Strategic Management: Analysis and Recommendations for Tesco Plc

This report provides an analysis of Tesco Plc's current situation and suggests strategies for improvement. Includes PESTLE analysis and Bowman's Strategic Clock.

STRATEGIC
MANAGEMENT

EXECUTIVE SUMMARY
Strategic Management refers to the procedures and practices which allows an
organisation in gaining a competitive advantage in the marketplace. Hence, below is the report
based on Tesco Plc, which is one of the most recognised supermarket chains in the UK, and
which has recently experienced a massive trade loss.
One purpose of the report was to appropriately analyse the issue of the organisation. To
attain this purpose, PESTLE analysis has been used, which is framework to appropriately assess
the current situation of the company which helps in evaluating aspects leading to the issues of the
company.
Another purpose of this report is to appropriately suggest a modified theory which would
assist the company in a way forward. For this agenda, Bowman's Strategic Clock was used in
comparison with PESTLE analysis, which helped the organisation in assessing several strategies
which could be adopted by the company to position its products in the future. Thus, through
effective analysis, Monopoly Pricing was the strategy which fitted best with Tesco's strategy
forward in support of its thinning of product portfolio.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
PESTLE Analysis...................................................................................................................1
Bowman's Strategic Clock......................................................................................................5
CONCLUSION................................................................................................................................8
RECOMMENDATIONS.................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
Strategic management is the continuous process which involves planning and observation
which is necessary for the company in order to meet their desired goals and objectives. This
process helps the organisation and take their stock and financial conditions to the present
situation and analyse the efficiency and effectiveness of the management strategies. Strategic
management predetermines the clear understanding of organisation, mission and vision which
helps them in order to meet their future requirements (Welford, R., 2016). It is a process which
helps the organisation in making logical decisions and evolve the technology in market and
business conditions. This report is in the context of TESCO, which is a British multinational
retailer headquartered in Hertfordshire, England, UK. It has shops in seven countries across Asia
and Europe which is the market leader of groceries in UK. Currently, company is facing trading
loss and for this they adopt two strategies PESTLE analysis and Bowman's strategy which helps
in analysing the competitive position of market and compare the offerings of its competitors.
MAIN BODY
PESTLE Analysis
PESTLE analysis is determined as an approach and framework of the external macro
environmental factors which is used for scanning the environmental part of strategic
management. Here, the pestle analysis is done on TESCO which is going through some major
problems which is impacting its major business operations. It is done to identify the impact of
external factors upon the current condition of TESCO.
The major purpose of this theory is to provide a deep insight on the current situation of an
organisation. In addition to this, it takes in account the factors which are responsible towards
influencing the company's decisions and how its current practice is either benefiting the company
or being a disadvantage based on several external factors.
In the case of Tesco, the firm has been offering products at higher prices. Moreover,
while it deals in several products, its competitive advantage is compared by the ones who have
lesser range as well as cheaper price rates such as companies like Lidl and Aldi (Tesco results:
the five reasons behind Tesco's historic £6.4 billion loss, 2019). Furthermore, dealing in
standardised products and wide portfolio has been a major cause for the company in terms of
suffering a massive training loss quite recently. Thus, the reason for using PESTLE analysis is
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that it would help in appropriately and effectively analyse the issue in further depth. Thus, the
influence of political, economical, social, technological, legal and environment analysis for the
purpose to scan strategic management is done as follows:
 Political Factors:
United Kingdom has strong political stability which is considered as the strength of this
country. Moreover, UK is recognised as among the successful countries in context of corruption
control, legal laws, effectiveness of government and the regulatory quality (Steiss, 2019). These
factors has positive impact upon the overall functioning of TESCO as due to political stability,
this enterprise is not required to make many changes in its operations. But due to Brexit, this
organisation is negatively affected as the wholesale suppliers have attempted in order to pass
through increases in blanket prices into thousands of brands. TESCO offers wide range of
products but the price on which these products are offered is high. On the other hand, brands like
Aldi and Lidl offers limited range of products at high prices. This is the biggest disadvantage to
this organisation which is leading to its current situation. This enterprise charge high price to its
products as it imports its some inventory from outside countries like East Asia and China in
order to earn profits.
TESCO had engaged itself in various number of team initiatives for the purpose to offset
Brexit which had lead to risk of losing out discount retailers such as Aldi ands Lidl. Due to
Brexit, TESCO has been forced to make certain inevitable changes in supply chain which has
resulted in increasing the cost of international sourcing. Around 50% of cheese and butter which
is consumed in UK comes from the milk which was imported from EU that will shift the
sourcing efforts of TESCO towards local producers. As, TESCO deals with product
standardisation but due to Brexit existence, it is negatively affecting this organisation and its
sales (Roztocki and Weistroffer, 2015).
