21st century is the era of globalisation, where the firm are indulging itself with each other to a large extent in order to achieve mutual benefit. Irrespective of the economic structure, market has become highly competitive during the era of the globalisation. New firms are opening each day and through utilisation of the free mobility under the purview of the globalisation, it has become evident that foreign firms are entering into the domestic market, which is making the scenario more complex. In this situation, presence of the large number of market player are making the market share of the each firm of a dwarf size, which is hampering both the economic as well as financial performance of the same. Under this situation strategic management is one of the best tools that can guide the firms into right path. Strategic management is the preparation and execution of the major initiatives and goals deliberated by the top management of a company considering the external as well as internal environment of the organizational operation.
Due to its ability to provide path to the organisation and postulating the organizational evolving policies, objectives, and the strategies premeditated to attain the objectives through optimal resource allocation to provide viable growth strategy to the firm, strategic management is one of the best tools that can lead the firm towards sustainability. Under this situation this report is aimed to perform strategic management analysis of the Tesco PLC, which is one of the largest retail seller in the UK region. Through the analysis, this report will try to understand the strategic management framework of the firm by judging the external and internal factors that affects the firm’s performance. In addition to this, the report is meant to evaluate the strategies for the firm that can affect its business utilising the various strategic management tool. To conclude the report, it will provide recommendation for the selected organisation so as to enhance its capabilities and let it compete with the prevailing market player as well as with the new entrants so as to become the market leader. A summarised overview of the findings will be provided at the conclusion and it will portray what still needs to be done.
Tesco PLC is one of the largest grocery supply chain in the world, which was introduced back in 1919 in London. However, initially it was not as large as it is now. It was a simple business based on the surplus groceries from the stall in the East End of London during the initial days. Once the business started gaining momentum it started expand its business through providing service in various sectors like tea and during 1930 it started its supermarket chain. Since then the firm started to expand and reached where it is now. Presently the firm has more than 6809 grocery store spread around 14 different countries in the world. UK being the centre of the firm’s operation enjoys largest market share in the country and provides substantial amount to the country’s GDP.
The firm has earned 145million euro before taxation during the 2017 and the total sales of the brand is as high as 49.9 billion euro considering all the services that the firm provides. This values highlights the importance of the Tesco to the UK economy and in addition to this, it also portrays that the firm has provided substantially to the country’s economy through generating employment as well as the increasing the government earning by the means of taxation. According to the Tesco they are aimed in the areas of the corporate governance, exploring scope to grow in future and aiding the business to help through the expertise of the executive member as well as harnessing the ability of the each employees. Among the 960 express stores operation by the Tesco is always aimed to provide something new to the customers each day. In addition to this with the 7000 varieties of the fresh foods available in the 7000 stores of the firm is targeted to meet all the demand of the customers around the world.
Vision statement of a firm entails and determines the aspiration of a firm for the future growth. As the vision statement, Tesco entails that it is determined to achieve high value for their brand from the customers through providing better service and helping them to live a healthy life by the means of providing healthy foods. In order to do this, the firm maintains strict eye on its supplier. In addition to this through the close relationship with the community the brand always try to maintain its corporate social responsibility. Tesco in its strategic statement has revealed its customer serving mechanism through which the firm is aimed to achieve higher fame in the market and enjoy competitive advantage over the other brands within the same industry.
Strategic management is one of the essential section of a brand that determines the path of future growth of a brand. According to the Deresky, strategic management of a firm determines its aim that it wants to achieve in the coming days while deterring the competition from the external factors as well as dominating the internal factors. As it has been mentioned earlier, 21st century has become the era of the globalisation that has allowed the various organisations to collaborate with each other in order to enhance the mutual growth. Tesco being one of the most renowned brand worldwide that has a well-developed strategic planning that has made it potent enough to grow. In addition to this, it has also been seen that the strategic planning of the firm has provide it ability to attain sustainability and in addition to this it has enhanced its core competencies as well. According to the non-executive chairman of the firm John Allan 2017 was one of the significant year for the firm, where it has faced growth against the strong external factors. Aim of the brand was to serve thee shoppers something better every day and though this strategic planning it has attained its targeted goal of the year. According to the latest annual report of the firm it can be seen that the firm has introduced its new planning and for the purpose they also has introduced stakeholders concerns that has enhanced the close relationship between the board of executives and the stakeholders. The report additionally entails that, though there has been rise in the market share in the Asian countries substantially, however due to the burden of operational cost it has faced external as well as internal issues in the UK region. Tesco entails that though the year they have focused to strengthen the corporate governance of the firm so as to attain the acceptance from the different level of people from the society irrespective of the place of operation. However, whether it has helped or not is under consideration.
