Strategic Management for Tesco

The assignment requires analyzing Tesco's strategic management using Porter's Five Force Model and Generic Strategies model to achieve a competitive edge and market share. The document also suggests improving product quality and using better techniques than competitors to enhance sales and market share.

Strategic Management

EXECUTIVE SUMMARY
In this report different essential topics of strategic management will be discussed.
Organisations needs to adopt effective tools and policies in order to perform their daily activities
in an efficient and better manner. In this report, two strategies for strategic management will be
discussed for getting an upper competitive edge in the market. These strategies are Porter's
generic strategies and Porter's five forces model. Based on these two strategies,
recommendations will be provided which is helpful for the Tesco to gain an competitive
advantage over their competitors at the market place.
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Table of Contents
EXECUTIVE SUMMARY.............................................................................................................1
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Overview of organisation.......................................................................................................3
Porter's five forces model.......................................................................................................4
Porter's generic model............................................................................................................8
CONCLUSION..............................................................................................................................10
RECOMMENDATIONS...............................................................................................................10
REFERENCES..............................................................................................................................11
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INTRODUCTION
Strategic management is the process of continuous monitoring, planning, assessment and
analysis of everything which is important and beneficial for a firm to achieve its desired
objectives and goals. In management, it is often referred as the development and implementation
of strategies and policies adopted by the organisation by considering the resources and analysis
of internal and external environment factors on behalf of various stakeholders. This report is
based on the firm Tesco which is the largest retail organisation of UK. The firm was established
by Jack Cohen in year 1919 at Welwyn Garden city, England, United Kingdom. This report will
discuss the strategic analysis of Tesco using the theories of Porter's five forces and Porter's
generic model.
MAIN BODY
Overview of organisation
Tesco is a British retailer company which is dealing in groceries and merchandise retail
items. It is headquartered in Welwyn Garden city, England, United Kingdom. It is the third
largest retail organisation in world in terms of gross revenues. It is the world's 9th largest retailer
in terms of revenue. The firm is operating in seven countries across Asia and Europe, Ireland,
Hungary and Thailand and also it is the largest retail chain in UK in terms of providing groceries.
The firm has a market share of approx. 28.4%. Tesco was founded in 1919 as a small group of
stalls (Bryce, 2017). The name first appeared when Jack Cohen buy a shipment of tea from T. E.
Stockwell and used his first two letter of his name. The first shop of firm was opened in 1931 at
Burnt Oak, Barnet. The business of Tesco expanded rapidly by 1939 and the firm opened over
100 Tesco shops across the country. The firm expanded their business to 11 countries by 1990.
The firm is listed on London Stock Exchange and also a constitutional of FTSE 100 Index. In
2015, the market capitalisation of firm was 18.1 Billion Pound. Tesco comes at 28th position on
London Stock Exchange. The company is also interested in film studios and is investing in a
small studio for producing their own DVD's. The firm is employing over 476,000+ employees in
their over 6553 shops across the world.
The firm has faced several issues and problems due to which the fresh and easy stores of
the firm in US get highly affected. This has led to loss of 1.2 Billion pound to the organisation.
Due to this loss, Tesco was in dilemma to close their business or come up again with new ideas
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and strategies. The firm introduced tablet computers in 2013 for overcoming the loss and lost
position (Frynas and Mellahi, 2015). Currently the firm is doing their business in 3433 shops
across the world. Strategic management is very essential for Tesco as they can face problem
regarding their profitability and productivity if any wrong decisions will be taken by the
management. This strategies analysis or management is useful for the firm to evaluating the
effectiveness of the taken decisions and implemented strategies. Proper and suitable strategies
must be developed by the managers of Tesco to continue their operations and working without
any problem or external hindrances.
