The management strategy of any organisation is based on two factors these are the internal environment of the company and the external environment of the market. From the internal environment, it will be possible to find out the strengths and the weakness of the organisation. From the external environment, the opportunities that the company can get from the external factors and the threat that may affect the performance of the company can be ascertained. It is ascertained that the governing bodies, mangers shareholders and the stakeholders like employees, suppliers, customers, society and the government also influence the strategic plans of the company. So the strategies of the company is also framed in such a manner so that it can fulfil the demand of the governing body’s management shareholders and the stake holders.
There are various factors that needs to be accounted for while analysing the strategic position of a company and the same could be done by incorporating the various business and macro-economic conditions of the company. The opportunities that the companies in the retail sectors get are the following:
Low bargaining power of suppliers
The industries in the retail sector get the opportunities to bargain with their suppliers so they can control the cost of production which enables the company to increase the profitability of the company (Cox,et al,2016).
High barrier for new entrants
The retail industry requires huge capital in the initial stage so small companies can not take entry in the retail sector. Therefore, the number of competitors is less for which the existing companies can operates more easily without facing any strong competition from any new companies.
Challenges that companies face from the retail sector are enumerated below
High rate of competition from the existing companies
The companies of the retail sector face high competition from the companies that are already in the market from long time. The existing companies by investing more capital in the business give more technological facilities to the customers and also provide huge discounts in the price of the products. This strategy of the existing companies has made the competition in the retail sector tougher for the other rivalries of the industry.
High bargaining power of the customers
In the retail sectors the customers get the opportunity to bargain as the number of participants in the market is high. The customers always get the opportunity to select the companies that provide the products at the cheapest rate. This high bargaining power of buyer becomes a major challenge for the companies that are engaged in the retail sector.
The core mission of the organisation is to become a responsible retailer. It opened the world’s first zero carbon supermarket in UK and was awarded as the green retailer company in the country .Tesco always aims to improve customer loyalty and to make improvements in the retail business by making shopping experience more comfortable (Ramanathan, et al, 2017).
Tesco is a company that enjoy long-term success in the business. They have a core vision that remains fixed and the strategies of the company make continuous changes by focusing on the main goal. Tesco vision has five elements these are
The role of the managers, board of directors, shareholders and the stakeholders in framing management strategy
Role of board of directors
The directors are the main persons to frame the management policies of the company. The board of directors of Tesco is committed to set the highest standard of corporate strategy to achieve success in the competitive market. The directors take necessary steps to ensure that the company by implementing the strategies can easily reach to the desired goal that it aims to achieve. The governing body of the organisation set the vision of the company and based on that vision all the strategies are formulated so they are the main persons who
Role of the managers
The role of the managers comes just after the governing bodies they execute the plans and strategies framed by the board of directors.as the managers execute the plans and strategies so they understand which plans and strategies will be suitable for the company. The managers influence the policies that the organisation will set to achieve its desired objective (Schnackenberg, & Tomlinson, 2016). The five steps that managers follows to set a strategic policy are stated below:
Developing a strategic vision and mission
The first step is to develop a strategic vision and mission where by the managers can set a long-term view of where the company wants to stand in the market after a specific period. This step is the combination of both the vision and mission of the company.
Setting objectives
Setting of objectives is the next role of the managers in strategy formulation. A strategy cannot be made without knowing the objective that the organisation wants to achieve. Therefore, the role of the managers in setting up the objective influence the strategic policy of the company.
Setting of tactics to achieve organisational objectives
Setting of the tactics to achieve the organisational objectives is the next step that managers follow. In this step the managers defines the process that the managers will follow to achieve the desired objectives of the organisation.
Execution of tactics
Implementing and executing the tactics includes the process by which the company allocates its assets to each activity and establishing policies of the company. The execution is the major step which influences the effectiveness of the strategies that has been framed by the company.
The process by which the managers measures the outcome of the strategies framed by the organisation affects the overall performance of the organisation. This step of the management influence the strategic policies as the company will take the decision that whether it will be help full for the company to carry on the strategy or the existing strategy requires any modification so that the company can achieve the desired objective of the organisation.