 Economical Factors:
Economical factors are the implications of performance of economy which has direct
impact an organisation and has long term impacts upon its overall functioning. The economy of
UK has continue to get benefit from the robust growth of economy, the main portion of this
growth is in South East and London. The industrial activities had been concentrate4d in northern
portions of UK, on the other hand, the south is drives by the service sector. Labour cost is
recognised as another important factor that can affect TESCO and other supermarkets. For
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instance, annual wages bill amounts to 4.5 billion. In the year 2018, the minimum wage rate in
United Kingdom has been increased by 4.4% for around 25 years onward. This kind of upward
shift had lead to amount TESCO around millions of pounds.
There are many other economical factors that can affect this organisation which is prices,
profits and cost (Yay, 2015). The organisation have to maintain its focus upon prices and cost
and can lead to decrement to its overall profits. It has negatively affected its cost leadership
strategy and its brand reputation. Moreover, its existence in international market and its
diversification can be considered as two significant strategies in the last years which has lead to
its overall success. It should be mentioned that this organisation is mostly dependent upon the
United Kingdom market with around 27.7% in grocery market of UK.
 Social Factors:
These factors has large impact upon overall functioning, processes and strategies adopted
by this organisation. Due to rapid changes in tastes and preferences of customers, TESCO has to
updates its products from time to time. For instance, due to increase in health conscious
customers, the demand for organic food had increased. Now, TESCO is working on its food
segment and trying to produce healthy and organic food rather than unhealthy food. Moreover,
customers prefers online shopping rather than going into market and than purchase certain goods
and services (Noe and et. al., 2017).
This organisation is providing wide range of products but these products are offered at
high prices. Although TESCO provides high quality products but they are charged high prices
for these products as compared to other brands. For instance, Aldi and Lidl offers wide range of
products at low price which is giving tough competition to TESCO. Now-a-days, customers do
not want to pay more for products specially when these people are getting same quality and
variety in other brands. Customers want cheaper price products as they do not want to pay high
price for its products. In order to change this buying attitude of customers, this enterprise can do
tow things, first is to indulge itself in various technological and research and development
method to produce unique products, that is , to adopt product standardisation. This will help in
building up brand image of its products. The second thing which can be done by this
organisation is to provide its products at lowest possible prices as its competitors are pricing.
 Technological Factors:
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UK is recognised as one of the most advanced technology friendly country of the world
which has positive impact upon TESCO. As this organisation can offer many best solutions to its
consumers and provide them various business opportunities. TESCO can use various innovative
solutions such as automation and artificial intelligence to solve certain issues and problems faced
by its customers (Morden, 2016). Artificial intelligence and automation can be utilised by
TESCO as an opportunity. By using this technology, this organisation can enhance its
competitive advantage and can also improve its overall efficiency. Moreover, advanced
automotive interaction with consumers, workers and partners can enhance in increase in multiple
productivity. This is an opportunity for this organisation to utilise these innovative solutions in
order enhance customer's experience. This will improve the overall productivity and efficiency
of this enterprise which will help it in retaining more customers. Legal Factors:
In business environment, there are various changes takes place which impact the
performance of business in order to achieve the objectives of business. Recently, TESCO has
announced £6.4 billion loss in their trading. The market share of company is somewhat open at
0.5% and returned to its normal trading and analysed by customers that company is not worthy
for the investment which is bad news of their respective customers because recovery is uncertain.
As its property is not so worthy and due to this its cash flow and value of property also gets
affected. The supply chain of company does not matches with the EU companies which impact
both the the EU nation and company and it affects the legal stability of company. For this,
company is enforced to change its legal regulations and adopt regulatory authority which is
responsible for the engagement or involvement of organisation in the financial services for their
relevant regulation. Various government policies and legislations put direct impact on its
financial performance. Moreover, the policies of government for monopoly controls and
eliminates the purchasing power which can limit the accessibility of raw materials and it
influences on its financial services. When Brexit impacts the regulatory and its norms then it
impacts the product portfolio of company which becomes difficult for company to deal with their
suppliers (Massa, Tucci and Afuah, 2017). Environmental Factors:
Many organisations face huge amount of pressure in terms of government agencies which
is helpful in addressing the environmental issues of company. The trading loss of company
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impacts its financial and environmental resources. Apart from its financial resources, there are
many factors which influences its environment and its conditions. It helps in eliminating the
overall cost of its products and also helps in increasing its corporate social responsibility (Maas,
Schaltegger and Crutzen, 2016). While suffering from its trading losses company also introduce
its Greener living scheme to provide consumers and their advice of environmental issues which
includes the carbon footprints. Moreover, company also gets influenced by its competitors such
as Aldi and Lidl who offer choices of products at the cheap price. But due to the loss in trading
their profit margins gets decreases or slow down and it shows the drop of 3.9% while staying in
the competitive market or offering high-quality chains. Moreover, when Brexit influences the
factors of environment and also the product portfolio of company as it becomes quite tough for
company to deal with their customers and uncertain market conditions.
