This report evaluates the business strategy of Tesco, analyses its competitive advantage using the VRIO framework, conducts a PESTLE analysis, and evaluates its competitiveness using Porter's Five Forces model.
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Table of Contents INTRODUCTION...........................................................................................................................3 MAIN BODY..................................................................................................................................3 Value of Mission, Vision, Objectives and Purpose of Tesco......................................................3 Analysing Competitive Advantage of Tesco using VRIO Framework.......................................4 PESTLE Analysis of Tesco.........................................................................................................7 Evaluating Competitiveness of Tesco Using Porter’s Five Force Model....................................9 Review of Tesco’s Business Strategy........................................................................................11 CONCLUSION..............................................................................................................................12 REFERENCES..............................................................................................................................13
INTRODUCTION A business strategy is the working plan of a business organisation that is created in order for the business organisation to effectively achieve its end vision, mission and objectives. An effectivebusinessstrategyallowsabusinessorganisationtooperatesuccessfullywithin consumer market within increased productivity and profitability and also provides it with a competitive advantage against its competitors in the operating industries (Akter and et.al., 2016). This report assesses the business strategy of Tesco, a multinational chain of retail specialising in selling general merchandise and groceries to consumers. Tesco was founded in 1919, an astonishing 101 years ago and operates from its headquarters in Hertfordshire England. Having operated in the retail industries successfully for such a long period of time has presented Tesco with numerous opportunities to grow and expand its business operations to global markets. Currently Tesco operates 6,800 distinct establishments across 11 different countries around the world. This has made Tesco the third largest retail business on the basis of gross revenues in the entire world. For its operations, Tesco also employees a large number of individuals for its operations, with the business employing 450,000 different individuals across the globe as of 2019. MAIN BODY Value of Mission, Vision, Objectives and Purpose of Tesco For the planned business strategy of any business organisation to be successful, it needs common shared objectives and goals for the various operations of a business organisation. Vision,mission,purposeandobjectivestatementsserveasaguideforthebusiness organisation’s business strategy (Leonidou and et.al., 2017). Failure for a business organisation to create clear dedicated vision, purpose, mission and objectives towards their business strategy results in confusion in relation to the operations of the business and also makes it much harder for the business organisation to achieve set mission, objectives and vision.
As Tesco is a quite successful retail business organisation, its leadership and management have created specific purpose, mission, objectives and vision for the operations of Tesco as part of its business strategy. Vision:Tesco’s vision statement is “To be the most highly valued business by: the customers we serve, the communities in which we operate, our loyal and committed colleagues and of course, our shareholders.”This statement clearly states the end vision that Tesco wishes to achieve in the future as part of its business strategy, so that there is no confusion amongst its distinct operations, making it easier to achieve it through effective business strategy (Johnson, 2016). Mission:Tesco’s mission statement is “We make what matters better, together.” Tesco’s mission statement also is clear as part of its business strategy, leaving no room for confusion, allowing for its business strategy to successfully achieve its end vision and objectives. Purpose:Tesco’s purpose in the retail industries is “To serve shoppers a little better every day. We deliver this through our values – ‘No one tries harder for customers’ and ‘treat people how we like to be treated’.This also clearly states the purpose of Tesco’s operations as part of its dedicated business strategy. Objectives:The current objective of Tesco is to further increase their market share, customer base, operational performance, efficiency, productivity and profitability in the retail markets by providing customers with exceptional service and satisfaction in order to retain their loyalty for the future. The objectives in Tesco’s business strategy clearly states the current objective that all operations of Tesco are required to achieve, thus allowing for no room for confusion, making their business strategy effective (Park and Mithas, 2020). Analysing Competitive Advantage of Tesco using VRIO Framework The competitive advantage gained by Tesco through its business strategy and operations can be analysed by making use of the VRIO framework. It is a four question framework which that uncovers whether a business organisation possesses sustained competitive advantage against its competitors in the operating industries or not.
