Discuss about the case study Strategic Management for Obtain its Objective and Aim.
The strategic management is about the managing of the resources of an organization with the aim to achieve its objectives and goals. This particular management involves – setting the goals of an organization, to examine the competitive environment and the internal organization, to assess the approaches and also to guarantee about the rolling out of those strategies across the firm (Raimbault and Barr 2012). Therefore, it can be said that the strategic management plays an important role within an organization in order to run it effectively and efficiently. In this report, a strategic analysis of both the external and internal environment of a renowned retail company named Tesco Plc has been performed in order to examine the strategic choices that the firm faces. In addition to this, the report also aims to link between the corporate strategy and organizational configurations (Pride and Ferrell 2012). Thus, this particular report mainly represents the corporate objectives, external analysis, strategic capabilities, strategic choice and organizational design of Tesco Plc. Lastly, on the basis of the findings and conclusion of the analysis, proper recommendations have also been provided.
Tesco Plc is a public limited company in the retailing sector and it was founded by Jack Cohen in the year 1919 i.e. near about 97 years ago in England (Tesco plc 2016). The company is traded under London Stock Exchange (LSE) as TSCO. Tesco Plc is an international grocery and common goods retailer, which is measured as the 3rd largest trader in the whole world based on its total amount of earned profits (Tesco.com 2016). On the other hand, Tesco Plc is counted as the 2nd largest dealer across the world based on its total revenue (Tesco.com 2016). Tesco is the grocery market leader in the U.K. and it has around 6815 stores in overall 12 countries across Europe and Asia (Tesco.com 2016).
The corporate objectives are the goals and aims that are related to the business as a whole. These are generally set up by the topmost level of management of an organization. In the year 2014, the organization Tesco Plc announced a new corporate strategy in order to expand the business (Rothaermel 2013). These include:
The fundamental goals of Tesco plc are:
The mission of the firm Tesco is to create value for its customers in order to earn their lifelong loyalty. It has been found that at the end of the year 2015, the company has total 7817 shops across the world, 517802 employees globally and over 80 million shopping trips each week (Tesco.com 2016). The U.K. stores of Tesco are separated into six forms on the basis of its size and the range of goods sold. These are – Tesco Extra, Tesco Metro, Tesco Superstores, Tesco Express, Tesco Homeplus and One-stop (Tesco plc 2016). Moreover, it has been found that the firm Tesco originally started its business in the food and drink sector but later it has diversified its business into various areas like – electronics, clothing, telecoms, financial services, home, retailing, healthcare and many more. All these indicate that the firm runs successfully and efficiently over the years and also it has a scope for future expansion by increasing the total numbers of stores worldwide.
Macroeconomic Analysis
PESTLE Analysis of Tesco Plc:
In this report, a PESTLE analysis of the firm Tesco Plc has been performed in order to analyze and monitor the external marketing environment i.e. the macro-environmental factors, which have an impact on the firm.
Political factors:
Tesco operates in a globalized environment with several numbers of stores across the world, thus the presentation of the firm is highly affected by both the legal and political conditions of all the nations. For employment legislations, the governments generally encourage the retailers to offer a mix of job opportunities in order to meet the demand of various categories of population (Pitt and Koufopoulos 2012). However, the retailing has a great impact on people and job factors as the development of new store is considered as a destroying factor. The reason behind this is that the new store development destroys other employments in this division as the conventional stores generally go out of industry and are focused to cut costs in order to fight. It has been found that Tesco employs several students, elderly and disabled workers by providing lesser pays (Wheelen and Hunger 2012). Moreover, these staffs offer a high level of reliability towards Tesco plc as the particular industry has a high staff turnover rate and thus these workers symbolize pleasing workers.
Economical factors:
The economical factors are of higher apprehension to Tesco as they affect the costs, demand, profits and prices. The most effective factor is the higher rate of unemployment. The reason behind this is that the decrease in the demand for many products affects the demand required for producing such products adversely (Shimizu 2012). It has been found that the international business of Tesco is still growing but the firm is highly dependent on the market of U.K. This indicates that any slowdown in the U.K. market might affect the company adversely.
Social factors:
As per the present trend, it has been found that due to the social changes, the U.K. customers have moved towards the bulk shopping. Thus, Tesco have raised the quantity of non-food objects in its stores. Demographic changes like aging of population, raise in female staffs have lead to decline in home meal preparation and this helps the firm to focus on added-value services and products (Parnell 2014). The change in the consumer behavior makes the firm Tesco to change its products and services. It has been found that the consumers become more attentive regarding health issues and thus their behavior towards their food habit has changed.
