Business Strategy: Evaluation of Macro Environment and Ansoff Matrix for TESCO
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This report evaluates the macro environment and Ansoff matrix for TESCO, a multinational retail organization. It discusses the strategic decisions, market penetration, market development, product development, and diversification strategies. It also analyzes TESCO's strategic capabilities and internal resources using VRIO analysis.
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BUSINESS STRATEGY
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INTRODUCTION Business strategy is defined as the set of tactical decisions which direct the actions to be taken in order to achieve competitive edge. These set of actions provide a direction in which organisation must move in order to deal with threats present in market and availing the opportunities for further growth or success(Bell, Bryman and Harley, 2018). TESCO is a larger British multinational organisation which is headquartered in London, UK. It is discount retailer whichofferseveralproductcategorieslikegroceryitems,clothing,electronic,furniture, software, petrol, toys, financial services and many more. This report contains information regardingevaluationofmacroenvironmentandansoffmatrixforexternalenvironment evaluation along with VIRO to determine internal capability. It also describes porter's five force model along with porter's generic to formulate effective strategic plan for achieving competitive edge. TASK 1 TESCO is a larger multination retail organisation which operates its supermarkets throughout the world in order to fulfill the below given vision, mission and objectives: ďˇVision:Its vision is to serve the customers a little better each day of their shopping. ďˇMission:Its mission is to become a leader for consumer by helping them in enjoying a better life and making their living easier by providing them daily essential products of high quality. ďˇObjective:Main goal of TESCO is to retain loyal people and creating value among the customers for gaining the lifetime loyalty. Business growth and success depends upon the strategic decision an organisation takes in order to perform its operations effectively. But for formulating effective strategic decisions, it is crucial for TESCO to consider forces that are present in external environment which have direct influence over the operations performed by them(Brewster, 2017). Hence, for performing macro environmental analysis, a strategical tool is used that is PESTLE which perform evaluation of 6 macro-environmentalfactortodeterminetheopportunityorthreatpresentinexternal environment that may influence organisational performance. The PESTLE analysis of TESCO is mentioned below, 1
Political:It evaluate the current state of government and changes in political policies that affect business operations. The political situation of UK is stable and government of UK maintains good political relation with US and many other countries along with having permanent membership in UN(Ocasio and Radoynovska, 2016).This is the greatest opportunity for TESCO as it can expand its trade practices in these countries and maintain it for longer duration which ensures higher flow of profit as well as growth. Economic:It perform evaluation over the factors like Forex rate, inflation-deflation, taxes etc. UK considered as 5thlargest economy in world and it considers as popular destination forForeign direct investmentwhich is a biggest opportunity for TESCO as it can get investment from the foreign investors much easily for the business(Peng, 2017). Social:It involves analysis of factors like customer taste, preferences, cultural influence etc. that directly influence the buying behaviour of customers. UK considers as big consumer market where it holds the population of 66.4 million recorded in 2018. Among them 18% people were 65-year-old while 2.4% population is 85 or over it(Mittal and Dhar, 2015).Hence it is a greater opportunity for TESCO as it offers one-stop solution where range of household products can be access by people at a time which old age people mainly seeks. Technological:It involves analysis of factors like advancement and up-gradation that takes place within the technological environment and its influence over business. UK is most technological advanced country in which London is a big hub of technology(Cavusgil and et. al., 2014). Though it is a positive factor for TESCO as it gets easy access to advancement but, the major threat which company hold is that there are majority of big retailers like ALDI, ASDA, M&S. which provide high competition to TESCO.As these rivals make installation of new technology in order to improve their productivity or offer high quality services which contribute toward grabbing the attention of customers. Hence the competition fro TESCO get increased within the business environment. Legal:It involves legal aspects present in UK which need to consider by retailers operating in country such as employment law, consumer law etc. UK government is strict toward the implementation of laws and standards formulated for retailers(McCahery, Sautner and Starks, 2016).The legal standards and codes are for food retailers within UK are being formulated by the Food Retailing Commission.This is biggest threat for TESCO as Food 2
