Influence of Macro Environment on Business Strategy

This report discusses the influence of macro environment factors on business activities and performance. It analyzes the impact of political, economic, social, technological, legal, and environmental factors on the chosen company, TESCO. The report also evaluates the internal capabilities and environment of TESCO using VRIO analysis and McKinsey 7s Framework.

Business Strategy
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Contents
INTRODUCTION...........................................................................................................................3
Activity 1.........................................................................................................................................3
Analyse the influence of macro environment on the organisation and its strategies.............3
1.1 PESTLE analysis..............................................................................................................3
1.2 SWOT analysis.................................................................................................................5
Critical evaluation of macro environment in order to inform and determine strategic
decision...................................................................................................................................6
Activity 2.........................................................................................................................................6
Analysis of internal capabilities and environment of organisation by using appropriate
strategies.................................................................................................................................6
2.1 VRIO analysis..................................................................................................................6
2.2 Mckinsey 7s Framework..................................................................................................8
Critical evaluation of internal environment and the capabilities........................................9
Activity 3.........................................................................................................................................9
Use Porter Five force model in relevance with organisation.................................................9
3.1 Porter five force models...................................................................................................9
Appropriate strategies to improve competitive edge and market position.........................11
Activity 4.......................................................................................................................................11
Apply range of theories and concepts to devise and interpret strategic planning................11
4.1 Porter’s generic strategies...............................................................................................12
BOWMAN’S strategy clock.................................................................................................12
4.2 Strategic management plan.............................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16
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INTRODUCTION
Business strategy is termed as a combination of all the actions and decisions that is
performed by an entity in order to accomplish objectives and to attain competitive position at
marketplace. It is determine as backbone of a business that consist of a roadmap and help in
achieving desired objective and goals. In addition to this, it include vision, mission, values and
objectives associated with the company (Zucchella and Previtali, 2019). It is important for an
entity to develop an effective strategy in order to gain higher growth and success as well. For the
present report, TESCO has been chosen as a base company. The company was founded in the
year 1919 and its head office is situated at Shire park, England. TESCO offer high quality
grocery as well as home essentials in order to make customers satisfied and develop value for
them. The company has high market share as it offer its product as well as services in more than
12 countries. The present report discuss about macro environment factors and its influence on
business activities and performance as well. In addition to this, VRIO analysis is applied for
gaining an insight about the internal performance and capabilities of an entity. Furthermore,
Porter’s five forces is discuss in context to respective company as it help in analysing the level of
competition prevailing at marketplace. Later, a strategic plan is develop that help an entity to
achieve objectives within in a given time period.
Activity 1
Analyse the influence of macro environment on the organisation and its strategies
It is essential for an entity to determine the impact of macro environment factors on
business performance. It help an organisation to decline level of risk and by developing an
effective strategy. The managers of TESCO is using PESTLE framework in order to analyse
factors that has impact on its performance and activities as well.
1.1 PESTLE analysis
It is a tool or framework that is used to identify as well as monitor macro-environmental
factors which may have direct impact on the overall performance and activities of an
organisation. It is determine that, PESELE tool is mainly used when an entity enter into foreign
market or starting a new business as well. In addition to this, it involve factors such as political,
social, technological, economical, legal and environmental as well. This factor is described
below in relation to chosen company:
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Political factor: It involve factors like political stability, unemployment rate, tax rate and
so on. It is determine that political factors has direct influence on the overall activities and
performance of company. In context to TESCO, it is analysed that political stability of UK is
strong and thus it support companies to expand business that has positive influence on growth
and development of economy. Moreover, it is determine that there is increase in tax rate of
supermarkets that has negative influence on overall revenue of organisation.
Economical factor: It include factors such as economic conditions, income level, inflation
rate and many more. It is determine that purchasing power of people living in United Kingdom is
high and they are ready to pay amount in order to gain quality of products as well as services.
The labour cost in UK is high and is consider as negative impact on the overall performance of
an organisation.
Social factor: One of the essential factor that impact on the overall business activities and
involve elements such as norms, values, perception and opinions of people prevailing within the
society. It is determine that choice and attitude of people towards brand is getting change as per
market trends so it is important for managers of TESCO to undertaken all this factors in order
satisfy customers and retain them for longer time period (Xie and Cooke, 2019). In addition to
this, it help company to develop positive mind set towards brand and strengthen its market
position as well.
