Strategic Management - Sample Assignment

Strategic Management

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Overview of Tesco......................................................................................................................1
Porters five forces model............................................................................................................3
Porters generic model..................................................................................................................3
Recommendation.........................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES ...............................................................................................................................5

INTRODUCTION
Strategic management refers to setting the objectives and goals of company so that they
can achieve their purpose of existence. It includes assessing the external and internal
environment, determining strategies which would help them to achieve competitive advantage
over others. In other words it can be said that it involves continuous planning, monitoring and
analysing of situation so that company can gain sustainable business performance. For this
report, Tesco is taken for discussion. It deals in groceries and all-purpose merchandise or
supermarket chain and headquarters in England, United Kingdom. It is the third largest retail
store in the world in terms of gross revenue. In this report, overview of the company will be
discussed with recent performance they have delivered. To analyse the external environment
porters five forces model will be explained with functional examples. Apart from this, Porters
generic model will be explained and how company can implement this strategy to gain market
leader position. At last recommendation will be given to the company so that can perform with
their full potential.
MAIN BODY
Overview of Tesco
Supermarket chain Tesco is a public limited company owns by thousands of shareholders
and various big investors like BlackRock, Inc., Norges Bank, Schroders plc by percentage of
6.64 %, 3.99 %, 4.99 % shares respectively(Major shareholders, 2019). According to their
official site, company has a group turnover of 51 billion Euro and earned 1,837 million Euro
operating profit respectively (Slack, and Brandon-Jones, 2018). This is the only British based
who has been running their retail business in more than 13 countries due to which they have
become one of the largest and biggest supermarket chain in the world. Company have been
performing with their potential as they have attain 0.7% increase in sales regularly for 12
consecutive quarter. Moreover, after acquiring Booker group which deals in cash and carry
outlets, Tesco has performed better with their past performance as they have been able to acquire
food market which makes their profitability and sales enhanced to a certain level. Tesco PLC
have acquired Booker group for 3.7 billion Euro as they have capabilities and potential of
becoming the largest retailer in food industry . Apart from this, company has there subsidiary sub
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companies in many industry which makes organisation less prone to the losses and uncertainty
in the future (Kasemsap, 2017).
Tesco is trying to perform with their full productivity but still due to external factors
company has not been able to execute like due to increase in inflation rate of UK, disposable
income of people living their reduces to a certain level which creates negative impact on the
company's performance. Besides this, price war or price leadership between companies like Aldi,
Waitrose, Lidl ,etc. has a negative impact on the company as they could not be able to earn high
profits due to low margin of profits in products. Moreover, due to competition with the Unilever,
company is facing the shortage of Marmite which resulting in loosing of customers to other
competitors. Apart from this, Tesco has faced criticism due to scandal in accounting which
hampers the goodwill of company in a negative way (Bettis and et. al., 2015). So it can
concluded that, the organisation have to sort out various factors which are affecting their sales
and profitability so that they can revamp their past performance and once again become the
market leader of UK market.
Porters five forces model
This model is developed by Michael E Porter in 1979 which explains different types of
factors and determinants which shapes the future of specific industry. Besides this it helps in
determining intensity and attractiveness of market due to which company can decide their future
strategies and plan. For instance, company uses this model to identify the potential of new or
existing product's future as it is analysed by factors like competitors, substitute of products etc.
So company like Tesco can use this model to make their strategic plan for future so that they can
perform with their highest efficiency by removing obstacles which might affect their game plan
in future (Porter's Five Forces. 2018). Different factors which makes the porters five forces
model is explained below with functional example,
 Rivalry among existing companies: Every industry has high number of company who
are working towards the single aim i.e., to gain the position of market leader so that they
can drive the market with their decision. This factors spells out number of competitors in
the market and what are their USP and how company can use their strategy to gain
competitive advantage over others. Supermarket chain is one the busiest industry in the
world in which company regularly changes their strategy so that they can acquire or
attract more customers and market share (Michael, Storey and Thomas, 2017).