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Retailing Commission has brought a new code of practice and if TESCO fails to comply with any kind of standard then, it directly influences the reputation of company. Environmental:The businesses that are operating as a part of economy are required to performtheiroperationsininterestofenvironmentandsocietyinordertosurvivein marketplace. UK government put emphasis toward ensuring that organisations must involve in such practices that leads to CSR, recycling, saving nature and reducing negative impact(Lawton, 2017).For dealing with this situation TESCO has taken an initiative to reduce carbon footprint and minimise its wastage within outlet which support it in dealing with the governmental standard in term of CSR practices and hence be able to achieve sustainability. Ansoff matrix It is a strategical tool which is based on four strategies that help in formulating future course of action for further business growth and development(Chang, 2016). After evaluating the macro environmental factors, TESCO must evaluate strategical practices that it can adopt for achieving sustainability in marketplace. Current company is using market penetration strategy in order to maintain larger market base. But, in order to further enhance its market position TESCO must focuses toward adopting new strategy. Ansoff matrix for TESCO is mentioned below: Market penetration:In this, company mainly focuses on improving its product or services within current market which further support in increasing the customer base and enhancing level of performance. For applying this strategy, TESCO is required to improve the quality of its product offering and try to reduce its price from that of competitors' offering. Market Development:In this, an organisation enters into a new market while continuing with existing products or services. Adoption of this strategy can help TESCO in expanding its business practices and increasing the customer base which ensure higher growth. Product development:This strategy emphasizes on launching of new product in existing market with an aim to approach new customers along with current customer base. In this strategy, TESCO is required to focus over launching new product for dealing with changing customer demand in order to remain competitive. Diversification:This strategy suggests an organisation to introduce new product in untapped market for opening up enormous growth opportunity. Under this strategy, TESCO can launch its new product or services within new marketplace for gaining a new consumer base for further growth. 3
As per the above performed evaluation, it has been found that product development is most suitable strategy for TESCO as there are number of growth opportunity present in UK market(Chen and Jermias, 2014). So, by bringing new product range within same market, TESCO become able to get easy acceptance which help in enhancing profitability and customer base. As per the view point of (David, Jo., 2019), the UK market has several growth and development opportunity for TESCO as the political, economic and social factors are in favour of the company which provide greater support to operate operations effectively. Hence, it can be said that product development strategy of Ansoff matrix is suitable as TESCO have more growth opportunity. But on the other side, UK market also have certain drawback i.e. the technological and legal factors are not in favour of TESCO which may create threat for its performance. Therefore, product development will be beneficial to the company but, if new offering get copied by the competitors then, it may affect the profitability of TESCO. TASK 2 Strategical capability considered as the pillar of an organisational performance which ensure effective execution of operations at marketplace. Strategic capability refers to the ability of a business to harness all of its resources, skills and capability in right manner to achieve competitive advantage(Davies, 2016). In order to formulate effective strategy toward the accomplishment of competitive advantage,TESCO must focuses toward making use of resource based view which is consider to be an approach that help in achieving the competitive advantage. It consists of several key point that are explained below: Tangible assets:-These are physical things such as machinery, building, land, equipment and capital that can be easily adopted and less advantageous to the company as rivals can easily acquire them. TESCO is having its stores at several locations and also perform its operations using hi-tech machineries related with payment terminal, billing etc. which all support it in delivering a positive shopping experience to the consumer and provide them flexibility to approach TESCO must easily. This is the main attraction point of customer toward TESCO. Intangible assets:-The assets like trademark, brand reputation, customer trust all are the consider as intangible assets that can't be touch but help in developing the value in the marketplace. TESCO maintain a positive brand image throughout the world due to its high quality services at affordable price as well as the promises which it deliver to its customers. 4
These all contribute toward maintaining a customer base of loyal customers that ensures the profitability and competitive advantage. Heterogeneous:-It refers to those resources, skills or capability that an organisation have which is different from that of other companies and it support in achieving the competitive advantage. TESCO maintains a high skilled and competent workforce which have the capability to manage the operations in cost efficient manner as a result of which it become able to offer its product or services at lower cost then other players in market. Immobile:-It refers to resources that do not move from company to company in short run and the company not even replicate or implement rival's strategy. The brand equity of TESCO is immobile which can't be copied by competitor in short run. Hence, this is the biggest asset to the company which support it in achieving the sustainability at marketplace. Hence, it has been found that TESCO is having assets like brand reputation, customer relationship, tech-integration in operations etc. which are consider to be most crucial factors that If managed properly will support in achieving sustainable competitive advantage for a long run. Despite of this in order to determine internal capability and align it in right manner TESCO must make use of VRIO analysis. VIRO analysis is a frameworkwhich put emphases over the identification of internal factor within an organisation like skills and capabilities that are needed for achieving competitive advantage(Laudon and Traver, 