Analysis Of Strategic Capabilities And External Environment: Tesco

Selection of company and analysis of strategic resources and capabilities

In the modern day business, it is crucial to analyse the external and internal environment of the organisation as well as to analyse their resources and capabilities so as to gain competitive advantage over the rivals. This will also assist them in making of the strategies and making choices in the strategies that can help them in their growth ( Felsted and Oakley, 2014). This report analyses the internal capabilities and resources of Tesco as well as key drivers of external environment and their impact on the entrepreneurial activities. It also evaluates the impact of main competitive forces that are influencing entrepreneurial activities and profitability of the firm. In the second part it analyses the two strategic options they have to enhance entrepreneurial opportunities in the market. At last strategic choices using SAFe criteria has been elaborated.

Strategic capabilities of the company help them in understanding the problems that they might face due to different changes in the external environment. This is also crucial for evaluating their entrepreneurial activities.

The internal resources are the company’s productive assets and what a firm can do is understood as its capabilities. The resource-based view is understood as a managerial framework that is utilised for determining the strategic resources having the potential to give edge to the company over the others. Tesco’s tangible resources are 440,000 staffs, £3 billion operating income, 3700 stores and £60 billion turnover (Tesco, 2018). Most of their resources are part of threshold resources which helps them in finding sustainable competitive advantage. In terms of intangible resources they have high quality technology in use; they have high quantity of quality data related to consumers. Tesco is having higher brand name, its corporate culture is highly supportive towards its clients as well as they have higher reputation in the market (Grut, 2017). These resources provide them with competitive power because of their potential sustainability and uniqueness. These resources become more crucial as these are non-substitutable, rare and non-imitable.

There are many types of capabilities of Tesco. Some of them are their threshold capabilities while some of them are their core competencies. Competency framework theories suggest about the way in which company can increase clarity around the performance expectations as well as establish a connection organisational and individual performance.

Trade off: Trade-off is understood as the decisions in situation that includes losing or reducing one quantity, quality or any other asset so as to gain in some other form. Trade-off is also done by Tesco so as to respond to the basic requirements of the customers.

Analysis of external environment – PESTEL

Market share: It is understood to be as the portion of market that is controlled by any company. 31 % of the company’s market share has a strategic influence on the costs through the experience effect and economies of scale (Weinberg, 2017).

Strong bargaining power: Bargaining power is understood to be as the ability of the company to put impact over each other. Tesco has a strong bargaining power as well as have capability to spread its overheads.

Training and development program: Training and development program refers to the amount of training and learning process used by any organisation. They also have ability to divide its labour and specialising in particular field. Tesco benefits from labour efficiency enhancement, technology driven learning, standardisation as well as efficient use of equipment.

Along with this their highly trained workforce acts as their strength (Tesco, 2015). They also have huge amount of financial resources which is helpful for the company’s plan to invest in the long term projects.

VRIO framework is explained in the table:

Resources	Valuable	Rare	Imitable	Organisation	Advantage
Supply chain management	Yes	No	No	Yes	Temporary
Club Card	Yes	Yes	No	Yes	Permanent
IT integration	Yes	No	Yes	Yes	Temporary
Workforce	Yes	Yes	No	Yes	Permanent
Cost Efficiency	Yes	yes	Yes	Yes	Permanent
Unique Store format	Yes	Yes	No	Yes	Permanent

There are several key drivers of change in the external environment which needs to be identified by the company so as to ensure that the plans that are made by the company for its entrepreneurial activities. Some of the key drivers of change are:

• Technology: There are huge technology advancements going on in the retail industry. These technologies are working as a platform that can be used by the company for its entrepreneurial activities. For example mobile technology use has increased hence company can enhance their business through mobile retail services. It can promote people with higher technological knowledge. Implementing Big Data in various operations is one of the crucial entrepreneurial activities that Tesco is doing (Marr, 2016).
• Society: Another essential factor that is influencing the external environment of the Tesco is the fact that society is changing as people are coming up with new entrepreneurial ideas. Tesco can help these entrepreneurs financially and can foster their ideas (Coe and Lee, 2013). Trends like giving internship program are common. For example their internship program could help in adding new talents to their activities related to entrepreneurship.It acts as an opportunity for Tesco as new talents gets added to their pool.
• Political: The policies of the government in various parts of the world which will affect the entrepreneurial activities of the firm. The political decisions in UK such as ‘Brexit’ will have a long term impact on the entrepreneurial activities in the firm. In order to reduce the impact of Brexit, company is focusing towards its strong bond with suppliers Like Unilever and Heineken (Tesco, 2014). The terms of negotiations with their business partners will play an essential role in their stability of business after Brexit.
• Economic: Tesco is having a highly stable economic condition which will help the firm in increasing their activities related to entrepreneurship. But it is also to be noted that the whole of Europe which is the major operational area of Tesco is facing economic downfall. This will restrict the company in making long term investments (Brannen, Moore and Mughan, 2013).
• Legal: The rules and regulations made by the government have a direct impact on the entrepreneurial activity of the companies. Since the legalities related to human resource management and customer handling in the retail industry have changed. Abiding these laws has become essential for them to understand the challenges that exist in front of them due to these changing legal conditions (Xie and Allen, 2013). Base of entrepreneurship activities is the innovation but companies need to check the problems that might be faced due to change in legal environment within the country.