Next to this, according to the group chief executive Dave Lewis, it can be seen that the firm has been facing substantial amount of the competition from the external factors such as the enhancing Burden Of The Business Rates, Apprenticeship Levy in the UK along with the rising National Living Wage Rate, it has become hard for the firm to deal with the growth and the inefficiencies of the growth factors. However, the commitment of the vast amount of the employee of the firm, which is as high as 460,000 employees has enabled the firm to make significant amount of growth towards the way to serve the customer of the organisation. One of the incredible achieve of the firm during the last year is that the firm has achieved profit while reducing the operating cost by 30%.
As the functional objective of the firm, it entails that the customers are at the heart of everything that they do and their aim always remain to enhance the customer satisfaction as the brand consider it as one of the strategy for the growth. As the chief executive entails, the firm has done a lot of things to ensure that the customer gains most of the benefit that they should get. For instance, feedback regarding the pricing of the product as well as suggestion regarding the quality, service and availability has been contested by the firm through the technical analysis for enhancing the customer satisfaction. According the statistics, Tesco charges a comparatively lower price than the other competitors in the industry. Considering the data of 2014, it can be stated that, it sells at 6% lower price than the other firm in the UK and through utilising the ‘multi buy’ channel, they have enhanced the offering to their customers by 24%. All of this has been done by the firm in order to fulfil the functional objective of the firm that entails Tesco is aimed to provide best in class service at affordable price, which is aimed to provide something better to the esteemed customer each day. Not only are the customers, in addition to this, colleagues, stakeholders, shareholders also the essential part of the organisation. As the functional stamen of the firms depicts, the firm is focused to fulfil the organisational requirement while fulfilling the personal goals. Through the recruitment of the graduate students the firm has generated large amount of job creation within the last one year that has aided the country’s economy too. Group operating margin of the firm has been revised to lie within the range of 3.5% to 4.0% from the 1.8% to 2.3% of the previous year.
As the growth strategy of the firm it depends upon the following 6 policies:
As the Tesco operates in an oligopoly market, where moderate numbers of players are available in the market, thus product differentiation is one of the main strategy that the firm has opted to achieve comparative advantage.
The firm has revised their cost base during the last year that has provided them opportunity to reduce the cost of operation by 1.5 billion euro.
Cash generation can be considered as the lifeblood of any operation, thus the firm has decided the three year operational cash flow from the business. The firm is aimed to earn 9 billon euro from its operation in the coming years and alter the business as it deemed to be in the course of the time.
As it was mentioned earlier, the firm believes in close contact with the shareholders, colleagues, and the stockholders to face growth of the business. Thus the firm is now focused to maximise its group margin by 3.5% to 4.0%, which will ensure better connectivity among the instrumental parts of the organisation through generation of the higher return.
Through enhancing the customer offering from the available estate that the firm have now, it is aimed to enhance their business and generate maximum amount of value from the property through optimal utilisation of the same.
Innovation possess paramount importance for the growth of a business. Through the three differentiated line of operation that depends upon the customer, colleagues and stakeholder the firm is aimed to achieve expertise and possess insight regarding the same.
Moving forward this report will highlight the various
The success of the company not only depends on the internal dynamics of its operational framework but also on the external factors which exogenously affect the strategic framework and operations of the company. Keeping this into consideration, a macro-environmental analysis of Tesco is done following the PESTEL framework, which is as follows:
Political Factors- The recent declaration of Brexit is expected to have considerable impacts on the operations and performances of Tesco as it not only captures a good share of market but also employs huge number of people. The policy of fat tax, which have been recently adopted with the objective of reducing obesity also have the potential to reduce the profitability of the company. However, the company has taken the counter strategy of producing and selling “healthy food” addressing this government strategy.
Economic Factors- The turmoil which have been by the economy of the UK, over the last decade, have been showing signs of stability and recovery, which in turn can be seen to be positively affecting the supermarket industry as can be seen from its growth. Tesco, being one of the oligopolistic producers in this market, is seen to be positively affected by this economic revival as can be seen from its increase in revenue.
Social Factors- The social changes in the UK, especially the recent shift of the customers to one-stop shopping habits, have led Tesco to launch the facilities shopping of both food and non-food items from their stores, which is expected to be an effective strategy on part of the company.
Technological Factors- Keeping into consideration the increasing usage of mobile and online shopping interfaces by the population of the United Kingdom, Tesco has been adopting online selling and home delivery systems in their operational framework along with the initiatives in provision of facilities of self-service checkout counters for the tech savvy customers.