2016). There are basically four type of resources/capability which TESCO have such as IT integration, financial asset, and cost efficiency. Valuable:The prominent competencies of TESCO is that it holds up strong Financial assets as well as market goodwill which support organisation in performing its operations in effective manner without worrying about the arrangement of fund for execution of particular plan. Rare:The financial assets are valuable to TESCO but are not rare. The workforce or employees of TESCO are rare to the organisation due to higher capability or skills they are having and maintain a better working environment which ensure higher productivity. Imitable:The financial asset of TESCO is valuable but not rare as it is available to most of the organisation(Goffee and Scase, 2015). On other hand, workforce of TESCO is valuable and rare at the same time but the skills of employees can be imitated easily.IT integration of 5
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TESCO can't be copied by other as it works over a RFID technology in supply chain that support it in improving quality, eradication of waste and reduction of price. Organisation:For achieving competitive advantage, the organisation of resources in right manner is very crucial as it support in applying the efforts in right directions. The biggest competency of TESCO is its cost efficiency approach within operations. For this TESCO mainly operates over the formation of policies in a manner that it offers high quality products at lower price. On other side, for keeping its product price low, TESCO focuses over enhancing efficiency, avoiding waste and designing delivery system. Resource/ Capability ValuableRareDifficultto imitate Is it organised Financial assetsYes EmployeesYesYesNo IT integrationYesYesYesNo Cost efficiencyYesYesYesYes This model support TESCO in determining its internal capability which support it in formulating effective strategies by making use of its strength which further contribute toward enhancing the performance level at marketplace(Jeston, 2014). The internal strength and weaknesses that TESCO have is mentioned below Strength: The biggest strength of TESCO is its IT integration for enhancing shopping experience where it uses RFID-enabled barcode system for count product automatically. It also offers advanced mobile payment app. ThediversifiedstrategyintermofproductofferingadoptedbyTESCOismost successful which supported it in capturing larger market share. Weakness:The weakness of TESCO is that because of high debts and credit card liability, the financial profit of company gets profoundly affected(Jocovic and et. al., 2014). TESCO is the price leader within UK market as it follows low cost strategy to offer product. But, sometimes its low cost strategy leads to reduction in profit margins. 6
The internal environment can be judged for the organisation on the basis of strength and weakness. The use of Radio Frequency Identification technology is a strength for the company but on the other hand, it affects the efficiency as their debts increases also they seeks to enhance their market share by providing diversified product and this all is dependent upon the internal capabilities of the companies. After evaluating internal capability with the help of VIRO analysis it has been found that the Financial assets is most valuable capability of TESCO which further support in managing other internal capability effectively such as IT integration, employees and cost efficiency that support in achieving core competencies which result into achievement of competitive edge. Their employees are difficult to imitate this is a strength for them which will contribute them in achieving their goals. Tesco has the strategic capability to reduce the impact of the weakness so that they can utilise their updated technology in increasing their market share. TASK 3 Porter's five force model is basically a framework that work toward analysing the competition present for business within industry(Klettner, Clarke and Boersma, 2014). It works over fivecompetitiveforceswhich shapeseveryindustry thatsupport in evaluatingthe weaknesses and strength that a company have within that particular industry.With applying porter's five force model, TESCO will be able to identify its market position and area to be focused for achieving sustainability in marketplace. This analysis is mentioned below: Bargaining power of buyer: -Within retail sector, the bargaining power of buyers are relatively higher. Hence it is a threat for TESCO as if it started reducing the quality of its product or raising their cost up to competitors for gaining profit then, the customer might switch the brand. Hence, it is crucial for TESCO to put more emphases over continuously offering high quality product to its customer at lower price for keeping its customer retained for longer duration.For instance, there are number of players like ASDA, ALDI etc. are offering similar kind of product at almost similar price which is grabbing its market share. So, in order to maintain its customer base TESCO must focuses toward offering the high quality product at lower price and for saving the cost it must work over reducing the operational cost of the company so that product price can be kept lower. Bargaining power of supplier: -The bargaining power of supplier within retail sector is relatively low as there are number of suppliers available which offer high quality product at reasonable price(Laudon and Traver, 2016). TESCO is operating at larger scale which provide 7