Technological factor: In today’s world, one of the dynamic factor that has high impact on
activities and operations as well is technology. It is analysed that technology is changing rapidly
& it has direct impact on buying behaviour of people as they only prefer to consume those goods
and service that is innovative and unique in market. With reference to TESCO, its management
team make use of digital marketing tools such as social media that help in reaching large number
of people within short period of time. In addition to this, it help company to enhance its customer
base level that leads to increase in sales and profit of company.
Legal factor: It is important for an organisation to follow all the rules develop by
government in order to smoothly and properly carried out activities and operations as well. With
reference to TESCO, its managers ensure that all the policies is followed in an effective manner
as it help in developing positive image at marketplace. In addition to this, it is determine that
laws of UK government is so strict as the penalties are so high for any mistakes that has negative
impact on the oragnisation.
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Environmental factor: This factor is related with protection of environment as it is
essential for an entity to not harm environment. People nowadays like to spent on products that is
eco friendly & did not harm environment. In relation to TESCO, it is determine that its Van
drivers adopt fuel saving routs & also gather plastic bags from customers for recycling. It help
organisation to attract large number of audience and strengthen its market position as well.
1.2 SWOT analysis
It is defined as a tool that aid an organisation to gain an insight about strength as well as
weaknesses (Yuan, 2018). It help an entity to make improvements and gain the opportunity
within the market. The SWOT analysis is given below:
Strength Weaknesses
 TESCO has high market presence as it
serve product as well as services on
around 10 countries. It aid company to
earn high profits and enhance its
revenue level.
 The company offer good quality of
products in order to attract large
number of customer and to gain their
trust towards brand.
 One of the major weakness of TESCO
is, it highly depend on the markets of
UK and Europe, due to which it is not
able to reach in more developing
markets.
 The other subsidiaries of TESCO is not
performing well because of high impact
of external factors. It decline the overall
revenue level of company.
Opportunities Threats
 The company has the opportunity to
make entry in new markets as it
determine that it does not require to
spent high amount on promotions
because of its high market presence and
reputation in market.
 The company has an opportunity to
offer organic food in market as it help
in fulfilling requirement of customer as
market trends and retain them for
 Competitors such as Walmart, Aldi has
big threat on sales and profit margin of
company.
 Raise in the cost of raw material has
direct effect on the overall revenue
level in a negative manner.
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longer time.
Critical evaluation of macro environment in order to inform and determine strategic decision
It has been evaluated that macro environmental factors has both positive as well as negative
on the strategic decision taken by the higher authorities of company. It is identified that political
factors has positive influence on nosiness performance as government of UK support
organisation to enhance its operation in other countries. In addition to this, technological factors
has mainly negative impact as it changes rapidly and it is required for an entity to adopt it in
order to offer unique and innovative in market. Adoption of new technology occur high cost to
company and decline the overall revenue level of company.
Activity 2
Analysis of internal capabilities and environment of organisation by using appropriate strategies
It is important for every organisation to identify its internal capabilities and environment as
well,. It is determine that it aid in better decision making that leads to increase in performance of
company. For this, managers of TESCO is using two frameworks that is VRIO analysis &
Mckinsey 7s model. The model is discuss below in relation to chosen organisation:
2.1 VRIO analysis
VRIO analysis is basically a tool that is used for the purpose of understanding what are
different types of resources that are available for organization to achieve a competitive advantage
it basically provides a resource based view of a organization. Presently discussed below is the
analysis of Tesco understanding that are some of the major resources that are helping Tesco in
getting a competitive advantage and its long and survival in the extremely dynamic external
environment.
1) Valuable: This is the aspect that is related with what all are the major resources that are
valuable for organization. All the resources are very important for every organization as they are
helping them in achievement of a high competitive advantage (Yucel, 2018). In case of Tesco
there are four such resources identified that are highly valuable and these are high brand image,
leadership position of this organization, higher ratings of customer and brand awareness.
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2) Rare: There are many different types of resources that are really available and are possessed
by organization that are helping them in getting some differentiation advantage. In case of there
are three resources that can be set to really available for organization and that is high ratings of
customer, leadership position a high market reputation.
3) Imitation: There are some rare resources that are valuable and at the same time cannot be
easily imitated by competitors (Oldman, and Tomkins, 2018). These are very helpful in
attainment of competitive advantage and in case, of Tesco resources that are very rarely found in
an organization such as the leadership position and the high market application.