Environmental Factors- Keeping in mind the rising concern about greenhouse gases and carbon emission as well as environmental degradation, the company has been enthusiastically working on reduction of their consumption of energy, by reducing their carbon footprint with time.
Legal Factors- The recent legal actions taken by the government of the country in the aspects of reform of agricultural policies which include subsidies on the farmers and also the implementation of the minimum wage policies are expected to have implications on the operational framework of the company. In terms of labour costs as well as cost of buying products from the farmers, which in turn indicates towards the need for increased efficiency in the operational framework of Tesco.
To analyse the competitions faced by Tesco in all the aspects of the market, the Porter’s Five Forces Analysis is used, which concentrates on the following aspects of competition:
Industry Rivalry- The rivalry in the industry is considerably high due to the presence of companies like Sainsbury as well as new budget ones like Aldi and Lidl. In the last few years the sale of Aldi has been increasing significantly which poses as considerable competition to Tesco.
Bargaining power of buyers- Post financial crisis the value for money has increased among the customers, which clubbed with the increasing competitors of Tesco in the market of UK has led to the increase in the bargaining power of the buyers as they have more options now and they want to receive more for less in the current periods.
Bargaining power of sellers- The sellers and direct suppliers of Tesco, especially those who enjoy long term and sustainable relationship with the company, however, do not want to lose the security of being attached financially with such a big supermarket like Tesco, which in turn indicates towards the fact that the bargaining power of the suppliers are not as high as that of the customers.
Threat of new entry- Although there has been entry of new competitors like Aldi and Lidl, however, the industry needs a huge initial fixed cost for entrance, which most of the small and medium entrepreneurs lack. Thus, the threat of entrance of new competitors in the concerned industry is considerably low.
Threat of substitutes- The Company in consideration has gained significant trust of the customers as well as economies of scale in the aspect of supply of food products, which in turn makes the threat of substitutes, especially in case of food items, low for Tesco. However, the threat of substitutes in the non-food items remain higher compared to the former due to the fact that the company has recently started venturing in this domain.
The performance of Tesco considerably depends on the internal capabilities as well as shortcomings of the firm and its strategic framework. To analyse the internal strategic capabilities as well as weakness of the firm and its potentials and threats in the market, an extensive SWOT analysis is conducted which is as follows, which in turn helps in analysing the viability and efficiency of the current strategic framework of the firm:
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Strengths · The company enjoys huge market share and trust of the customers in the supermarket industry of the UK. · TESCO has significant strength in the financial aspects, owing to its robust and long-term developed financial and investment strategies as well as its huge cash reserves and wide range of portfolio investment. · Being one of the largest and the biggest profitable supermarket in UK, the company enjoys economies of scale in its supply framework. · TESCO has built up a long term and highly sustainable supply chain, with loyal and efficient suppliers and the company also boasts a robust framework of supply chain management strategies · The company regularly updates its strategic framework, thereby incorporating the changes and dynamics which occur in terms of technological and preferential shifts of the customers and addressing diversities in sales. |
Weaknesses · The company has been showing weaknesses in terms of implementation of its strategies uniformly in all of its subsidiaries. · The company has been experiencing technical glitches in its operational framework, thereby leading to dissatisfaction among the employees. · Some of the suppliers of the company have not been performing efficiently in the recent periods. However, TESCO does not have a proper strategic framework to address the performance gap of the suppliers. · The company has not incorporated the strategy to venture into new markets and highly depend on UK and USA for their revenue generation. |
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Opportunities · The company has the opportunity to venture in the new and emerging developing markets. · It also has the potential to develop further its non-food sector. · With increasing popularity of online shopping, there lies immense opportunities for the company to venture deeply in these aspects. · The company also has the potential to build up strategic alliances with other relevant brands in order to build a cooperative linkage. |
Threats · Highly competitive and budget supermarkets like Aldi and Lidl pose as severe threats for TESCO. · The government policies regarding security of labours and farmers also has the potential to increase the cost of operations of the company. · The increased pressures of environmental and social responsibility are also expected to affect the profitability of TESCO. · The revenue of the company is also subjected to the economic fluctuations of the UK and the USA markets. |
The strategies taken by the firm to gain competitive advantage in the industry can be analysed in the framework of Bowman’s Strategy Clock which is as follows
TESCO, in this context has taken hybrid strategic framework, under which it offers the products to the customers at affordable prices but also with a higher perceived valuation in comparison to the competitors present in the industry. The customers remain satisfied with the prices in respect to the quality of products provided by the company. The company retrieves high quality inputs in affordable prices, especially from the developing countries to maintain the affordable prices of their end products and updates its technological framework constantly to maintain economic and productive efficiencies.
