A Value Chain Model for Analysing Tesco Internal Business Environment

This essay is based on the analysis of Internal Business Environment of TESCO Co. through Value Chain Model proposed by Porter in he’s first part. The chosen company from the food retailers and wholesaler subsector is Tesco. In the second part the business will be describe and will be done an internal environmental examination using the Value Chain Model. The last part of the essay will be a reflection on the benefits of this tool on helping understand the internal business environment of Tesco.

Reflective analysis of the internal business
environment.
(TESCO Company)
This essay will describe the Value Chain Model
proposed by Porter (1985) in he’s first part. The chosen
company from the food retailers and wholesaler
subsector is Tesco. In the second part the business will
be describe and will be done an internal environmental
examination using the Value Chain Model. The last part
of the essay will be a reflection on the benefits of this
tool on helping understand the internal business
environment of Tesco.
“The Value Chain was introduced by Michael S. Porter
in 1985 in the book Competitive Advantage and it is use
to analyse the flow of value adding activities from the

raw materials supplier to the customer. The model looks
at what value company adds to each link and the
company competitiveness. The Value Chain consists on
nine value activities that together create added value
and they’re by the company margin. Margin it is also
call profit and it is actually the then field of Value
Chain. In this field is no activity the field size is
depending on the other nine activities. The profit is
equal to the difference between the Value Chain totals
value which is the value to the product to the customer,
that is the price willing to pay to the product and the
total cost of producing the product which is the total of
the cost in the Value Chain nine activities. The nine
activities are divided into two categories primary and
support activities. (flixaboutcom 2016).” ….
“The primary activities include the main activities
which are five, they are directly involved in the
production and selling of the actual product.
 Inbound logistics can consist on receiving
goods, inspection, storage, etc.
 Operations include activities associated with
transforming raw materials and components
into new products.
 Outbound logistics are activities associated
with order processing, packing, shipping
everything that deals with the distribution of
the finish product to buyers.
 Marketing and sales are activities associated
with providing the customer with information

about the product excellence which should
lead to a sale. They are involved in
determining the product distribution channel,
pricing, promotion, personal selling, etc.
 Services activities which ensure that the
purchase product preserve value for the
customer. The service could include advice in
person or online, repairs, customer training,
maintenance, etc.”
“The second category is support activities they go
across the main activities and main to coordinate
their functions as best as possible.
 Firm infrastructure it a superstructure that
covers all the others activities it supports
both the primary activities and support
activities. It includes the organization of the
company, management, planning, quality
management, finance, etc.
 Human resource management includes
recruitment, training, retention, motivation,
is it their responsibility that the right skills
are available at the right time in various
departments
 Technology development it is the overall
system that provide an overview of the
entire organization it may involve ERP
(enterprise resource planning).

 Procurement are activities that refer to the
function of purchasing not the physical input.
It supports all the primary activities, effective
procurement routine can great the influence
purchase cost and their contribute to higher
profit.”
Food retailers and wholesaler’s subsector is part of the
Consumer Services Industry according to I.C.B.
“Tesco is among the largest food retailers in the world
with revenue in excess of £54 billion in 2009 and
employing over 470,000 people. They operate
approximately 4,331 stores in 14 countries around the
world. The company operates primarily in the USA,
Europe and Asia and their Head Office is based in
Hertfordshire, UK. According to Data monitor (2019),
the commercial network portfolio of Tesco comprises:
over 960 Express stores which sell approximately 7,000
products including fresh foods at suitable localities 170
Metro stores which sell a variety of food products in
town and city centres; and 450 superstores which sell
both food and non-food items including books and
DVDs. Tesco also provides online retailing services
through their website tesco.com and Tesco Direct. In
addition, they provide broadband Internet connections
and financial services through Tesco Personal Finance
(TPF). Tesco was founded in 1919 and launched its first

store in Edgware, London, UK in 1929 (Tesco, 2019);
however, over the decades it has evolved to become
the market leader within the UK food retail segment
(Data monitor, 2019). The comparative positioning of
Tesco’s market share with respect to other leading
players in the market has been illustrated as follows
(Euro monitor, 2019).”
“Value Chain Analysis
“According to Lynch (2003), value chain is defined as
the links between key value adding activities and their
interface with the support activities. Value chain has
been implied as a strategic evaluation tool used for
distinguishing the strengths and weaknesses in value
adding processes (Audrestsch, 1995). The value chain
of Tesco has been demonstrated in the following
diagram:”
Inbound Logistics
“The overall cost leadership strategic management of
Tesco is exhibited in its lean and agile inbound logistics
function. Drawing upon Abeysinghe (2010), the
company uses its leading market position and
economies of scope as key bargaining powers to
achieve low costs from its suppliers. The analysts have
also highlighted the constant upgrading of their
ordering system, approved vendor lists, and in-store

