Business Strategy Analysis of Tesco

This assignment analyzes Tesco's business strategy by examining internal and external factors using PESTLE and SWOT analysis. It further explores Bowman's Clock and Porter's Generic Strategies as tools for Tesco to achieve its mission and vision. The report concludes that effective business strategies are crucial for organizations like Tesco to increase profitability and market share.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
P.1. Analyse the macro environment for Tesco Plc...............................................................1
M.1.Critically analyse the macro environment in order to determine as well as inform
strategic management decision...............................................................................................4
P.2. Analyse the internal environment and capabilities of Tesco Plc....................................5
M2 Analysis of Internal factors .............................................................................................7
VRIO analysis on Tesco.........................................................................................................8
P3 & M3 Porter’s five forces model.......................................................................................9
P4 & M4 Theories, concepts and models for strategic planning .........................................12
Corporate-level strategy ......................................................................................................14
CONCLUSION .............................................................................................................................14
REFERENCES .............................................................................................................................15

INTRODUCTION
Business strategy is the means by which it sets out to achieve its desire goals and
objectives. It is long termed planning of the business. Business strategy is concerned with the
major issues such as raising the finance in order to build a new factory or plant. The main
purpose of business strategy is to set entire goals of the business as well as develop a plan in
order to achieve them. It is very essential for the all the businesses or companies to make the
strategies of business so that the best direction of the future will be determine. In this present
report, Tesco plc will be chosen for assessment. It is a retailing industry which is the third
largest food retail company in United Kingdom. This company was founded in 1919 by Jack
Cohen. Its headquarters are located in Tesco House, Shire Park, kestrel Way, Welwyn Garden
City and England. This present report will analyse the impact and influence which the macro
environment has on an organisation. Furthermore, internal environment and capabilities of a
company will also include in this study.
Mission- To become highly valued business by the customers they serve, the communities in
which they are operating and shareholders.
Vision- They make what matters better, together.
Objectives-
 To supply the best and quality of products to customers.
 They treat all the stakeholders equally.
 They try harder to satisfy the needs of customers.
P.1. Analyse the macro environment for Tesco Plc.
The condition that exists in the economy as a whole instead of specific region or sector is
known as macro environment. The framework that is used to tract the impact of macro
environment on the operations and functions of company is Pestle Analysis (Mahmood, Chung
and Mitchell, 2017).Pestle analysis is an approach in order to determine those factors which
influence the profit and sales of company in both positive and negative way. Pestle analysis is
the best tool that is used by Tesco to determine the external factors that affects the planning,
strategies of company as well as how organisation utilises its resources in order to gain more
competitive advantages to survive in the market.. There are six elements which are included
which Political, Economic, Social, Technological, Environmental and Legal. Here are the
factors explained below-
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Political- This factors ascertain the extent to which government might influence the
economy and industry such as government taxes, duties, policies, rate of unemployment and
economic condition influence the profit of company in both negative and positive manner. Tesco
has started the prospect of an EU referendum is causing uncertainty for capitalist, and this shows
a “heavy pebble” placed in the scales of the British economy. Moreover, Tesco has also
benefited from the promotion of free blocks of trading by the government of UK. On the other
hand,
Positive effect: The political conditions of UK has stability as it runs under the power of
parliament system. There are plenty of opportunities for those which are operating in United
Kingdom and it is only because of stable and fair political conditions (Kew and Stredwick,
2017). For employment legislation the government has encourages the retailers in order to
provide people a mix of opportunities from lower, flexible and locally based jobs to highly
skilled as well as centrally located jobs along with higher paid jobs.
Negative effect: there are some factors in UK political conditions that affects the entire
economy in negative manner. For example, In 2014, a group of local council has asked
government formally for new powers to tax supermarkets and it becomes Tesco Tax and it is
refused by the government of UK in order to avoid rise in the prices and it affects the Tesco
badly.
Economic- This is another most important factor that affects the entire operations and
functions of company. The economic conditions of UK has string economic position. The GDP
of country is very high as it is 5th highest rank in the world and it is a developed country. The
economic issues are very less. Thus, the purchasing power is also increases because they are very
confident about the present financial conditions.
Positive effect: The population is very large but still it is very profitable for the all
companies to raise its position and revenue in the market. Tesco plc is very attentive towards the
economic factors and it influences the buying behaviour of the company. However, the economy
of UK in 2008 has declared under recession officially, the rates of interest was reduced by the
government of UK which helps to decrease the rate of unemployment during 2009.
Negative effect: there are some factor related to financial condition that affects the Tesco
revenue and sales adversely because customers are not interested to spend money on premium
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products. Even so, the optimistic aspect of recession is that buyers eat more at home instead of
eating outside that provided great opportunities for Tesco to raise there output.