Technological factors:
The implementation of new technologies provides advantages to both the firm and its customers. Additionally, the new technologies also help to increase the purchaser pleasure as the goods are accessible quickly, shopping can be more favorable and the services can become more modified. It has been found that the implementation of various new technologies like – wireless devices, Electronic shelf labeling, intelligent scale, Radio Frequency Identification (RFID) and Self check-out machine have increased the sales of Tesco Plc (Olivas-Lujan and Bondarouk 2013).
Environmental Factors:
The government has planned to commence an innovative policy for sustainable production and consumption in order to reduce utilization of assets, wastes and also to decrease the ecological damage (Lasserre 2012). Additionally, the latest legislation has developed a new tax on advertising fatty and highly processed foods. All these increase the expense and cost of Tesco. Thus, it can be said that the environmental factors of various countries affect the operation and regulations of the particular firm.
Legal factors:
It has been found that various legal rules, regulations and policies have a direct effect on the performance of Tesco. For instance, the Food Retailing Commission (FRC) enforced a Code of Practice that has banned many of the current practices of Tesco. These include – demanding payments from suppliers and making any change to an agreed price retrospectively.
Porter’s Competitive Forces:
Porter’s five forces analysis helps to understand the competitiveness within the present market. Therefore, in this report, Porter’s Competitive forces analysis has been performed to understand the market situation for the firm Tesco plc.
Threat of New Entrants
The grocery market of U.K. is mainly dominated by four major companies – Tesco, Sainsbury’s, Safeway and Asda. All these constitute about 70% of the market share, whereas, 10 % of the market share is occupied by the small chains of Waitrose, Budgens and Somerfield (Tesco plc 2016). The one-stop shopping, major marketing-mix expenditure and operating efficiency play the vital role in most of the large chains. This force puts a great impact on relatively smaller traditional shops. Thus, it can be said that there are various obstacles for new organizations to enter this grocery market. It has been found that the stock control systems have adversely affected the existing company like Tesco and the new entrant (Kotler and Keller 2012). Additionally, the differentiation and the economies of scale also put barrier to Tesco regarding its product development, better distribution and promotional activity.
Bargaining Power of Customers
The loyalty card of Tesco i.e. “Club card” is the most significant strategy for customer retention (Lynch 2012). Thus, it helps to increase the profitability of the firm continuously. In order to retain the present customer base, Tesco customizes service, ensures better choices, low prices and maintains a stable flow of in-store promotion. The firm brings in a crucial change in the food retailing as per the demand of the customers, as with the passage of time the competencies within the sector increases and this might affect the customer base of the firm.
Bargaining Power of Suppliers
The power of the suppliers can be affected by the major grocery chains and fear of losing their business to supermarkets. Thus, this consolidates leading positions of Tesco in negotiating better prices from suppliers, which small individual chains are incapable to match. On the contrary, the suppliers of the U.K. are also threatened by growing capacity of large retailers in order to supply the goods from overseas countries at lower cost (Hitt, Ireland and Hoskisson 2013). It has been found that the pressure of the competitive rivalry have declined the profit margins for both the suppliers and Tesco.
Threat of Substitutes
In the grocery industry, substitution can takes place in the form of the substitute of need or product-for-product. It has been found that this is further weakened by introduction of new trends in the particular industry.
Bargaining Power of Competitors
The purchasing power of the grocery industry is limited in the hands of a few retail buyers. Thus, the level of competition among these few numbers of retail buyers are also very high. New technologies and different pricing strategies are implemented by these companies like Tesco in order to earn more new customers also to retain the existing ones.
The strategic capabilities in terms of organizational resources have been evaluated on the basis of the external analysis of the company Tesco Plc. In order to analyze the strategic capabilities, it is an important factor to consider the effectiveness of the internal operations of the firm Tesco Plc in the form of identification of the critical success factors of the particular organization in the grocery sector (Hill, Schilling and Jones 2015). These include – branding and reputation of the firm, IT integration and supplier management. Tesco sources its products from manufacturers of overseas countries, especially who are more competitive on both volumes and prices. Being an international organization, the firm organization has developed various supplier management programs in order to survey franchisee satisfaction and key suppliers. It has also been found that Tesco has taken part in the Ethnical Trading Initiative (Tesco.com 2016). Nowadays, the companies generally act in an increasingly complex and dynamic environment thus it provides more difficulties by adapting themselves to the spontaneous changes (Ginter, Duncan and Swayne 2013). Tesco intends to compete in this type of complex and dynamic world. Thus, it is a mandatory factor for Tesco to implement an extraordinary speed and also to improve its services, products and processes continuously in order to compete in this highly competitive market. Thus, IT integration is an essential factor for operation of Tesco. On the other hand, core competencies are the factors that provide the firm with various competitive advantages. Therefore, the objective of Tesco is to focus on the competencies that affect the competitive advantage (Tesco plc 2016). Tesco generally look at the generic level and the competence of Tesco leads to performance levels from an activity which is better than competitors.