processes to induce effectiveness and efficiency into
the company’s inbound logistics operations.”
“Operations Management”
“”Tesco has been praised by a number of supply chain
management critics for its effective use of IT systems
that facilitate the company’s low-cost leadership
strategy. According to Tesco (2010), the company has
invested over £76 million in streamlining its operations
through their Tesco Digital program, which is a third
generation ERP solution for the company. The
company has achieved £550 million in increased
profitability during 2009 alone due to the introduction
of this system. This company -wide ERP system has also
facilitated the minimisation of stock holdings within
the company.”
Outbound Logistics
“Tesco holds leadership position in online and offline
food retail segments, which is due to its efficient and
effective outbound logistics. Drawing upon Mintel
(2010), the company has developed a range of store
formats and types, which are strategically placed to
achieve maximum customer exposure. These formats
include Express, Metro, Superstores, Extra and Home
plus, which are segmented according to the target
population.”

Marketing and Sales
“Loyalty programs like Tesco Club card are being
introduced through information technology advances
which dissuade the customers from switching over to
their competitors. Tesco has introduced its Greener
Living Scheme to give consumers advice on
environmental issues, including how to reduce food
waste and their carbon footprint when preparing
meals.””
Services
“Tesco has been pursuing a dual strategy of cost
leadership and differentiation, which has led to an
increased importance placed on customer service”.
“Drawing upon Keynote (2010), this dual strategy is
exhibited through the development of self-service
kiosks, financial services, focused direct marketing and
promotions.”
“In order to put Tesco’s value chain analysis into
perspective, it should be noted that despite cost
leadership strategy’s the company has been able to
create a high degree of value in comparison with its
key competitors. The relative analysis of the value
created by the big four supermarket chains, i.e., Tesco,
Asda, Sainsburyand Morrisonhave been provided as
follows.”

“To understand and find out where we can create
value, we need to use a Value Chain Analysis. The first
step for the analysis is the Activity Analysis.Where all
the activities to serve the customer and to deliver the
service are analysed.”
“In this step of activities analysis, we are going to
collect as much information as we can from all the
people involved within the organisation such us guest,
employees, suppliers, business partners, travel agents
and tour operators. This stage will also involve the way
to recruit people with the right skills that will deliver
the best service. How to keep the team motivated and
informed about the performance. In the case of these
featured company the KPI system (Key Performance
Indicator) has been introduced to control the standard
of performance that will help to get feedback from the
guest to enhance the guest engagement.”
“To conduct the Value Chain Analysis are needed up to
three years of annual reports to understand and
analyse how the costing of the activities are changing
and whether they are in unison with the competitive
strategy of the firm. To gain knowledge about the core
competence of the company, we can have a look at the
company and competitor websites and SWOT analysis
of both companies can be done to understand the key
strengths and weaknesses of the company and how
different are the firms from the direct competitor.”

“”After few activities are identified we list the “Value
Factors” which is the kind of service that the customer
value in the way the activity is conducted. If we analyse
a telephone order, the customer will value a quick
answer to his/her call, a good a polite manner, efficient
taking of order details with fast and knowledgeable
answering of questions and a quick resolution to any
problems that arise during the order. Delivering a
professional service, the customer will like the correct
solution based on the good options and up to date
alternatives.””
“This analysis will give us what needs to be done or
changed to provide a great value for each Value
factor.”
Conclusion
“In light of the above analysis, it can be concluded that
Tesco continues to hold its leadership position within
the highly turbulent retail segment, where companies
are required to pursue both cost leadership and
differentiation strategies. Tesco has been able to
achieve both with the help of a lean and agile supply
chain management, along with the strategic use of
information technology. The core competencies of

Tesco have been seen to be aligned with the business
environment, therefore highlighting a positive future
outlook for the company”.
Reference list:
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survival," International Journal of Industrial
Organization, Elsevier, vol. 13(4), pages 441-457,
December.
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flixaboutcom. 2016. Porters value chain. [Online]. [7
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https://www.youtube.com/watch?v=a9LWp9y2fMw
Porter, M. E., (1985). Competitive Advantage: Creating
and sustaining superior performance. NewYork: Free
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Porter, M. E., (1985). Competitive Advantage: Creating
and sustaining superior performance. NewYork: Free
Press.
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Tesco (2019) About us. Available at tesco.com
(Accessed 1 may 2020).
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