4) Organization: It is very important for every organization to keep all their resources organized
in such a manner that they are available with them in longer period of time. For Tesco it can be
said that the positive market reputation is something that is very important for this organization
and must be kept by them really organized so that they are able to maintain this brand image by
keeping this resource highly organized.
Above discussed are some of are very important for organizations for having high scope and is
helping them in achievement of high competitive advantage and also helpful in attainment of
sustainable competitive advantage for a long period of time.
Resources Valuable Rare Imitable Organisation Competitive
advantage
High brand
reputation
Yes Yes Yes Yes Long term
Competitive
advantage
Brand
awareness
Yes No No No Realized
Competitive
advantage
Leadership Yes Yes Yes No Strong
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position Competitive
advantage
Higher
customer
rating
Yes Yes No No Sustained
Competitive
advantage
2.2 Mckinsey 7s Framework
It is determine that an organisation consist of soft as well as hard values, which impact on
the productivity and performance of staff members. Mckinsey 7s model describe an
interconnection among 7 factors that directly impact on business performance. The elements is
given below:
Strategy: It is analysed that TESCO is using cost leadership strategy, which help company
to attract large number of people by offering quality products at reasonable price in market.
Structure: The organisational structure of Tesco is hierarchical in nature and consist of
layers of management that include board of directors, chief executive office, managers of every
field and many more.
System: It is determine that supermarkets are based on the daily basis system that help in
maintain a balance among demand and supply in market.
Shared values: It is essential for managers of TESCO to consider all the values and norms
in order to provide positive working environment to staff members.
Staff: It is important for an entity to fulfil the requirement of employee as they are the
person who perform activities in a proper manner and aid company to gain success.
Skills: TESCO provide training session to all the staff members with an aim to enhance
skills and capabilities of employees. It aid company to increase its productivity as well as
profitability level in an effective manner.
Style: It is determine that TESCO uses democratic style that is employees are allowed to
participate in the decision making process, which motivate them and build confidence level in
employees effectively.
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Critical evaluation of internal environment and the capabilities
It is very important for every organisation to get overall insights about the performance of
organisation. Internal assessment of an organisation is very helpful in gaining of various insights
of internal strength and weakness. Various different frameworks such as VRIO analysis and
McKinsey framework that can be used for the purpose of achievement of high competitive
advantage it is used for purpose of evaluation of the resources that can provide a resource based
view of the organisation. It is also very helpful in formation of long term strategies for retail
organisation such as Tesco.
Activity 3
Use Porter Five force model in relevance with organisation
3.1 Porter five force models
This model is used for assessing operation of business organisation in order to maximize
profit at marketplace. It is necessary to collect information which is adopted by strategic planner
in order to take effective decision. Therefore, there are various strategies adopted in relation to
TESCO which is going to be mentioned below:
Threat of substitute product: There are various competitive firm selling similar kinds of
products and services to its customer. Therefore, the threat of substitute’s products is very high
in relation to grocery stores. Therefore, it is necessary for organisation to offer innovative
products and services to its user in order to retain them for a longer period time. In addition to
this, they emphasised on satisfying the need of customer for gaining competitive advantage over
rival firm. Apart from this, TESCO also offer discount, free sample to its customer in order to
attract them towards products as well as services sold by business organisation. Thus, the focus
of TESCO is to implement effective strategy for assessing need of customer for increasing sales
as well as profitability level in future period of time.
Threat of new entrants: The threat of new entrants is low in this sector. The firm who wants
to take entrance in this sector need capital to operate their business at that level in which TESCO
run their business. There are various competitors already available in market such as ALDI, LIDI
and many more who focuses on gain market share. Therefore, the main purpose of TESCO is to
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provide superior quality products and services to its customer at relatively fewer prices for
attracting ample of customer in order to gain competitive advantage over rival firm at
marketplace (Linder and Williander, 2017).
Competitive rivalry: There are various competitive firms such as Sainsbury’s, ALDI, ASDA
and many more that provide similar kind of products and services to its customer at affordable
cost. Therefore, it is vital for TESCO to assess need and wants of consumer in order to satisfying
them. Firstly, they assess market trends, taste and preferences of customer then they develop
effective strategy in order to increase sales as well as profitability level in future period of time.