Alternative Strategy Selection
As per the overall PESTLE analysis, one of the most severe issue for the company is the
declining economic performance of the country. Hence, in this aspect, the firm could adopt
several strategies which helped in enhancing the scope of improvement in its financial operations
and future gain. A suggested strategy in this respect is Monopoly Pricing, which would allow the
firm in involving exclusive technological advancements in their products which would help the
company in exclusively claim a higher price and still could attract customers despite of the
economic conditions, due to several added benefits.
Bowman's Strategic Clock
Bowman's Strategic Clock is an appropriate and effective theory which effectively
explores several options for appropriate strategic positioning which would provide an
organisation with a firm competitive advantage within the overall industry. In addition to this,
this theory helps companies in analysing the directions in which it could move forward in order
to effectively enhance the scope of improvement with respect to their current situation.
The purpose of Bowman's Strategic Clock is that it illustrates an organisation in order to
have variety of options to position its products. Moreover, this is appropriately achieved through
two effective dimensions, which are perceived value as well as price. Thus, in comparison with
PESTLE Analysis, which is based on analysis of the current situation of the market, this theory is
relatively implemented by the company to assess the future positioning of their products and
services (Helfat and Martin, 2015).
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With respect to Tesco, which has faced a massive trading loss quite recently, a strategy
forward is to slim down the product portfolio and lower the price to state its current position in
the market. This thinning process is required to be positioned in the most profitable manner,
which could definitely help Tesco in enhancing its current position forward. Thus, this theory
with respect to the strategy of thinning the product portfolio is applied below:
 Low Value Added and Low Price:
This positioning would be allowing the company in gaining a competitive advantage in
the future on basis of pricing only . In addition to this, despite the low price the customers would
be gaining lower value, due to thinning of the product portfolio of Tesco. Hence, the only way
through which the firm could enhance its market share in the market is through cutting up its
prices within the marketplace (Gautier and Pache, 2015).
 Low Price:
In this strategy, the organisation deals its products at lower prices, however the value of
their offerings is maintained due to being produced and developed within large quantities. Thus,
this volume output could help the company in maintenance of higher profitability within the
marketplace, despite slimming their product portfolio. In addition to this, vast economies of scale
could be very well achieved through fast production and cheaper rates.
 Hybrid:
As the name suggests, this uses a hybrid approach which ensures combination of both the
strategies. Furthermore, in this positioning Tesco could still appropriately maintain its wider
product portfolio, however, could attract more customers by keeping the prices relatively low.
Thus, if value added benefits with respect to the organisation's products are offered to the public
at a lower rate, this would help the company in enhancing its market share and appropriately gain
more profit.
 Differentiation:
The perceived added value by customers is appropriately provided by the firm in this
strategy. Not just product quality is focused upon, but their branding is also considered as an
effective and essential aspect within this strategy. In addition to this, while an average pricing is
provided to the customers, the added valued products could actually help them in paying for the
products, hence, helping the company in enhancing the improvement with respect to its current
situation (Cook, 2015).
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 Focused Differentiation:
This strategy helps an organisation to move forward through enhancing exclusivity of
their product categories. For instance, Tesco could limit its product categories and could focus on
a particular brand, such as groceries as its exclusive offering to the customers. Furthermore, this
strategy also requires the company to effectively provide their products at a higher price range.
Reason for this is that targeted segmentation, promotion as well as distribution would be adopted
in context to the product of the organisation, which would help the firm in approaching its
desired market that would be willing to pay at such a price. However, due to Brexit and
economic downfall, this strategy might not work for the company for a longer span of time.
 Risky High Margins:
Within this strategy, the firm sells its offerings at a relatively higher pricing, without
offering any additional benefits to the customers. Thus, there is a very thin scope of success of
this strategy as Tesco is already adopting this method which as led to such a massive trade loss to
the company as reflected above. Furthermore, the current political and legislative condition of
the United Kingdom could reduce its competitive advantage (Bromiley and et. al., 2015).