Social- This factors include the age, gender, behaviour, attitude, living standard of people
living in the particular country. These factors affects the entire functions and operation of
country. In order to overcome the issue Tesco has adopted its product mix is to meet an increase
demand of organic products. The standard of living of people is also very high which raise the
demand of luxury and top quality product and services and it is also a great opportunity for
Tesco.
Positive effect: TESCO also uses different strategy in order to draw attention of many
customers towards them such that the attitude and behaviour of people living in UK are very
attentive towards there health and hygiene which in turn change there behaviour in food items
Negative effect: The report conducted annually shows that in UK the population of
retired person is high instead of children. This is not a good opportunity for Tesco because aged
people consumer less than compare to young people.
Technological- This is another most important as well as emerging factor. UK is a
developed country and have a better access to technology. This factor raises many opportunities
for Tesco. The people in living are very innovative and are very expertise in IT. Tesco plc has
promoted its services in online platform which also raises the satisfaction of customers because
shopping become more personalised and convenient (Šomodi, 2017). There are some advance
technologies that are used by the Tesco which are wireless devices, intelligent scale, electronic
labelling, Radio Frequency Identification (RFID). But the technological advancement in UK is
low compare to United States.
Positive effect:The advance technologies benefited for both customer and company. The
level of customer satisfaction raises if company use fast and advance technology in their
operations.
Negative effect: Using such technique may cause loss of confidentiality in a business. As
a result, the business sales or profit directly affected.
Environmental- this is the factor that are exerting heavy pressure from the economy on
the companies. Government is putting pressure on the companies to address environmental
issues in order to benefit the society where they are operating.. Tesco has reduces its packaging
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of product made of plastic material and use reusable bags. The image of corporate social
responsibility of Tesco is good and fine.
Positive effect: All the environmental regulation, reduction of carbon print,
sustainability and impact of adverse weather affects the entire business as well as demand of the
product in the market. All the environmental regulation, reduction of carbon print, sustainability
and impact of adverse weather affects the entire business as well as demand of the product in the
market
Negative effect: If sustainability act is not followed by the business then it affect the
business in negative way and did not sustain its brand image in market.
Legal- This factors include current, future and internal legislations, employment laws,
consumer protection law, health and safety laws, tax regulation etc. T
Positive effect: Clothing business of Tesco is affected by this increment. On the other
hand, National Minimum Wage 2009 act is also one of the emerging factors that each and every
company have to follow. In 2008 the rate of wages was raised by 15% that resulted in raising the
cost of operations.
Negative effect: These factors affects the entire operation and function where company is
operating. In 2010, there is huge deficit in budget which in turn resulting in 20% increase in
VAT.
Stakeholder Mapping of TESCO:
External: This includes those peoples who affect the business externally such as
suppliers, customers. They creates sometime negative as well as positive impact upon company
and in this way these factor help a business to increase the profitability of TESCO.
Internal: This are the person who creates impact upon TESCo at internal level such as
employees, managers and other staff members. Such that through their effective strategy
sometime they help to raise the profit of a firm.
Others: These are the person who affect the business in positive as well as negative way
such that new technologies, society and others.
M.1.Critically analyse the macro environment in order to determine as well as inform strategic
management decision.
According to Bohari, Hin and Fuad, (2017) the strategic management decisions of
company is affected as macro environmental factors lays both positive and negative impact. For
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instance the political condition of UK is stable and fair. The government of UK is proactive but
the corruption disturbs the entire organisation in very bad manner. The GDP of country is also
fine and it has 5th range across the wok which is also one opportunity for the Tesco but in 2008
the recovery of the period of recession is very slow that adversely affects Tesco.
P.2. Analyse the internal environment and capabilities of Tesco Plc.
SWOT analysis is tool that is used for both internal and external factors affecting the
operations and functions of the company. There are four elements in this model which are
Strength, weaknesses, threat and opportunity.
Strength
 Tesco is the one of the largest food retailer in the world and it has 3rd rank.
 Tesco has awarded the for its excellence in customer satisfaction and entire experience of
shopping.
 Company has leadership position in United Kingdom.
 Tesco has effective operations on online platform.
 The property portfolio of Tesco is very strong.
 Tesco has many stores across the world, in 2017 it was 476,000 plus employees.
 Tesco has highly skilled employees as they used to invest huge fund and resources in
training and development.
 The innovation of product is very successful as Tesco used to track the record of
developing new products.