Role of the shareholders
The shareholders plays an important role in framing the strategies of the organisation. The shareholders have several rights and powers like the right to appoint auditors, appoint directors, legal action against the directors, right to give votes , right to call for general meetings, right to inspect registers and books, right to get copies of the financial statements and the right to wind up the company. These rights of the shareholders affects in the strategy formulation of the organisation thus the shareholders role cannot be neglected in framing the strategies of the organisation.
Role of the stakeholders
The stakeholders though are not directly involved in framing the strategic policies but they also take a passive role in the strategy formulation. The stakeholders in the modern days are considered as an important aspect of the organisation, the organisation has to depend on the stakeholders to frame any business strategy of the organisation. the stakeholders of the companies are its employees , suppliers, customers, society and the government.
Employees
The employees being the integral part of the company so they always take active part in the formulation of the strategies of the organisation. The organisation has to depend on the employees to implement the strategy for which the employees become one of the major factor that influence the strategies of the company (Raffaelli, Glynn, & Tushman, 2017).
Suppliers
Suppliers are the bloodline of the business as they supply the necessary raw materials required to run the business operations.so the strategies that are framed to achieve the desired objective of the company cannot be made without giving importance to the suppliers. The strategies should be framed in such a manner that it can protect the interest of the suppliers as the suppliers directly influence the business operations.
Customers
The entire vision and mission of the organisation is framed on the basis of one aim that is customer satisfaction. The organisation is valueless without its customers, so all the strategies of the company are influenced by the customers. The strategies are framed in accordance with the demand of the customers. So the customers are to be given the most importance while a organisation is going to set up a corporate strategy (Nederhand, Bekkers, & Voorberg, 2016).
Society
An organisation operates in a particular society so it has to take some responsibilities for the society. The organisation while framing the strategies should give emphasis in the factors that influence the society. The society provides all facilities to the company and in return it also expects some benefits from the organisation so the companies strategy should include the protection of the interest of the society.
Government
Government plays an important role in framing various policies laws and regulations, which effects the operation of the business. An organisation always give importance to the regulations and laws that are framed by the government while setting up its own business strategy. As the company is bound to follow the regulations fixed by the government the strategies of the business is highly influenced by the actions taken by the government bodies of the particular country.
The strategic management policies of Tesco, which is one of the leading firm in the retail business. Tesco plc is listed in the London stock exchange having a market capital of 18401.37 million dollars, can be made on the basis of two factors, these are the internal and the external environment within which the company operates its functions (Vu, 2016).
To analyse the internal and the external environment it is required to understand two theories, these are PESTLE and the porters 5 forces model. The porters 5 forces model helps to evaluate the internal factors of the organisation. The porters 5 forces model consists of five factors these are threat from competitors, bargaining power of supplier, bargaining power of buyers, and threat of new entrants. The PESTLE analysis on the other hand analyse the external factors like political, economic society, technology, legal and environment. The pestle analysis measures the opportunities and threat that the company may face from the external factors.
The PESTLE analysis contains the following points based on which the external factors that influence the business of Tesco can be analysed.
Political factors
The political factors are related with the policies made by the government, which effects the economy and the business environment of a particular country. Government regulations like tax policies, environmental laws, trade restrictions, tarrifs, infrastructural developments creates direct impact on the business operation of a company. The UK government by providing all such facilities encourage more business growth in the country (Monios, & Bergqvist, 2017).
Economic factor
Economic factor refers to the macro economic factors as these factors have high impact on the business environment. The economic factors that affect the business are interest rate currency exchanges, inflation rate and economic growth rate. The economic position of UK is considered to be ideal for any business to increase its growth rate (Shamout, 2016)..
Social factors
The social factors refers to the social religious and cultural environment of the company these factors puts both positive and negative impact on the strategy of the company. The demographic aspects like the age group, per capita income, population growth rate, education and social beliefs have huge impact on the retail sector of the country. So the companies in the retail sector has to frame their strategy on the basis of the socio cultural factors of the country (Zissis, Aktas, & Bourlakis, 2017).
The current situation of the UK customers have moved towards one stop and bulk shopping due to various social changes. For these reason Tesco has adopted the strategy of increasing the non-food items in their stores.