greater strength to company for negotiating with supplier as it holds a larger network of supplier who are ready to offer products at lower price.For instance, TESCO must focuses toward keeping the suppliers for contingency as in case when the existing supplier refused to provide the product then it may contact other at similar or lower price which in turn saves the cost of company. Threat of new entrant: -The retail industry consists of higher competition as larger number of players are dealing from year and maintain greater customer base which requires new entrant to make huge investment for entering into market. This is the greater relief for TESCO as it has to fight with only existing competition. In addition to this, new retailers are required to take government permission regarding resources to use and time which also act as a barrier for new entrant to enter into retail industry.This in turn support in keeping the strategy of the company focuses toward the existing competitors such as ASDA, ALDI etc. which is quite easier for the company to formulate strategy as they already have understanding regarding the activities that existing players perform. Threat of substitute: -With retail industry, the threat to substitute is relatively lower as the major substitute for food retailers are small chain food shops, organic shops and other stalls that offer food to people(Lawton, 2017). This threat is relatively lower as TESCO is already providing good quality food services at lower price which make it difficult for other substitute to deal with TESCO.Therefore, the threat of substitute is not an issue to the company as it can operate effectively within its market place while focusing over its existing strategy despite of focusing over the substitute present in the market. Rivalry within marketplace: -The competition within retail sector is relatively higher as there are majority of players who are offering same product or services with different price or benefits.Hence, the threat of rivalry for TESCO is relatively higher and main competitors of TESCO are ASDA, Morrisonâs, Sainsbury, Waitrose, Mark & Spencer etc. that provide tough competition to one another in term of products, prices and promotional techniques. These competitors also share equivalent customer base which affect each other's profit.Therefore, in order to deal with the existing competitors, TESCO must focuses toward performing a deep evaluation over the strategy competitors uses so that appropriate action plan can be formulated to deal with this and achieving the competitive edge. In addition to this it also help in predicting the upcoming actions that would be taken by the competitors in future. 8
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Porter's five force model work toward determine the competition present in industry so that opportunity and threat which company have can be determined so that strategy formation can be performed. This model is advantageous as it provides alternatives and ways through which TESCO can deal with suppliers and buyers by maintaining cost efficiency. On other side, the drawback of this model is that it is not applicable to every kind of industry. In addition to this it also ignores main factors like government, tax issues and obligations. In order to deal with higher competition, TESCO must regularly adopt sales promotion strategy which support in keeping the interest of customer with organisational offering. TASK 4 Strategical planning plays a crucial role in directing the efforts applied by an organisation in right direction so that competitive advantage can be achieved. In order to formulate effective strategy, TESCO must make use of Porter's generic strategy framework which describes about the manner that must be followed by the company in order to achieve competitive advantage at marketplace(McCahery, Sautner and Starks, 2016). The porter's generic model is mainly focuses over three major type of components that support in providing pathway which an organisation must be adopted to deal with the competitors present in marketplace. With the application of Porter'sgenericstrategicmodel,TESCObeabletodevelopbetterstrategicplanfor accomplishing the competitive edge, Cost leadership: -According to this strategy, if an organisation wants to achieve competitive edge at marketplace then it must focuses toward offering products or services at relatively lower price than that of its competitors. TESCO is a discount retailer which offering its product or services at lower price. But, in order to achieve competitive edge, it is crucial for TESCO to keep its price of product lower than its competitors for the implementation of cost leadership. For implementing this, TESCO can focuses toward reducing its operational cost by enhancing employeeâs efficiency, reducing error or wastage so that appropriate profit can be generated. Differentiation: -As per this strategy, for achieving the competitive edge a company must try to offer its product or services with some unique feature which is not being offered by other players in marketplace(Mittal and Dhar, 2015). TESCO can offer its product or services with some unique benefits and attributes in order to keep customer interested in the offering of brand. With the adoption of this strategy, TESCO can be able to develop a base of loyal 9
customer which also provide company an advantage of demanding higher price from the customer regarding its product offering. Focus: -This strategy state that in order to achieve competitive edge, an organisation mustputmoreemphasistowardeitheronreducingthecostofproductorachieving differentiation in its offering. With the adoption of cost focus strategy, TESCO can concentrate more over the enhancement of internal capability and efficiency so that operational cost of the company can be reduced while dealing with the pressure which is generated from the external environment. On the other side, by applying differentiation focus, TESCO become able to differentiate its product from that of existing player present in market that support it in approaching larger customer base in order to achieve competitive edge. Hence, porter's generic strategy is said to be a strategic framework which support an organisation by directing over the actions to be taken for standing apart from the competition (Peng, 2017). For achieving competitive edge, TESCO must put more emphasis toward offering differentiation pricing strategy this is so because it is already offering products at lower price