Weaknesses
Weakness are the lack of abilities which needs to be improved by Tesco, using Swot
analysis each and every organization can develop its competitive advantage and strategic
positioning in the market. (Sen and Rajagopal, 2017).The various weaknesses of Tesco are as
mentioned below -
 The days inventory is very high as compared to the competitors that makes organization
increase and raise more capital investment in the channel. This can influence the long
term growth of Tesco.
 Not highly successful at integrating organization with various working culture. Although
Tesco is successful at collaborating with small firm it fails to merge companies with
different work culture.
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 The Net contribution and proficiency ratio % of Tesco are below average of the industry
 There are gaps among the range of products sold by the organization, this lack or
limitation of choices can provide a foothold in the market to a new competitor.
 Investment in research and development is less as compared to the leading and growing
competitors in the industry. Even though Tesco spends more than the industry average on
Research and Development, it fails in competing with the other competitors in the
industry with regards to technology.
 Lack of investment in technology, Tesco needs to invest more money into advancement
of technology in order to integrate the processes across the nation.
Opportunities
There are lot opportunities for Tesco in the market with increasing demand and growing
market. These opportunities can be described as below -
 Increase in customer spending and Economic up-tick, since the type of recession and
reduced growth rate in the industry, there is an chance for Tesco to make new customers
and enhance its market share.
 New customers from online channel, over the pasts few years the organization has
invested huge amount of money into the online platform. This investment has developed
new sales channels for Tesco. In future the organization can use this opportunity by
understanding its customer in a better way and fulfilling their demands or needs utilizing
big data analytic.
 Low rate of inflation – The low rate of inflation helps in bringing more stability in the
market and it also enables credit at low rate of interest to the customers of Tesco.
 Reducing transportation cost as it can cut down the shipping prices and lower the cost of
productions. Therefore, it provides an opportunity to boost the proficiency or give
benefits to customers to obtain market share.
Threats
This refers to the challenges and threats Tesco is facing due to various factors in the
business environment. These threats are described as below -
 Irregularity in the supply of innovative products, Tesco had created a wide range or
products since its establishment but those products are mainly developed as a response to
the competitors in the industry. Secondly there is no regular supply of new products that
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leads to low and high changes in the number of sales over a particular of time (Duke,
2017).
 Another threat could be changing purchasing behavior of the consumer from online
channel.
 New environment law or regulations under Paris agreement might also appear to be threat
for few of the existing categories of product in Tesco.
 Laws related to liability in various countries are different and Tesco may be exposed to
different claims of liability and influence it to change policies in those markets.
 High competition, stable proficiency has enhanced the number of competitors in industry
over recent years which has put downward force on not only proficiency but also on
sales.
M2 Analysis of Internal factors
Strengths
 Tesco is the one of the largest food
retailer in the world and it has 3rd rank.
 Tesco has awarded the for its
excellence in customer satisfaction and
entire experience of shopping. Company has leadership position in
United Kingdom.
Weaknesses
 Not highly successful at integrating
organization with various working
culture. Although Tesco is successful at
collaborating with small firm it fails to
merge companies with different work
culture.
 The Net contribution and proficiency
ratio % of Tesco are below average of
the industry
Opportunities
 Low rate of inflation – The low rate of
inflation helps in bringing more
stability in the market and it also
enables credit at low rate of interest to
the customers of Tesco. Increase in customer spending and
Economic up-tick, since the type of
Threats
 Another threat could be changing
purchasing behavior of the consumer
from online channel.
 New environment law or regulations
under Paris agreement might also
appear to be threat for few of the
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recession and reduced growth rate in
the industry, there is an chance for
Tesco to make new customers and
enhance its market share.
existing categories of product in Tesco.
VRIO analysis on Tesco
Resources or
capabilities
Value Rarity Imitable Organized
Skilled
employees
Yes No Yes Yes
High quality
products
Yes Yes No Yes
Brand reputation Yes Yes No Yes
Suppliers Yes No Yes No
Customer base Yes No No No
McKinsey 7S Model:
Strategy: TESCO uses cost leadership style of business strategy in order to communicate
the business. As it deal with different stores at various country, therefore to provide low price of
strategy is quite beneficial for a firm.
Structure: Its structure is hierarchical and also comprises different layers of management.
System: it has higher management system and also deals with wide range of system in
daily basis. Such that it uses Wheel performance appraisal system in order to measure the
business performance.
Style: Leader and manager of TESCO also adopt different leadershp style in order to
manage the system. Such that they follow participate leadership style in order to keep involve
their employees in decision making power.
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Staff: This includes all the employees who are work for the system and reach at defined
goals. Even the problems are also shared with their team in order to make the business
successful.
Skills: Employees are work according to leaders strategy such that the organization have
skilled labors which help or support them for their success.