Analysis of Business Strategy of Tesco:
The generic strategies are featured by the response of an individual retailer to the structure of the industry. In order to obtain a sustainable competitive advantage, Tesco implements all the three generic strategies i.e. cost leadership, differentiation and focus. Tesco provides its products and services at lowest costs. Thus, the implementation of the cost leadership strategy helps the firm to earn more. Additionally, this strategy makes the firm enable to generate high profit margins by controlling the operating costs
It has also been found that by implementing the differentiation strategy, Tesco will be able to offer its products and services with various unique features that will help the organization to increase its customer value. Lastly, it can be said that both these differentiation and cost leadership strategies aimed towards a focused, narrow market. The implementation of the cost leadership strategy makes the firm focuses on creation of internal efficiencies (Dess 2012). Therefore, it can be said that both the cost leadership and differentiation strategies aimed Tesco towards the broad market.
The McKinsey 7-S Framework of Tesco
The six key elements of organizational design are departmentalization, hierarchy of authority, span of control, geography, customers and special projects. All these elements can be categorized through the McKinsey 7S Framework into two types of elements i.e. hard and soft (Coulter 2013). As per this framework, it can be said that departmentalization, hierarchy of authority and span of control are hard elements and geography, customers and special projects are soft elements.
Evaluation of Inter-linkage between Hard and Soft Elements of Tesco
For the firm Tesco, all its hard and soft elements are interlinked with each other as based on geography, departmentalization within a firm takes place. This leads to the importance of hierarchy of authority. The reason behind this is that the staffs can be controlled by proper hierarchy of the authority (Barney and Hesterly 2012). This leads to a systematic operation and regulation of the firm. Additionally, the span of control helps the firm to handle special projects. Therefore, it can be said that the hard and soft elements of the firm are interlinked to each other.
It has been found that the organizational configurations of Tesco differ with different markets in order to earn more new customers and to retain the existing ones. This change mainly takes due to – globalization, information technology, industry consolidation, rapid pace of change, emerging nations and interdependence of economies (Andrews et al. 2012).
Conclusion and Recommendations
Therefore, it can be concluded that Tesco has capitalized its strengths effectively and efficiently through its strategic choices and organizational configurations as the market share of the firm has increased. Additionally, the ROI and general growth of the firm also implies its strength. However, some of the weaknesses of the firm have been identified. These include – Tesco’s reliance upon the market of U.K., debt reduction and serial acquisitions. It has also been found that there are various threats that Tesco generally faces. These are – the challenge of Asda and Wal-Mart, probability of falling overseas returns, structural change in the U.K. market might affect price war and international expansion. All these threats can be managed by Tesco’s various opportunities, like – continuous growth in the non-food retail, health and beauty ranges and further growth in the international market. Finally, it has been found that Tesco’s vision is to be the most highly valued firm but its strategic choices includes only cost leadership i.e. to provide goods and services at lowest cost and to provide unique services and goods to the broad market. Therefore, firm should change its strategic choices and should keep these in line with its vision statement.
References
Andrews, R., Boyne, D., Boyne, G., Law, J., Walker, P. and Walker, R. 2012. Strategic management and public service performance. Basingstoke, UK: Palgrave Macmillan.
Barney, J. and Hesterly, W. 2012. Strategic management and competitive advantage. Boston: Pearson.
Coulter, M. 2013. Strategic management in action. Boston: Pearson.
Dess, G. 2012. Strategic management. New York: McGraw-Hill/Irwin.
Ginter, P., Duncan, W. and Swayne, L. 2013. Strategic management of health care organizations. San Francisco, CA: Jossey-Bass, Wiley.
Hill, C., Schilling, M. and Jones, G. 2015. Strategic management. Boston, Mass.: Cengage Learning.
Hitt, M., Ireland, R. and Hoskisson, R. 2013. Strategic management. Mason, OH: South-Western Cengage Learning.
Kotler, P. and Keller, K. 2012. Marketing management. Upper Saddle River, N.J.: Prentice Hall.
Lasserre, P. 2012. Global strategic management. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.
Lynch, R. 2012. Strategic management. Harlow, England: Pearson.
Olivas-Lujan, M. and Bondarouk, T. 2013. Social media in strategic management. Bingley, UK: Emerald.
Parnell, J. 2014. Strategic management. Los Angeles: SAGE.
Pitt, M. and Koufopoulos, D. 2012. Essentials of strategic management. London: SAGE.
Pride, W. and Ferrell, O. 2012. Marketing. Australia: South-Western Cengage Learning.
Raimbault, C. and Barr, A. 2012. Emerging risks. Farnham, Surrey: Gower.
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