Porter's five forces model
Il
lustration 1: Porter's Five Force Model, 2013
Source: Porter's Five Force Model, 2013
This model was introduced and proposed by the Michael Porter in order to analyse the
attractiveness of a particular sector which can be used to determine the profitability and
productivity. This model is used by the various organisations as a strategic management tools to
determine the external market for getting an upper competitive edge over the competitors of
same sector. Through this model, companies can determine the existing competition in the
market (Gayle, Tewarie and White , 2011). From this model, companies can identify the factors
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which can affect the business operations and profitability of the firm. This model is helpful for
the Tesco to do a proper analysis of the forces which can influence the business operations. From
this model, effective strategies can be developed by the organisation to overcome the issues and
problems of market. The forces of this model are discussed below:
Threat of substitute products or services: Substitute products are used by the firms to
capture more market share by meeting the demands and requirements of customers using
different products. Customers tends to opt for products of low prices. So, if an organisation is
providing their products at low prices and other firm is providing the same product at higher
prices than customers will prefer the low prices products. These prices can also influence the
mind-set of loyal customers whom the firm had retained from a long period of time. This force
can also impact the Tesco as various competitors of Tesco are providing the same products to the
customers in the market (Greco, Cricelli and Grimaldi, 2013). These competitors with low prices
can affect the sales and revenue of firm. Managers of Tesco are trying to provide their products
at higher prices but they need to ensure that the products are affordable for the customers
otherwise customers will go for competitors’ products and profitability of the firm will be
reduce. If any firm is providing same products as of Tesco and the product is meeting the
demands of customers, then it will obviously effect the profitability of Tesco. The taken firm
Tesco is dealing in various products such as home and electrical appliances, clothing, jewellery,
toys, health care, beauty care etc. The range of products of Tesco is extremely broad and some of
the similar products of the firm are available at low prices in the market which can negatively
influence the sales and profit of the firm in the future. This issue can be controlled by
implementing suitable strategies such as increasing the switching cost for customers, becoming
services oriented, determining the needs and demands of consumers etc.
Bargaining power of supplier: It is defined as the input of market. Suppliers are
necessary for providing the raw materials and other necessary materials required for the
production or manufacturing of products. Number of suppliers in the market affect the price of
raw materials. If the suppliers are few in the market than they will sell the products at high prices
and companies should purchase the goods at high prices whereas the more the number of
suppliers, their prices of products will be comparatively less and firms can purchase the products
at low prices (Hill, Jones and Schilling, 2014). This is helpful for enhancing the profits of firm
and to save the resources for performing the business operations in an effective manner. The
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Tesco is purchasing their raw materials from limited suppliers for ensuring the good quality of
materials hence the Bargaining power of Tesco is low with the suppliers. The firm can't bargain
with their suppliers due to less number of suppliers. Firms needs to maintain healthy and good
relation with their suppliers for their own benefits in upcoming future. Tesco company can easily
deal with low bargaining power of suppliers by effectively building their own supply chain with
various suppliers and even company can try experiments by selling the products using different
materials.
Rivalry among existing firms: Competition in retail sector is very high due to which the
organisation such as Tesco needs to face high competition from the competitors of same sector.
Firms of retail sector needs to have proper understanding of their competitors for implementing
suitable strategies and policies to get ahead in the competition. Having proper knowledge and
understanding of the rivals is necessary for developing and formulating effective methods to
promote the products and services in order to attract the customers towards the offered products.
Firms like Tesco must have the knowledge of the implemented strategies and policies of the
competitors in order to deal with the challenges and issues which arose due to the competition.
Firms who are operating in same sector as Tesco like Aldi, ASDA, Sainsbury are giving tough
competition to Tesco. Due to the high competition, huge investments is required by the Tesco in
marketing, promotions and advertising of their products. This involved huge costs is required for
using suitable strategies which is helpful in generating more profit and revenue. Tesco also needs
to retain their existing and valuable customers by offering quality based products and services
which will also increase the sales and profit of the products offered by the organisation. The
market share of Tesco is currently high but the firm can face problems due to the proposed
merger of ASDA and Sainsbury. This merger will also impact the profitability of the Tesco (Hill,
Jones and Schilling, 2015).
Bargaining power of customers: Bargaining power of customers: It is the power of
customers which can affect the prices of the products offered by the firm to their respective
customers because of the dissatisfaction of consumers in purchasing the products. The buying
power of customers goes high when there are less number of customers whereas the buying
power of customers can decrease if the number of customers are more. The bargaining power of
customers can be regulated by the whole sector when having ideas regarding the factors such as
switching the cost of customers, information regarding substitute products, price sensitivity etc.