Retail industry in UK is very much big and is having a highly competitive nature of business. There are various competitive forces in the industry that is influencing the business of the organisations.

• Rivals: There are very big players present in the UK’s retail industry. This has made the nature of business highly competitive. Tesco has 29% in the market, Lidl has 5%, Waitrose has 5%, Aldi has 5%, Morrison has 5%, Sainsbury has 16% and ASDA has 17% and hence completion is very high. The price war in the industry has reduced the profitability of Tesco. At the same time rivalry has reduced the chances of companies investing in the entrepreneurial activities as the probability of their failure remains on the higher side (Mason and Evans, 2015).
• New entrants: In the retail sector there are many new small and big new firms have emerged. It is become essential for the organisation to understand the power of these new entrants. With the power of advanced technologies, more and more new entrants can come into the business and hence it will be having serious impact on the entrepreneurial activities and the profitability of the company.
• Bargaining power of supplier: In UK’s retail industry there are large numbers of suppliers. Some of them supply at international levels hence the bargaining power is on the lower side. This increases their chances to enhance their entrepreneurial activities. There are suppliers from the local market which needs to be deal with the conditions present in the Europe especially after Brexit (Wood, Wrigley and Coe, 2016).
• Bargaining power of customers: This is the biggest challenges at the same it is the opportunity for the company. With more than 10 big supermarkets operational in UK, people have lot of choices hence loyalty has become rare. It has been that there are people that are looking for the best prices hence managing prices will be a challenge for Tesco. This will have effect on the profitability of the company.
• Substitute: there are many substitute products available in the market hence company will face challenges related to profitability. In order to remove this problem company will have to increase their product range so that more customers can be attracted towards their business unit.

In different types of strategies that company has adopted, there are some of the strategies that would help the organisation to increase their entrepreneurial opportunities. Two strategic options that are available with Tesco for this are as follows:

• Innovation: This is one of the best strategic choices for increasing their entrepreneurial opportunities in the market. Innovation not only in terms of the new products and services but also in terms of the ways in which they produce products and services is also important. It is also crucial that company acts as a leader in the market in terms of innovation (Mollah, 2014). This must be done understanding the demands in the market as well as the challenges that they are facing in the industry. In order to understand this heavy market research based on the huge data base they have will be crucial. More innovation will give them edge in the market as well as will help them in adding the business in areas. In the areas related to the supply chain management, most of the advancements need to be done. They need to find ways to reach to customers i.e. their marketing will have to be innovative and something that attracts many customers. Innovation based marketing will be helpful for the company in the long run.

The strategic framework that can be used for it is McKinsey’s strategic horizons. This approach is concentrated towards keeping focused growth and innovation. The goals must are categorised into 3 horizons.  First is core business in which company has a goal to improve the existing product line especially in terms of quality. Second are the emerging opportunities where the new type of product demands are increasing at the regular basis and hence achieving higher product sale. It will also be beneficial for adding new product line in the stores. Third is blue sky i.e. they can bring new products in their stores that might not be sold for quite sometimes but in future this will add to new product sources.

• Product diversification: In the retail industry, this strategy is very much helpful. This is because there are large numbers of people that are coming to the organisation and their demands are long ranging. In such an environment product diversification becomes very much crucial. Tesco have excelled in the business of groceries but in the years to come they needs to add the numbers of products that are available in their stores. This is because people these days do not have enough time to go on shopping at multiple locations. They want all the things at one store (Wood and Butler, 2015). With innovation and adding more suppliers to their business, it will not be a problem for the company. In the time to come, there will be more such people who will demand for high class services hence changes also needs to made in terms of ways in which services will be delivered. Adding more numbers of business partners will help the organisation in bringing the change.

Industry Analysis – Porter’s five forces

For describing the product diversification, the strategic framework that can be used in this regards is the Ansoff Matrix. This strategic tool acts as a planning tool that gives a framework to assist senior managers, marketers and executives to formulate strategies for growth in the future. It is acting as a growth strategy that will help in achieving higher levels of growth. Both related and unrelated diversification is used is required in Tesco. Along with this, market penetration, market development and product development are the other strategies that are highly required in order to meet Ansoff criteria for development.

It is essential that every strategy that is made by the company is analysed in terms of the suitability, accessibility and feasibility criteria. Both the above criteria will be evaluated in strategic terms.