Their main aim is to provide superior quality products and services to its user in order to achieve
competitive benefits over rival firm at marketplace. It boosts success and growth of TESCO in
upcoming period of time.
Bargaining power of buyers:
The bargaining power of buyers is a concept that is related with the overall options
available with customers for Tesco that can lead to number of suitable options that can easily be
substituted for products (Chen, and et. al., 2018). In case of Tesco it is offering a high variety of
products and these large variant of product sleep too large number of options that are available to
the target segment of customers. There are many different brands that are competitors of Tesco
such as Morrison’s, and Sainsbury that are offering similar variety of products as compared to
Tesco and this has lead to high bargaining power of they have large number of options from
which they can easily switch if they are not satisfied with the products. Hence, there is
requirement of Tesco to maintain the bargaining power of buyers in such a manner that it is not
harming the overall profitability of Tesco in long run.
Bargaining power of suppliers:
It is related with the overall power of suppliers so that they can easily switch to other
different brands who can offer them highly competitive prices particular organization. Tesco is a
global organization having large number of outlets and presence in many different locations
across different parts of the world (Karami, 2016). Tesco has been successfully able to negotiate
with many suppliers and provide them highly competitive prices so that they are able to achieve
competitive advantage in the long run. They have form long term associations where with their
present suppliers that can help them in quality products to their customers.
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From the above mentioned strategies, it has been analyzed that TESCO adopts competitive
strategy by offering innovative products and services to its customer for gaining competitive
advantage over rival firm at marketplace.
Appropriate strategies to improve competitive edge and market position
Strategies are very helpful in achievement of a competitive advantage for organization
like Tesco and some of the strategies that can be used by Tesco are discussed below:
1) Tesco has to increase their focus on development of attractive marketing campaigns so that
there can be high involvement of the customer and they are able to develop some interactive
sessions with these customers (Pham, Pham, . and Pham, 2018)
.
2) The usage of digital media as a tool of marketing is gaining importance and can be used as a
great tool for the purpose of engagement of customers and understanding what can be future
requirements of customers with the usage of such social media platforms like Instagram
Facebook, linkedIn where customers with similar mindsets can be approached very easily.
3) Quality is a great tool that can be used by Tesco having a high leadership position that have
been build up by the competitive prices that are offered by Tesco and no other brand can
compete with Tesco based on the highly affordable price change that they are offering In their
large variety of products. But apart from the highly competitive prices it is very important for
Tesco to make sure that they are able to maintain adequate quality standards that can help them
in maintaining the overall present loyal base of customers in long run (Ghauri, Grønhaug,. and
Strange, ., 2020).
About discuss some of the strategies that can be used by Tesco with the help of analysis
of porter's five forces model that have helped in getting a detailed overview of what are major
threats and opportunities available for Tesco in the external macro environment.
Activity 4
Apply range of theories and concepts to devise and interpret strategic planning
There are various theories and models used by higher authorities of TESCO for interpret
strategic planning are as follows:
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4.1 Porter’s generic strategies
It refers to the strategy formulated by Michael Porters in 1980 which describe how a
business entity accomplish competitive edge by selecting appropriate and right strategies. This
consist of three main strategy which are going to be discussed as follows:
Cost leadership: In the present context, business organisations mainly offer goods and
services within low cost without reducing the quality (Maniora, 2018). Main aim behind
adopting cost leadership strategy is to grab strong leadership place at the competitive
marketplace with the assistance of value chain management. With the help of this strategy of
TESCO increase their customer base by attracting large number of users towards them.
Differentiation: For attracting more and more number of individuals towards the business,
it is very essential to sell unique and innovative products which as a result aid them in retaining
their loyal customers towards them for a longer duration. In relation to the present context,
managers of TESCO use cost leadership strategy as well as differentiation strategy so they can
grow at the competitive marketplace in an effective manner.
Focus: This is the last strategy which highly influence business entity to emphasize on
their resources so that they can target right marketplace. It has also been identified that if a
company adopt this method, they offer product and services only to a particular market and
based on niche marketing to gain competitive advantage.
With the aid of above analysis, it is said that TESCO adopt both cost leadership as well as
differentiation strategy. Along with this, company emphasises on providing high quality products
and services to their customer at very low price.