Technological factors
The business world is largely depends on the technological advancement of a country. The retail industry in the modern days largely depends on technology. Technology is a major macro environmental factor which influences the development of the Tesco (Kurnia, et al,2015). The new technologies benefits both the organisation as well as the customers .some of the technologies that has been introduced by Tesco are:
The adoption of this electronic technology has made it possible for Tesco to become one of the technologically advanced company in the retail sector.
Legal factors
In UK there are several laws that effects the business of Tesco because the organisation markets a wide number of products and services. The main problem that Tesco face is from the agricultural products as the UK government always amend the agricultural policies it creates a problem for Tesco. The Government is amending the process of providing the direct subsidies to the farmers, which affect the ability of the farmers to meet the agricultural standards set by Tesco. This forced Tesco to increase the cost of the food products of the company. Beside that Tesco also provide financial services to their customers but the strict rules in the financial laws framed by the government has created hurdles in the smooth running of the operations of the financial activity of the company (Jacobs, & Singhal, 2017)..
Environmental factors
Tesco is committed to reduce the consumption of energy and utilisation of the green house gases. The board of directors of the company give more emphasis on the management of the waste products more efficiently and also in the consumption of the electricity for which the company has taken various environment friendly initiatives (Filimonau, & Gherbin,2017).
Porter’s 5 forces model
The five forces that have significant impact on the firms profitability in its industry are explained below:
The competition among the existing firms is extremely high due to the presence of large numbers of participants. The competitors used to invest huge amount of capital in the industry, which made more difficult for the other companies. The market leaders like Sainbury, Morrision, Wairtrose has been able to attract more customers by providing big discounts in the price of the products this enables the companies to increase their growth even in the time of slow growth in the retail sector (Zissis, Aktas, & Bourlakis, 2017).
Bargaining power of suppliers
The bargaining power of the suppliers in the retail sector in UK is not so strong because the top market players in the retail sector in UK has made contracts with the suppliers and suppliers cannot breach the contracts with these big companies. This is the reason for which suppliers cannot bargain with the companies. In spite of this hurdle the suppliers feel that providing the supplies to the top market players give them opportunities to grow and for that reason the suppliers keep the bargaining power low in the retail sector (Pickering, et al, 2018).
Bargaining power of the buyer
As there are, many competitors in the retail sector the consumers get the opportunity to bargain with the companies in the sector. The buyers always get the opportunity to shift from one organisation to another so the position of the customers is strong in case of bargaining power. If the consumers find that the price charged by a company is lower than another company they will immediately move to the company which offers low price. So all the companies in the retail sector always keep the price of their products low in order to sustain in the market (Lianos, & Lombardi, 2016)..
Threat of new entrants
The threats of new entrants in retail sector is low the new companies cannot bring huge capital to do business in the retail sector, beside that Tesco has taken lower pricing strategy, cost reduction, and providing more value added services to the customers which enables it to tackle the threat from new entrants (Cao, & Li, 2015).
Strategies of Tesco to tackle the threats of new entrants are elaborated below:
One of the strategy of Tesco to tackle the threat from the new companies is by bringing new technology and innovation in the business process.
By adopting the strategy of economies of scale Tesco has been able to reduce the fixed cost per unit.
By investing more in the research and development programs .new entrants does not like to take entry in a dynamic industry where the established companies like Tesco plc always upgrade their standard of service regularly (Ulubeyli, 2017).
Threat of substitute products and services
The threats from the substitutes for the non food items are low but for food item the threat from the substitutes are high. To tackle this situation Tesco has adopted the strategy to open more food chains in the remote areas. For non food items Tesco provide huge discounts on the products which enables the company to capture more customers during the time of recession (Sadun, 2015)..
Conclusion
Therefore, it can be concluded by stating that the retail sector has both opportunities and challenges, which the organisations can tackle by making an efficient management strategy. The governing bodies, management shareholders and the stakeholders like the employees, suppliers, customers, society, and the government also directly influence the corporate strategy of the organisation. Tesco which is considered as one of the largest company in the retail sector has set up an effective management strategy to overcome the threats and to utilise the opportunities that it can get from the external environment of the market. The strengths and weakness of the company has also been analysed, the company is working with more efficiency to increase its strength in the retail sector, and the weakness in the internal environment of the organisation has also been successfully managed by the organisation.
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