexus hybrid is already becoming the most important selling point of Lexus now. Similarly, in BMW, the company promotes a lot its" Efficient Dynamic" in 2007 which is about BMW Active Hybrid and BMW Clean Energy with innovations such as High Precision Injection, Auto Start Stop function, Brake Energy Regeneration, Electric Power Steering, air vent control and the gear shift indicator. (Mildenberger and Ashuman, 2000) 4.0 Conclusion and Recommendation Environment analysis has become an important way and method in analyzing a firm position. Through an environmental analysis we understand how a firm's competitive position is affected by different forces. More and more companies are engaging in corporate social responsibility reporting, which helps major stakeholders to better understand how the company interacts with its society. (Sacconi, 2004). It is only through environmental scanning and analysis that we can portray this better. From the foregoing caption, the management of TESCO being aware of the role of environmental factors in its activities have redefined its mission and objectives, positioning the TESCO brand in relation to these factors. No wonder, today we hear of TESCO opening the UK most energy efficient store, this is a new market strategy, and others will emulate and follow with time. Thus, TESCO is affected by all the factors outlined in the framework. One can conclude that major stakeholders of an organization have increased their concern on how the activities of the organisation affect the social and environmental setting in which they operate. As a result there has been an increase in the requirements from companies. References Bansal P., Roth K. (2000). Why Companies Go Green: A Model of Ecological Responsiveness The Academy of Management Journal, Vol. 43, No. 4 pages. 717-736 Bishop, P., Connors, C. & Sampford, C., 2003. Management, Organisation and Ethics in the public sector. Ashgate publishing ltd. Hagan, M. C., (1996).The core competence organisation. Implication for Human Resource Practices. Human Resource Management Review Vol.6, No 2. 1996, Pp. 147-164 Brignall S., Ballantine J. (1994). Performance Measurement in Service Business. International Journals of Service Industry Management. Vol. 7(1), pp 6-31. MCB University Press 0956-4233. Fama, F.E., & Jensen, C.M. (1983). Separation of Ownership and Control. Forman, P.H., & Componovo, J. E. (2004). The business Radiology and the Mission Statement. Journal of American college of Radiology. Volume1, Issue 2, Feb. 2004 Pp.108-112 Johnson, G., (1992). Managing strategic change: strategy, culture and action. Long Range Planning 25 1, pp. 28-36 Freeman, E.R., 2001, A stakeholder theory of the modern corporation, in T.L. Beauchamp, and N.E. Bowie (eds.), saddle River, NJ), pp. 56-65 Kanter, R. M. 1995. "Mastering Change." Pp. 71-83 in Learning Organizations: Developing Cultures for Tomorrow's Workplace, edited by Chawla and Renesch.Portland, OR: Productivity Press Keeling, P., 2008. Professional Accountant ACCA paper P1, London college of Accountancy. O'Brien, F., & Meadows, M. (2001). How to develop visions: A literature review, and a revised CHOICES approach for an uncertain world, Journal of Systemic Practice and Action Research 14 (4) (2001), pp. 495-515. Sacconi, L. (2004). A Social Account for CSR as Extended Model of Corporate Governance (Part II): Compliance, Reputation and Reciprocity. Journal of Business Ethics, No. 11, pages 77-96. Soyer, A., & Asan, U. (2007). Identifying strategic management concepts: An analytic network process approach. Computers & Industrial Engineering Wonglimpiyarat, J. (2004). Amex's strategies for launching the smart card innovation. Technovation 24 (2004) 773-777 Wu, S. & Chien, F. C. (2006). Building Core competences through operational Excellence. International Journal of Production Economics special issue on ''Building Core-competence through Operational Excellence'' Appendix 1 Layout of the PESTLE Framework According to Johnson et al (2005), the PESTEL framework can only be used to look at the future impact of environmental factors and that this impact might be different from the past. Thus an understanding of how the factors in the above framework may drive Read More