Innovation

This strategy is suitable for the company as there are large numbers of firm in competition with Tesco. In such an environment, innovation will be highly suitable. Tesco also wants to carry on with innovation especially in terms of the ways in which they deliver services to their customers. With the help of advanced technology this might not be a big problem to implement it in every organisational unit. This strategy will also be highly acceptable among their stakeholders and it aims to provide benefits them. It will ensure higher returns for the firm and also reduce the complexities they are facing in their business operations (Foster and Noh, 2013). Highly skilled workforce of the company will be able to deal with this strategy. Feasibility will not be a question for the company as they will be easily going to achieve this strategy. Their research team along with their decision making team will be able to make this strategy successful. In financial terms also they will be easily going to implement this strategy successful.

For describing innovation the strategic framework that can be used is McKinsey’s strategic horizons. They are doing it in three ways i.e. upgrading the existing product, working as per the opportunities that are emerging in the market or bringing the entire set of new products. And all these three stages are clearly defined in the McKinsey’s strategic horizons.

This is also a suitable strategy for the company as they require more variety of items in their stores to attract larger target segment. This is crucial for staying ahead of the competitors and will add value to the firm. It will be acceptable as all the stakeholders might not face any problem in handling larger set of products and services (Anyesha, Hassan and Aboki, 2014). It is also feasible as the financial condition of the company is good and investment can be done in the firm easily.

Evaluation of the impact of competitive forces on entrepreneurship and profitability

Conclusion

From the above based report it can be concluded that Tesco is one of the biggest retail firms in UK. Their resources are rare, non-imitable and non-substitutable. Their workforce and technology are their major competencies. Technology, politics, economics, society and legal environment will have impact on the entrepreneurial activities of the firm. Rivals, New entrants, bargaining power of supplier, bargaining power of customers and Substitute are some of their main core competencies. Innovation and product diversification are the two strategies that are suitable, acceptable and feasible for the company in order to grab the entrepreneurial opportunities.

References

Anyesha, A., Hassan, D. and Aboki, H., 2014. The Conquering Strategies of Oligopoly Firms. A review on entry Strategies of Tesco Company Plc in the UK and beyond. IOSR Journal of Business and Management, 16(8), pp.06-15.

Brannen, M.Y., Moore, F. and Mughan, T., 2013, September. Strategic ethnography and reinvigorating Tesco Plc: Leveraging inside/out bicultural bridging in multicultural teams. In Ethnographic Praxis in Industry Conference Proceedings(Vol. 2013, No. 1, pp. 282-299). Wiley/Blackwell (10.1111).

Coe, N.M. and Lee, Y.S., 2013. ‘We’ve learnt how to be local’: the deepening territorial embeddedness of Samsung–Tesco in South Korea. Journal of Economic Geography, 13(2), pp.327-356.

Felsted, A. and Oakley, D., 2014. Tesco admits overstating profits for longer. Financial Times, 23.

Foster, M.J. and Noh, T.J., 2013. Tesco strikes out into Asia. Frontiers of Business Research in China, 7(2), pp.289-310.

Grut, O.W., (2017) Tesco CEO: Ex-Sainsbury boss is wrong on Brexit — but ‘no deal’ could push up food prices [Online] Available at: https://www.businessinsider.com/tesco-ceo-dave-lewis-brexit-supermarkets-food-prices-2017-10?IR=T [Accessed on 27^th October 2018].

Marr, B. (2016) Big Data At Tesco: Real Time Analytics At The UK Grocery Retail Giant. [Online] Available at: https://www.forbes.com/sites/bernardmarr/2016/11/17/big-data-at-tesco-real-time-analytics-at-the-uk-grocery-retail-giant/#12d40a1b61cf. [Accessed on 21^st October 2018].

Mason, R. and Evans, B., 2015. The lean supply chain: managing the challenge at Tesco. Kogan Page Publishers.

Mollah, A.S., 2014. The impact of relationship marketing on customer loyalty at Tesco Plc, UK. European Journal of Business and Management, 6(3), pp.21-55.

Tesco, (2015) Strategic Report 2015. [Online] Available at: https://www.tescoplc.com/media/264150/strategic_report_15.pdf[Accessed on 27^th October 2018].

Tesco, (2018) Groceries. [Online] Available at: https://www.theguardian.com/business/tesco. [Accessed on 21^st October 2018].

Tesco, P.L.C., 2014. Annual Report and Financial Statements 2014. Zugriff am, 15, p.2014.

Weinberg, C. (2017) Brexit vs. Tesco: Will Britain’s Largest Grocer Stand the Ultimate Test? [Online] Available at: https://rctom.hbs.org/submission/brexit-vs-tesco-will-britains-largest-grocer-stand-the-ultimate-test/ [Accessed on 27^th October 2018].

Wood, S., Wrigley, N. and Coe, N.M., 2016. Capital discipline and financial market relations in retail globalization: insights from the case of Tesco plc. Journal of Economic Geography, 17(1), pp.31-57.

Wood, Z. and Butler, S., 2015. Tesco cuts range by 30% to simplify shopping. The Guardian, January, 30, p.2015.

Xie, Y. and Allen, C., 2013. Information technologies in retail supply chains: a comparison of Tesco and Asda. International Journal of Business Performance and Supply Chain Modelling, 5(1), pp.46-62.