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Competition in the retail market is based on two factors i.e., cost differentiation or
product differentiation. Though it is hard to differentiate the regular groceries so every
company focuses on cost differentiation. Tesco has many competitors in UK like Aldi,
Sainsbury's, Waitrose, Asda, Lidl etc. So after merger of Sainsbury's and Asda, they have
become more powerful as their competitors because they have largest market share in UK
which means that they can easily change the market structure by increasing or decreasing
the prices of product. On the other hand, to grow into the market, organisation has
acquired Bookers group resulting in high market share for company. So after above
mentioned points, it can be said that competitive rivalry is high in nature and they can
only survive in the market if they constantly change their strategies according to
customers needs and demands.
 Threat of substitute products or services : This means competitor substitutes that can
be used in place of a company's products or services pose a threat. This force is
threatening when buyers can easily find substitute products with attractive prices and
better quality and switching cost is also low. TESCO sells a wide range of products
which belongs to various categories like clothing and jewellery, technology and gaming,
health and beauty, home electrical, entertainment and books, home appliances, garden,
etc. The threat of new entrant of new competitors in food industry is relatively low.
Competitive organisation needs big investment amount in order to compete with the big
and already established industries (Hanson and et. al., 2016). The main competitors of
organisation are Asda, Sainsbury, etc. Therefore, the new operators have to produce
something at an exceptionally low price or superior quality to their value in market.
TESCO relatively faces low threat of substitute products because it has created its distinct
position in the market. The threat of a substitute product or service is high if it offers a
value proposition which is entirely different from current offering of the industry.
Organisation will manage the threat of substitute products or services by focussing on
becoming service oriented rather than product oriented. They will also focus on the needs
of the customers instead of emphasising on what customer is purchasing. By increasing
switching cost of the customers will also help TESCO in minimising the threat of
substitutes.
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 Threat of new entrant : New entrants or companies can decrease the sales and
profitability of existing firms. This force determines that how easy it is to enter a
particular industry. If an industry is profitable and there are few obstacles to enter, rivalry
soon intensifies. When more organisations compete for the same market share, profits
start to fall. It becomes necessary for present organisations to create high obstacles in the
entry so that new entrants can be discouraged. The threat of new competitors into the
food retail industry is low (Morden, 2016). New entrants brings innovation in retail sector
and can put pressure on TESCO by minimising pricing strategy, reducing cost and
providing new value propositions to the customers. In this TESCO has to manage all the
barriers to safeguard its competitive boundary. TESCO can handle all these obstacles by
innovating new products and services. It not only brings new customers but also provide
reason to old customers to purchase the products of their company. They can build
economies of scale so that it can minimise foxed cost per unit. Also by investing money
on research and development department will discourage new entrants to enter an
impulsive industry where the established industry like TESCO keep updating the
standards regularly. Thus, it significantly minimises the framework of extra ordinary
profits for the new firms and discourages the new players in the industry.
 Bargaining power of suppliers : Strong bargaining power enables the suppliers to sell
higher prices or poor quality products to their customers. This directly affects the
purchasing firms profits because they have to pay more for materials. Suppliers of
TESCO will have strong bargaining power when there are few suppliers but many
buyers, suppliers are large and creates threats to forwards integrate, suppliers hold scarce
resources, low cost of switching raw materials, etc. This force defines how easily
suppliers can drive up the price of good and services (Lasserre, 2017). In TESCO, the
bargaining power of suppliers is relatively low. Almost all the companies in retail sector
purchases buy raw material from numerous suppliers. Suppliers in dominant position can
minimise the earning margins of TESCO in the market. The power of negotiations of
providers is quiet low . Therefore, the position of retail industry TESCO stronger and
negotiations are positive in order to obtain the prices as low as possible of the providers.
Furthermore, TESCO can manage bargaining power of suppliers by building efficient
supply chain with multiple suppliers. Also by researching with various product designs
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using different materials so that when prices of one raw material goes up then they can
shift to another. TESCO will also develop suppliers whose business depends on the firm.
Also TESCO is struggling because due to high competition the suppliers got an edge on
company (Wheelen and et. al., 2017). The retail sector is required to build healthy
relationship with suppliers to get products on competitive prices.