BOWMAN’S strategy clock
It defines as the model used by the business organisation in order to identify as well as
examine organisational strategies at the market with the help of comparing the strategies with the
rival companies. This is the framework which is categorized in 8 segment and are going to be
discussed as follows:
Low price- low value
This is the aspect which says that how value of the goods are low. This is the strategy
which is commonly adopted by those organizations which are small in size or are located in local
area. In reference to Tesco, managers do not adopt this strategy as there goods are high in
quality.
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Low price- This is the strategy where price of the products are low so that high volume
of goods will be sold. Managers of Tesco can go with this strategy because it will assist in
gaining high margin.
Hybrid- This is the strategy where business organisation emphasize on both quality and
product. Therefore, it is not easy for them to carry out both elements simultaneously. In reference
to Tesco, this is the beneficiary strategy as it raises goodwill of the company at competitive
marketplace.
Differentiation- According to this, main aim is to provide unique and differentiation
product at the marketplace. In reference to Tesco managers of the company adopt this strategy.
For instance- they shifted their business functions to technology by executing Tesco mobiles at
the market.
Focused differentiation- This is the strategy which consist of luxurious brands which
rule at the competitive marketplace. With the aid of this strategy, business entities emphasize on
grabbing high share (Macarthy, 2018). In relation to Tesco, company have the potential in order
to adopt this method so there product become recognisable at the competitive environment.
Increased price- Standard product- This says that prices rise without modifying the
quality. In reference to Tesco, sales scale of the company is rising therefore this strategy might
create negative impact on the performance of enterprise.
High price—low value- According to this prices set to be high and mainly done when
their is the monopoly at marketplace. In the present context of Tesco, company have the rival
firms such as Asda, Sainsbury and many more deals in similar sector. Therefore, they do not
adopt this strategy.
Low value- Standard price- According to the strategy it is said that business
organisation provide low quality goods at standard price which affect the sustainability of
company. In reference to Tesco, managers adopt all the legal and ethical policies and avoid such
strategies which affect their brand image and goodwill.
4.2 Strategic management plan
It is consider as a document that include vision, mission, strategy, objectives and many
more of an organisation, strategic management plan helps an organisation to achieve objectives
within given time frame. The strategic plan of TESCO is given below:
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Mission: The mission statement of TESCO is “To offer quality product in market at
affordable price and enhance living standard of people living in society”.
Vision: “To gain leading position in market by proving unique products to customer” is
the vision statement of company.
Strategies: The higher authorities of TESCO make use of cost leadership strategy that
help in attracting large number of people that has positive influence on sales and profit margin of
company.
Objectives: The objective are as follows:
 To increase sales by 10% in coming 4 months by using promotional tools that
help in reaching large number of people within short span of time.
 To gain leading position in the particular are by providing quality and unique
product in market effectively.
Implementation: It is important for managers to implement all the planned activities in
an effective manner. For this, it is essential to motivate employees so that they can carried out all
activities as well as operations in a proper and effective manner.
Monitoring and Evaluation: The higher authorities of TESCO check the performance of
employees with the expected performance on continuous basis. It help company to make
improvements and enhance its productivity level in an appropriate manner.
Critique & interpret information applying environmental and competitive analysis to produce
a set of valid strategic directions, tactical actions & objectives
Strategic decision is defined as a series of action that help an organisation to implement all
activities in an effective manner and attain objectives within stipulated time frame (Park and
Mithas, 2020). In addition to this, it is determine that higher authorities consider all the
environmental factors in order to take better decision and decline the level of risk associated with
company. VRIO analysis help an entity to identify internal capabilities that leads to attainment of
opportunities prevailing at marketplace.
CONCLUSION
From the above study, it is concluded that an effective strategy aid an entity to attain their
desired objectives within given time period. Along with this, it assist an organisation to gain
competitive advantage at marketplace. Business strategy include mission, values, objectives,
values and competencies of an organisation. The managers adopt PESTLE analysis that help in
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identifying the impact of macro environmental factors on business performance as well as
activities. SWOT analysis is used by company in order to analyse strength and weaknesses along
with opportunities and threats associated with the organisation. VRIO analysis and Mckinsey’s
7s framework is consider as a tool that help in identifying internal capabilities. Moreover, it is
analysed that one of effective strategy that help in attracting more number of people and enhance
sales is cost leadership strategy. Bowman’s strategy is adopt by an entity on order to develop a
strategic plan which in turn leads to attainment of objectives within time frame. It is important
for companies to develop an appropriate strategy that aid in achieving growth and success at
marketplace.
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