 Monopoly Pricing:
In this strategy, there is only one business which offers the product to the customers in
the whole market. This helps a firm in developing a monopoly for a certain period of time due to
its unique offering and appropriate marketing. One such example in terms of Tesco could be that
the company could be offering a new product in the retail market, such as integrated and
advanced home appliances which could use Artificial intelligence and Automation of smart and
self working. This would help the organisation with respect to enhancing its competitive edge
within the market as it would be using the technological opportunities to create a monopoly in
the market, that would add value to its products even at its desired price. Furthermore, it would
also be satisfactory for thinning of its product portfolio as now the firm would be focusing on
just a range of products which would exclusively belong to Tesco.
 Market Share Loss:
This is perhaps one of the worst strategies which the company could indulge itself into.
Within this strategy, the firm would be dealing adopting a standard pricing strategy, which would
not help the firm in attracting customers as the value perceived by them in relation to the offering
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would be relatively low. Hence, the organisation would not benefit from this product even if its
cut its product categories to fit into the current market situation (Bichou, 2015).
Hence, all the strategy give different directions to the company to move forward. Hence,
in comparison with PESTLE Analysis, this theory could be very well adopted by the firm in
analysing a proper positioning of its product, which aligns perfectly with its strategy of thinning
its product portfolio. Hence, out of all these strategies, one of the most prominent positioning for
the organisation's products would be Monopoly Pricing. The reason for this is because, it
perfectly aligns with the firm's new strategy of indulging into a narrower product portfolio.
Moreover, this positioning would also illustrate the company in adopting its desired price range
due to high quality and value added offerings, which would encourage the company in gaining a
wider market share (Aven, 2016).
CONCLUSION
Thus, it could be concluded from the analysis above that strategic management is very
important for an organisation to ensure that it takes an effective pathway forward in adopting
appropriate strategies in the future which would help them in gaining competitive edge in the
market. Comparison of two theories in this respect is highly crucial, due to the fact that these
would be implemented in distinct ways by the company, that would serve different purposes in
order to assist the organisation in overcoming its current situation. Hence, with respect to this
aspect, PESTLE analysis and Bowman's strategic clock could be contrasted as the former adopts
an analysis of the current situation, while the latter is very much effective in providing a strategy
forward.
RECOMMENDATIONS
By analysing the various factors of market and its limitations such as company offer high
prices and wide range of product portfolio which is not justify the product and its prices. As
company is facing the trading loss of £6.4 Billion which decreases its image in the market and
business environment and affect its customer base. There are various recommendations are given
in order to overcome these limitations in future which are discussed as:
 TESCO focuses on its external environment as it suffers from financial loss before
launching its products in the market by which it can reduces the chances of risk because
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these factors helps in identifying the various factors which should be taken into
consideration.
 Company also update its technology in the automation and Artificial Intelligence as it
helps in attracting and developing the more customer base for it.
 Moreover, company need to consider the price range of its offerings which should be
between the low to medium because it is suitable for every class of customer (Aguinis,
Edwards and Bradley, 2017).
 TESCO launch its products by considering or keeping in mind the perspective of
customers and observing their buying behaviour, need, taste and preferences through
market research which helps them in producing products as per their demand.
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REFERENCES
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chain framework for port security assessment and management. In Port
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Cook, N. D., 2015. Crisis management strategy: Competition and change in modern enterprises.
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management accounting, control, and reporting. Journal of Cleaner Production. 136.
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Massa, L., Tucci, C. L. and Afuah, A., 2017. A critical assessment of business model
research. Academy of Management Annals. 11(1). pp.73-104.
Morden, T., 2016. Principles of strategic management. Routledge.
Noe, R.A. and et. al., 2017. Human resource management: Gaining a competitive advantage.
New York, NY: McGraw-Hill Education.
Roztocki, N. and Weistroffer, H. R., 2015. Information and communication technology in
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Steiss, A. W., 2019. Strategic management for public and nonprofit organizations. Routledge.
Welford, R., 2016. Corporate environmental management 1: systems and strategies. Routledge.
Yay, A. S. E., 2015. Application of life cycle assessment (LCA) for municipal solid waste
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Online
Tesco results: the five reasons behind Tesco's historic £6.4 billion loss. 2019. [Online] Available
Through: <https://www.independent.co.uk/news/business/news/tesco-results-the-five-
reasons-behind-tescos-historic-64-billion-loss-10194620.html>
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