but the competition is increasing over the price. Hence, it is not possible to reduce more price as it directly affects the profitability of organisation(Ocasio and Radoynovska, 2016). The most appropriate strategy for TESCO is differentiation, because by bringing new product range which is not offered by other retailer, it become easier to differentiate brand within marketplace this not only support in attracting more customers but, also help in achieving the competitive edge.In addition to this the TESCO is operating within the market where the competitors are mainly working toward offering the product or services similar to the TESCO as well as at the nearer prices of the product which in turn provide the toughest competition to the TESCO in market place. Hence by offering the differentiation strategy it become easier to develop a factor of differentiation in the mind of consumer which support in differentiating the product from others and attracting the more customers toward the offerings of TESCO. Strategic planrefers to as a document which is basically used to communicate plans and policies among stakeholders about the organisational goals, configure resources, strengthen operations,focusenergyandforensuringthatwhethertheemployeesawellasother stakeholders are working over the common organisational objective. The strategic management plan work over a particular vision or goal by enlisting the set of activities to be performed for 10
accomplishment of that particular objective(Peng, 2017). In context of TESCO, the strategic management plan is developed by the top level management which is mentioned underneath: - Mission:The main mission of TESCO is to work together for creating better things which matters for customer (Vision, values and business strategies, 2019). Vision:âTo become a business that is highly valued by customers, community in which it operates with loyal and committed colleagues.â Objectives:The main objective of TESCO is to increase its customer base within UK market by 10% within 1 year of launching customised dress servicesâ Strategies:TESCO is launching new product range under customisation of colours and size. Under this facility, it provides dress in specific colour as preferred by consumers within 1 week. With the help of this facility, TESCO can come with new range of dresses and it is easy to reduce wastage and possibilities of dead stock as well. To effectively position the customised dress services within UK market, TESCO is required to put emphases over following key strategies that are: - Market research:The R&D department of TESCO must conduct a market research in order to determine the demand of customers regarding such services. This will support in determining the feasibility of this service while launching in marketplace that further support in formulating effective strategy to attract customers. Extensive marketing:For promoting this new service in marketplace, TESCO must focuses toward forming a team which perform extensive marketing after introduction of this service in UK market in order to determine reactions of customer over it. Despite of this, it also supports in creating awareness about this new services among customers(Ritter and Andersen, 2014). Tactics:For accomplish these objectives, TESCO must use online channel to spread awareness about it i.e., while customers are surfing the dresses over its official website it must add an option of customisation so that they get proper instruction to get their own desired design and colour dress. On the side, at physical store they can directly place order by interacting with store keeper. Strategic directions and tactical actions are the guidelines and strategies which helps the organisation in achieving the objectives which can be decided by analysing the external environment. Such analysis helps to identify various opportunities and threats that may arise due 11
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to competition and various other factors of internal and external environment. From the external analysis it is identified that Tesco has technological advantages as they use updated technology, also they get economic advantage because of favourable situation as they can easily procure funds but, they face legal issues as implication of law is high when companies directly deal with the customers. Also a large population is above 60 this offers Tesco an opportunity as they provide one stop solution for basic goods (PESTEL analysis of the UK, 2019). From internal analysis, it is identified that they face stiff competition from the large market players but still the other factors in their favour such as restricted entry, bargaining power of buyers and suppliers are low etc. These analyses will help them to determine various tactics that can be followed by them to achieve their goals and objectives. Analysis of these factors helps Tesco in increasing its customer base in market. For this, company use strategy of market research and extensive marketing and utilize online channels to spread awareness about its customized dress services. CONCLUSION From the above mentioned information, it can be summarised that business strategy provides set of guidance which help in ensuring the long term growth as well as success of organisation. But, in order to formulate effective strategy, it is crucial for an organisation to perform internal as well as external evaluation so that tactics can be formulated by considering all the factors that may influence the performance of company. Internal analysis performed with the help of VRIO analysis support in determining the internal capability which build up strength for dealing with challenges. On other side, by using framework like PESTLE and Porter's five force model it become easier to evaluate opportunity or threat present in external environment. So, that effective strategies can be formulated by using Porterâs generic and Ansoff matrix that help in achieving competitive edge. 12
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