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Tesco is facing the issue of high bargaining power of customers due to the availability of various
retail stores and hence they consider themselves as the king. Availability of various stores in
market enables the customers to bargain due to having different choices for purchasing the
products at lower prices. Hence, the firms needs to provide high quality of products to the
customers at a affordable prices for attracting such customers and to decrease their buying
power.
Threat of new entrants: It is called as the upcoming threats from the launching of new
firms in the same sector or industry. New companies of retail sector are adopting innovative and
new ideas due to which the Tesco can face threats from them. New companies are using new
techniques and technologies due to which they are more creative than the old companies who are
using the traditional techniques in their processes (Hill, 2017). Tesco is also dealing with this
force as the firm can face threats from new firms and can take the acquired market share of
Tesco. Tesco can handle such threats by using innovative products and innovative methods in
their supply chain. Company can analyse the market trends to attract new customers and to retain
the existing customers. Tesco needs to invest more amount of money in the R&D activities for
collecting the market information and to modify the products according to the demand and
perception of customers. Also the firm needs to introduce unique and innovative products to their
consumers which are available at comparatively affordable prices than their competitors.
These all of the above discussed forces can effect the retail sector due to the increasing
competition among the firm in the market. Tesco should have the information and understanding
of the industry for implementing suitable strategies in order to deal with the challenges and
issues of such intense competition (Hitt, Ireland and Hoskisson, 2012). The bargaining power of
suppliers and customers can negatively impact the marketing and various other promotional
activities of the firm. Organisations like Tesco can achieve high market share along with
attention of customers by implementing effective strategies and policies.
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Porter's generic model
Illustration 2: Porter's Generic Model, 2014
Source: Porter's Generic Model, 2014
The Porter's generic strategy is used for determining the strategic direction and position
of the organisations. Michael Porter proposed 4 strategies which can be used by the organisations
for getting an upper competitive edge in the market. It is also helpful in analysing the
profitability of the company in terms of higher or level with the industry average. From this
model, Competitive advantage and sustainability of the business can also be evaluated.
Management of Tesco can also use this model for understanding the performance and brand
image of the firm due to the availability of the four different type of strategies. These strategies
are useful for the Tesco to determine the effectiveness of their business operations. It may help to
identify whether an organisation is operating its operations effectively or not. Through this
model, management of Tesco is currently evaluating the performance, position and competitive
advantage of their business. The four different strategies of this model are discussed below:
Cost leadership: This strategy is used by the organisations for gaining an upper
competitive edge and business sustainability in the market place. This competitive edge and
sustainability can be achieved using proper analysis and market research. This strategy helps the
firms to provide the products and services at low costs for achieving the higher market share.
Tesco needs to become customer oriented rather than services oriented for providing
economically affordable products to the consumers (Jenkins and Williamson, 2015). Large
number of customers can get attracted towards the products of firm when the prices are low
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which will enhance the sales of firm. Cost leadership can be achieved by producing large number
of products and selling them at lowest possible prices. Through the cost differentiation, Tesco
can increase its profit and can meet the industry average.
Differentiation focus: In this strategy, products with unique features are introduced in
niche market for expansion purpose and also to attract more customers. This strategy can be
proved beneficial for the Tesco as from this strategy, firm can determine whether they can
achieve competitive advantage or not in the market. Tesco needs to implement strategies for
achieving an upper competitive edge in the market (Killen and et. al., 2012). Through this
strategy, Tesco can enhance their sales and profit by providing products which are useful from
customer's perspective and also brand loyalty from the customers can be achieved. Strength and
competencies of the Tesco can assist the company in choosing proper and suitable strategy for
achieving the organisational objectives.
Cost focus: In this strategy, existing product of firm is launched in a small or niche
market for understanding the reaction of customers towards the product which will help in taking
decisions for future. Tesco can use this strategy for determining the reactions of customers of
small market towards their products. This strategy is majorly associated with cost in which the
products are offered in small market at low prices. It can be proved beneficial for the Tesco as
the firm can increase the market share and customer base using this strategy. By launching the
product in niche market, company can record feedback of customers regarding the offered
products (Luo, Sun and Wang, 2011). This strategy is good for expansion purpose as the
response from small market can be used for taking important decisions regarding marketing and
launching the products in new markets.