Shared values: the company have different shared values and beliefs such that its vision is
to provide best quality of products and also help for the welfare of a society.
Porter value chain McKinsey’s 7 S model
Advantages  Help to create or strengthen
the competitive advantage.
 Help to improve the
organization
performance.
 Provide recommended
framework
Disadvantages  Sometimes did not get exact
result and vision is also lost
 Difficult to access the
result and does not
explain the concept of
organization concept.
P3 & M3 Porter’s five forces model
Porter's five forces analysis is a tool or method of strategic management that helps in
analysing and understanding underlying levers of proficiency in Tesco. Mangers in the cited
organization can utilize Porter's five forces to determine the five competitive forces that affects
the profitability and create a strategy than can increase competitive advantage of Tesco along
with its long term proficiency in retail sector.
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 Threat of new entrants – New entrants in retail sector brings new ways and innovation to
perform various business activities that put pressure on Tesco through low pricing
strategy, providing new value propositions to the customers and reducing costs (Napshin
and Marchisio, 2017).
Tesco can manage the threats of new entrants by the following strategies -
1. By developing economies of scale so that it can assist lowering of the fixed cost per unit.
2. By spending money and capacities on research & development. New competitors or
entrants are less likely to enter into a dynamic sector or industry where the already
established players for example Tesco, keeps defining standards on a regular basis. It can
reduce the opportunity of extraordinary revue or profits for the new organizations
therefore demotivate new entrants in the industry.
Advantages: By innovating new products and services, new products not only helps in
bringing new customers to the fold but also give a reason to old customers for buying Tesco's
product.
Disadvantages: If This force is high then it affect the business in negative way such that
it decreases the business in negative way.
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Illustration : Porter's five forces analysis
(Source : Porter five forces analysis, 2017)

 Bargaining power of suppliers – Each and every company in the retail sector purchase
their raw materials form a wide range of suppliers. The overall impact of higher supplier
bargaining power is that reduces the overall proficiency of retail companies.
Strategies Tesco uses to manager bargaining power of suppliers are described below -
1. By developing effective and efficient supply chain with multiple suppliers
2. By doing experiments with designs of product through various materials so that it can be
easy to shift to a new raw material is the price of existing material rises.
Advantages: Suppliers in dominant position can reduce the margins of Tesco's earning in
the marketplace. Strong and powerful suppliers in consumer service sector utilise their
negotiating power for extracting higher prices form the companies in retail sector.
Disadvantages:Developing relationship with dedicated supplier whose business depends
on the organization creates negative impact and cause loss.
 Bargaining power of buyers – Buyers are generally demanding, they need to buy the best
products or services offered by companies by paying minimum price as possible.
This force is managed by Tesco using the following strategies -
1. By developing a huge customer base, it can help in two ways. First, it will reduce the
buyers bargaining power and secondly it will provide a chance or opportunity to the
organisation to balance its production process and sales.
Advantages: By rapidly developing new products, customers are highly attracted towards
offers and discounts therefore Tesco can bring new products with discounts to attract more and
more customers.
Disadvantages: This put pressure on Tesco's proficiency in the long run. The more
powerful and smaller the customer base is of Tesco the higher the bargaining power of the
customers and higher their capability to seek offers and discounts.
 Threats of substitute products or services – When a new service or product meets same
customer demands or needs in various ways, the profitability of the industry gets
affected. For example google drive and dropbox are substitute to storage hardware drives.
Ways in which Tesco manage the threat of substitute products or services are as mentioned
below -
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1. By understanding the important needs of customers rather that what is bough by them.
2. By being service oriented rather than product oriented.
Advantages:By enhancing the cost of switching for the customers will help a business to
raise the profit.
Disadvantages:The threat of a substitute product or service is tends to be high it is offers
value proposition that is different uniquely from the exiting offering of the industry or
organisation.
 Rivalry among the existing competitors – If the competition among the active
competitors within the industry is high then it may leads to lower down the prices and
decrease the entire proficiency of the industry.
Tesco manages the existing competition using the following methods -
1. By developing a sustainable differentiation
2. By developing scale for competing in a better way
Advantages:Integrating with competitors to enhance the market size rather than just
competing for small markets helps TESCO to raise profit.
Disadvantages:Tesco is a company operating in a highly competitive retail industry, this
competition will sometime affect overall long term proficiency of the company.
Advantage Disadvantages
 Helps to gain high competition in
market.
 Most simple model to determine the
different market situation.
 Only provide a snapshot of an
environment
 It does not help to access the intensity
of competition.