In order to evaluate the strategic choice and the strategy evaluation of the Tesco, it would be ideal to utilise the Ansoff’s matrix. It determines present and probable products of a company in order to provide it future growth.
Considering the Ansoff’s matrix as shown above, it can be seen that the Tesco need to attain growth with its existing goods and services within their present market subdivision. So, with the aim to enhance the market share of the firm, market penetration will aid to secure the dominance of the growth markets and reshape its market nature in order to crowd out the competitors. In addition to this usage of existing customer can beneficial for the firm.
As the firm is expanding in new horizons, it need to develop new products and services in order to attain focus of large number of buyers in the foreign region. Not only this, in order to entice the saturated present market demand of the firm, it would be ideal to bring in newer service and product so that it can provide stimulus to the domestic market too.
Enhancing the market is the essential lifeline of every organisation. As the business operation goes bigger it will attract newer customers and with better customers it will enhance the revenue of the firm. Under this scenario, it would be ideal for the Tesco to introduce newer business in newer place, so as to promote the growth of the organisation.
As it has been mentioned earlier, diversification is the key to the success of every organisation that operates in oligopoly market, where all the producers sells, similar product. In absence of the diversification, the firm will not be able to promote itself and stand out from the crowd. With the rising pressure of the new entrants in the UK, Tesco need to diversify its business which will provide it much amount of popularity.
Utilising the Ansoff’s matrix market penetration strategy of an organisation can easily be contested. It aids to determine the strategy that can dry out the competitors and in addition to this helps to determine the dominating strategy of the market on behalf of the firm. Tesco being one of the largest supermarket chain in the UK has potential to compete with the other large competitors like ADA and they need to utilise the same at highest level. Considering the strategy evaluation of the firm, the firm has positioned its stores in the large town centres where the firm can get much amount of the popularity and customer exposure. According to the Ansoff’s matrix strategy evaluation of the same is as follows:
Considering the market scenario of the Tesco, it can be seen that the firm is one of the largest organisation in the UK and from the world arena it has strong hold in various other European as well as Asian countries. Strategic positioning of the stores as well as accommodating customer, stakeholder and stockholder policies the firm enjoys much amount of sustainability in future. Considering the financial report of the firm, it can be seen that, it has vast amount of potential to deal with the competitors because it has good hold on the market and they know the customer behaviour due to their vast amount of experience in the supermarket industry.
Tesco has served millions of people around the world during 2017 and it stated the acceptability of the firm among its customers. With the effective customer policy it has curtailed its market demand and through the policy to fulfilling the organisational goal while fulfilling the personal goal, it has gained much amount of popularity among the stakeholders, employees. The firm has recently entailed that it wish to enhance the group margin, which will aid it to achieve much amount of trust from the shareholders too. Thus the firm with its effective policies is well acceptable to the various pillars of the organisation.
Considering the variety of the stores Tesco enjoys great amount of market share. In addition to this, the firm is willing to open additional 700 outlets in various regions of the UK, which will further make it popular among the customers and the plan of becoming the market leader in the supermarket industry will be achievable. From the perspective of the Ansoff’s matrix it can be stated that the firm is highly potential to attain much amount of benefit from its new stores and the pricing policy will allow it to penetrate the market easily. Thus the aim of the firm to penetrate the various market, including the domestic one is feasible.
Recommendations for the firm are as follows:
Conclusion:
The report has been aimed to discuss the strategic performance of the Tesco, which is known as one of the largest supermarket chain. Though the firm mainly operates in the UK and US region, however, over the time it has developed their base in various region of the European region and the Asian countries. From the analysis of the Tesco, it can be observed that the firm has performed during the last years and considering the case of the 2017, it can be seen that the firm has achieved to a large extent that it was expected to earn. Considering the strategies of the Tesco, it can be seen that the firm mainly focusses on the customer satisfaction as their key driver of the growth. In addition to this, the firm has considered the stakeholder benefit, employee benefit and the shareholder benefits as their major concern to provide smooth growth to the firm. Utilising the various tools of analysis of the strategic management, it can be seen that the firm is strong enough to withstand against most of the external and internal shocks; however, it need to grow further. As the recommendation section entails, it need to grow more in order to withstand against the strong demand or supply side shock. To conclude it can be tell that the firm is moving with much amount of forte. However, it needs to follow the recommendations mentioned above, in order to provide sustainability and to achieve its aim to become the largest supermarket store in the different regions.
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