Differentiation: In this, new products are introduced in the market with some pretty
modifications for attracting more customers to achieve high market share. Through this, the firm
can become attractive and competitive in the market. Providing innovative or improved products
are essential for organisations to retain their existing clients in future. Tesco is the largest retail
firm in UK and also offering new and innovative products frequently which is beneficial to retain
the existing customers and also to attract new customers (Rothaermel, 2015). Differentiation is
beneficial for Tesco as it can provide positive results to the firm. This is because, customers
while buying the products tends to look for features and innovative products before purchasing
the products.
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Tesco can use all the four of above mentioned strategies for expanding their business as
well as to get an upper competitive edge. For the competitive advantage, Tesco must have the
idea of trends and conditions of market for launching the products in a new location to achieve
high market share. Differentiation focus strategy can be proved very useful for the Tesco as the
company has good image in the market which will attract new customers towards the brand.
Positive market image and innovative features in products are helpful in the expansion of
business more effectively (Wheelen and Hunger, 2011).
CONCLUSION
It can be concluded from the above report that the strategic management is very essential
for the firms of retail sector due to having intense competition in the market. Tesco needs to
analyse the trends and behaviour of the market as well as of customers for offering their products
and services to the customers in an effective manner. Tesco can use the different strategies of
Porter's generic strategies for getting a higher competitive edge over their competitors in the
existing market. Also the Porter's five forces model is very beneficial for the company to
increase their customer base and profitability in the market. Tesco can expand to different new
locations by using differentiation focus strategy in which the firm will provide the unique and
innovative products to their customers in new market.
RECOMMENDATIONS
It can be recommended to the management of Tesco to develop and formulate effective
and suitable strategies for successfully expanding the business of firm all over the world. The
organisation i.e. Tesco can use the Porter's generic strategies model and Porter's five force model
for achieving a higher competitive edge and market share in the marketplace. Due to the intense
competition in the retail sector, various new firms are introducing their innovative products at
lower prices so Tesco also needs to improve the quality of their provided products and sell them
at suitable prices for enhancing their sales as well as market share. It is very important for the
Tesco to use effective and better techniques than their competitors in order to get less effects on
their business operations.
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REFERENCES
Books and Journals
Bryce, H.J., 2017. Financial and strategic management for nonprofit organizations. Walter de
Gruyter GmbH & Co KG.
Frynas, J.G. and Mellahi, K., 2015. Global strategic management. Oxford University Press,
USA.
Gayle, D.J., Tewarie, B. and White Jr, A.Q., 2011. Governance in the twenty-first-century
university: Approaches to effective leadership and strategic management: ASHE-ERIC
higher education report (Vol. 14). John Wiley & Sons.
Greco, M., Cricelli, L. and Grimaldi, M., 2013. A strategic management framework of tangible
and intangible assets. European Management Journal. 31(1). pp.55-66.
Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated
approach. Cengage Learning.
Hill, C.W., Jones, G.R. and Schilling, M.A., 2015. Strategic management theory. Cengage
Learning,.
Hill, T., 2017. Manufacturing strategy: the strategic management of the manufacturing function.
Macmillan International Higher Education.
Hitt, M.A., Ireland, R.D. and Hoskisson, R.E., 2012. Strategic management cases:
competitiveness and globalization. Cengage Learning.
Jenkins, W. and Williamson, D., 2015. Strategic management and business analysis. Routledge.
Killen, C.P. and et. al., 2012. Advancing project and portfolio management research: Applying
strategic management theories. International Journal of Project Management. 30(5).
pp.525-538.
Luo, Y., Sun, J. and Wang, S.L., 2011. Comparative strategic management: An emergent field in
international management. Journal of international management. 17(3). pp.190-200.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education,.
Wheelen, T.L. and Hunger, J.D., 2011. Concepts in strategic management and business policy.
Pearson Education India.
Online
Porter's Five Force Model. 2013. [Online]. Available through:
<https://www.cgma.org/resources/tools/essential-tools/porters-five-forces.html/>
Porter's Generic Model. 2014. [Online]. Available through:
<https://research-methodology.net/porters-generic-strategies//>
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