P4 & M4 Theories, concepts and models for strategic planning
Mission and Vision
Tesco's mission is to increase its profit by 10% by introducing new products and
attracting new customers in new markets. On other hand vision of the company is to expand its
business all around the world, grow its business with huge number of opportunities and become
innovative, modern company full of ideas.
1. Bowman's clock strategy – It is a technique to analyze competitive position of the
markets rather than competitors. The first step includes competitor analysis, the
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procedure of identifying, analyzing and choosing the major competitors (Horgan, 2018).
The next step is to develop competitive e marketing strategies that helps the company to
strongly position itself against the competitors. There are various options which can used
such as -
 Low price – Tesco being a leading company in the market it focus on keeping their price
on products very less that means lower margin. Although, the organisation have a low
price for each and every product but it needs to focus on low pricing for attracting
customers which is been done in an aggressively by other organizations.
 Hybrid - Tesco has a very low price and does take up steps to reinvest in the low price
element and which is one of the major reason of its leadership. The organisation should
make enough efforts to manage the cycle of reinvestment.
 Differentiation – Tesco needs to differentiate itself with their main goals or objectives of
low price offered to the customers with an value added service while keeping customers
as their main focus.
2. Porter's three generic strategies – The two types of competitive advantage combined
with the scope of operations for which an organisation seeks to obtain them, leads to
three generic strategies for obtaining above average performance in s sector or industry.
These three strategies are as following -
 Cost leadership – Tesco can focus on reducing its cost of production in order to provide
products at low prices to its customers. It can help in increasing sales and enhancing
profit of the organization (Bertozzi, Ali and Gul, 2017).
 Differentiation – This strategy can also be helpful in accomplishing Tesco's mission and
vision, using innovative technology and methods the organization can produce new
products which can help it to differentiate itself form other competitors and achieve
competitive advantage.
 Focus – This strategy aims to develop a price advantage for the organization, Tesco can
narrow down its market rather than targeting a broad market. It develop a cost focus on
small target group to hold its customers in the market.
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Corporate-level strategy
Tesco should focus on the two tier expansion strategy in order to achieve high level of
growth and development in the business. The two tier expansion strategy can be useful and
effective to expand the food and non-food sector or business of the company. The establishment
of food retail stores along with increase in number of non-food products or structure of the
organization can help it to achieve high profit and growth in both the sectors. The company can
obtain competitive advantage by expanding its business in both the segments. The company can
also implement low pricing strategy by reducing the cost of the products, it can assist in
attracting huge number of customers and increase the sales & profitability of the firm.
CONCLUSION
The above report concluded that developing effective business strategy is very useful for
each and every organisation to increase profit and market position or share. There are various
external and internal factors that affects an organisation such as Tesco to operate its functions
and performance which were identified using PESTLE and SWOT analysis. The report also
described various external forces that affects Tesco's functions and performance in the market.
Furthermore, the two main strategies Bowman's clock and Porter's generic strategies which can
be used by Tesco to achieve its mission and vision are also discussed in the above report.
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REFERENCES
Books and Journals
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dynamic environments: How types and destinations of political ties affect business
diversification in closed and open political economic contexts.Global Strategy
Journal, 7(4), pp.375-399.
Kew, J. and Stredwick, J., 2017. Business environment: managing in a strategic context. Kogan
Page Publishers.
Šomodi, M., 2017. An Analysis of the Marketing Strategy of the Company HOME INTERIER
sro.
Bohari, A.M., Hin, C.W. and Fuad, N., 2017. The competitiveness of halal food industry in
Malaysia: A SWOT-ICT analysis. Geografia-Malaysian Journal of Society and
Space, 9(1).
Sen, S. and Rajagopal, K., 2017. SWOT ANALYSIS OF FAST MOVING CONSUMER
GOODS COMPANIES–A CASE STUDY ABOUT PATANJALI AYURVED IN
INDIA.
Duke, D., 2017. Porter’s Five Forces and the Coffee Industry.Management Teaching Review,
p.2379298117726765.
Napshin, S.A. and Marchisio, G., 2017. The challenges of teaching strategic management:
Including the institution based view. The International Journal of Management
Education,15(3), pp.470-480.
Horgan, M.T.S.B., 2018. Euromel: strategy case study: local versus international market
strategy (Doctoral dissertation).
Bertozzi, F., Ali, C.M. and Gul, F.A., 2017. Porter’s five generic strategies; A case study from
the hospitality industry.International Journal For Research In Mechanical & Civil
Engineering (ISSN: 2208-2727), 3(2), pp.09-23.
Online
Porter five forces analysis. 2017. [Online]. Available
through:<https://www.cgma.org/resources/tools/essential-tools/porters-five-forces.html>
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