 Bargaining power of buyers : Customers or buyers will have power to demand lower
price and higher quality products from industry producers when their bargaining power is
strong. Lower prices means less revenue for the producers while superior quality
products usually raise production costs. These will results in lowering profits for
producers. Buyers of TESCO will exert strong bargaining power when they are
purchasing in large quantities, when only few buyers exist, switching cost of other
suppliers are low, when there many substitutes, customers are price conscious. This
specifically deals with the capacity of customers to drive prices down. It is affected by
how many buyers and customers a company has, how significant each customer is and
hoe much it would cost them to switch from one company to another. In TESCO, the
bargaining power of buyers is high due to availability of substitutes or alternatives . The
TESCO is required to keep the price low and reasonable with respect to capture the
major portion of market (Doz, 2017). As buyers are demanding and they want products
with innovative features and quality which puts pressure on TESCO profitability in long
run. The smaller and more powerful customer base will have higher bargaining power of
the customers and this will induce them to grant higher discounts and offers. TESCO can
manage the bargaining power of buyers by building strong customer base as this will
minimise the bargaining power of buyers and it will provide an opportunity to the firm to
streamline its sales and production process. Innovative and new products will also reduce
the defection of existing customers of TESCO to its competitors.
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Source : Porter's Five Forces Model. 2018
Porters generic model
Michael Porter developed three generic strategies which helps in gaining competitive
advantages. These strategies are related to the level to which the scope of business activities are
narrow or broad which seeks to differentiate its products. A company chooses to engage itself in
any of the strategies so that it assures competitive advantage. The porters generic model is used
for defining the strategic direction and position of the TESCO. This model is helpful in analysing
the profitability and competitive advantage of the company. Thus, it is a useful tool of analysing
the competitive advantage and sustainability. These strategies will be beneficial for the company
in determining the effectiveness and efficiency of the business operation and assures smoothness
in their functioning (Porter’s Generic Strategies. 2018). The generic strategies are cost
leadership, focus and differentiation which TESCO will use and are discussed below :
 Low cost leadership : This strategy used by company will emphasise on building and
maintaining plant, equipment labour cost and working practices that delivers lowest cost
in that industry. The main objective of this strategy is to become the lowest cost
producer in the industry. This is very crucial as many market segments in this industry
are supplied with the motive of minimising cost. In order to become the lowest cost
producer, TESCO will accomplish the several points like high level of productivity, high
capacity utilisation, using various approaches of lean production methods, effective use
of technology in production process, etc. As all these will help the company in lowering
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Illustration 1: Porter's Five Forces Model. 2018

the cost. They can strive to have the lowest cost in the industry and offer its product and
services to a larger market at minimum price. This strategy will be based on the ability of
the organisation to control and monitor their operating cost so well that they are able to
price their products competitively which will help them in generating higher profit
margins. For instance, prices of TESCO are lower as compared to sainsbury, asda, etc.
 Differentiation : It occurs when the products of the management are able to fulfil the
needs and expectations of some customers in the market place better then the other
companies or producers. This means, that when the organisation is able to differentiate its
products, then it is able to charge a price which will be higher then the prevailing average
price in the market. With differentiation leadership. TESCO will target larger market
and aims to accomplish the competitive advantage through differentiation across the
overall industry. This strategy includes selecting one or more criteria used by buyers in a
market and then positioning the business differently to achieve those criteria. There are
various ways which will help TESCO in achieving it like offering superior product
quality in terms of features, durability, reliability, etc. branding which will build strong
customer recognition and desire, creates brand loyalty,etc. Through this strategy,
company will offer services and products with unique and innovative features that creates
value for customers. This will provide a protection against different market and product
life cycles, thus allowing cash flow to come in even if few products declines, while other
grow or mature. TESCO has accomplished significant economies of scale and their
business and brands are built on persuading customers to become brand loyal and they
pay superior or premium price for their products. For instance, the organisation has
differentiated itself in terms of product range, delivery, club card schemes, online sales,
etc.
 Focus : This strategy emphasises the focus of management in a specific place of market
and develops its reasonable benefit by contributing stuff which are developed peculiarly
for that position. The focus is on narrow competitive scope within an industry. The one
who will be responsible for focussing and developing strategies will focus on market
segments in the industry and customises its strategy so that they can be served. It has two
distinct variants namely cost focus and differentiation focus. In cost focus, the TESCO
will intend to find cost advantage and benefit by focussing on niche market and offering
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lowest possible prices (Ansoff and et. al., 2019). Under this, organisation will focus on
maintaining balance between production and its cost. The another variant is
differentiation focus, where the organisation emphasises or focuses on unique and
attractive features of the products and services they offers. So using this strategy will
focus on the creation of internal efficiencies that will enable them to hold up with
external pressures or consequences. According to this model, TESCO will prosecute the
strategy of coast leadership or differentiation either in a particular market or with specific
products. Therefore, the organisation may settle to limit their products to particular
market region or may choose to offer a similar line of products to a larger market and
using strategy of focus.
Recommendation
From the above discussed report, as TESCO has beard a huge financial loss from which
they are recovering. For this purpose, it has been recommended that company should use various
approaches of managements like using six sigma and total quality management. Using these
approaches will give advantage of improving current process, products or services by analysing
and eliminating defects. At the same time, use of total quality management will help company in
maintaining the quality standards of their products and services and its a process which is
entirely customer oriented and aims for regular improvement of its business operations. This will
ultimately help the company in meeting business objectives at minimum cost with efficient
quality. Apart from this, the company should invest more in research and development
department so that they can analyse customer needs and demands more appropriately which will
contribute them in developing new products and services as per the expectations of the
customers. They should opt for such marketing channels for promotion of their products which
will provide them cost benefit and saves time by attracting large population like social media and
internet.
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Source : Porter's generic strategies matrix diagram. 2018.
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Illustration 2: Porter's generic strategies matrix diagram. 2018.

CONCLUSION
From the above report, it can be concluded that company can only perform with their
highest potential if and only if they have made their strategies according to their strengths and
weakness. It is essential for company to assess and monitor external environment as it can not be
controlled by company that's why company have to modify their approaches accordingly. In
broader sense, company have to make their final strategies on three factors i.e., cost,
differentiation and focus strategy as then only they would be able to compete in the competitive
market. Besides this, company should also focus on competitor game plan and mould their
strategies according to it as then only they can acquire more market and customer share.
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REFERENCES
Books and Journals
Ansoff and et. al., 2019. Implanting strategic management. Springer.
Bettis and et. al., 2015. Qualitative empirical research in strategic management. Strategic
Management Journal.36(5). pp.637-639.
Doz, Y.L., 2017. Strategic management in multinational companies. In International Business
(pp. 229-248). Routledge.
Hanson and et. al., 2016. Strategic management: Competitiveness and globalisation. Cengage
AU.
Kasemsap, K., 2017. Strategic innovation management: An integrative framework and causal
model of knowledge management, strategic orientation, organizational innovation, and
organizational performance. In Organizational Culture and Behavior: Concepts,
Methodologies, Tools, and Applications(pp. 86-101). IGI Global.
Lasserre, P., 2017. Global strategic management. Macmillan International Higher Education.
Michael, S., Storey, D. and Thomas, H., 2017. Discovery and coordination in strategic
management and entrepreneurship. Strategic entrepreneurship: Creating a new mindset,
pp.45-65.
Morden, T., 2016. Principles of strategic management. Routledge.
Slack, N. and Brandon-Jones, A., 2018. Operations and process management: principles and
practice for strategic impact. Pearson UK.
Wheelen and et. al., 2017. Strategic management and business policy. Pearson.
Online
Major shareholders. 2019. [Online]. Available Through:
<https://www.tescoplc.com/investors/major-shareholders/>
Porter’s Generic Strategies. 2018. [Online]. Available Through:
<https://www.toolshero.com/strategy/porters-generic-strategies/>
Porter's Five Forces. 2018. [Online]. Available Through:
<https://www.strategicmanagementinsight.com/tools/porters-five-forces.html>
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