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Figure1: VRIO Framework VRIO in the framework is an acronym that stands for Valuable, Rare, Inimitable and Organised (Ariyani and Daryanto, 2018). VRIO framework details the Tesco’s leadership and management which of their operational processes and resources are valuable, rare, inimitable and organised, which can be used by Tesco to gain a sustained competitive advantage in the retail industriesagainsttheirperceivedcompetitorsforincreasedcustomerbase, marketshare, productivity and profitability in the consumer markets. BasisValuableRareInimitableOrganised IT IntegrationYesYesNoYes Customer LoyaltyYesYesNoNo ManagementYesNoYesYes WorkforceYesNoNoYes Supply ChainYesYesNoYes InfrastructureYesYesNoYes Valuable:All the internal components possessed by Tesco in relation to its management, workforce, IT integration, infrastructure etc., are all of immense importance and highly valuable to the sustained successful operations of Tesco in the retail markets. The success of Tesco within the retail markets is highly dependent on the operations of all these internal components, making them valuable to the retail organisation. All of these internal components of Tesco contribute
significantly to the current success of Tesco in the retail industries and can also help Tesco in the future gain competitive advantage against their competitors in the retail industries through contributions of their individual operations. Rare:The level of IT integration to the various processes of Tesco, the customer loyalty it possesses, its supply chain operations and its developed infrastructure are all rare resources within the retail industries and contribute significantly towards providing it with a sustained competitiveadvantageagainstitscompetitorswithintheretailindustries.Tesco’slarge investments into its infrastructure and IT integration make these internal components rare against its competitors (Nam and Yi, 2020). The level of customer loyalty possessed by Tesco is also highly rare within the retail industries, while its great long term relations with suppliers also add to its rare components, all of which contribute significantly to provide Tesco with a sustained competitive advantage against its competitors. Inimitable:Only the effective management operations of Tesco cannot be imitated by their perceived competitors within the retail industries, as though many of the internal components of Tesco are valuable and rare, most of them can be imitated by their competitors within the retail markets, given enough time. Though the IT integration, infrastructure and supply chain of Tesco is rare, investment by their competitors into their own operations can yield resources similar to those that Tesco possesses. If Tesco’s competitors start to place greater emphasis on customer satisfaction and loyalty, they too would be able to possess the rare customer loyalty metrics that Tesco currently possesses (Vargas-Hernandez and Medrano, 2020). To improve this and gain a sustained competitive advantage, Tesco can invest into its research and development of new IT software and systems which cannot be imitated by their competitors. Organised:All internal components of Tesco are strategically organised, except for customer loyalty, providing Tesco’s diverse operations with a lot of fluency to work together cohesively in ordertoachievethegoalsandobjectiveofTesco’sbusinessstrategy.Thiscontributes significantly towards providing Tesco with sustained competitive advantage within the retail industries.
PESTLE Analysis of Tesco In order to assess the external environment in which Tesco operates in and the various factors present in the external environment of Tesco, which can influence and impact the operations, productivity and profitability of Tesco in the retail markets of UK, we make use of the PESTLE analysis. This analysis details all the political, economic, social, technological, legal and environmental factors present in the external environment which can have an impact on Tesco’s operations, productivity and profitability within UK’s retail markets (Perera, 2017). The PESTLE analysis for Tesco is as follows: Figure2: PESTLE Analysis Political Factors:Although there are several political factors that can have an impact on the operations of Tesco in UK, the most significant political factor relates to the current political instability in UK owing to Brexit. Though the exact details of changes post Brexit still haven’t been made available to the public and are highly debated on by economists and analysts, Brexit can have a positive impact on the productivity and profitability of Tesco in retail markets of UK. As Brexit will inevitably result in the scrapping of current complex international trading laws and policies towards more transparent ones, this can have a significantly positive impact on the international trading operations of Tesco, enhancing its profitability.
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Economic Factors:There are also several economic factors present within UK that can have an impact on the operations, productivity and profitability of Tesco. The most prevalent of these relates to the reduction of corporate tax announced by the government of UK post 2020. The UK government has announced a reduction in the corporate tax from 19% to 18% which is levied at a business organisation’s profits generated from April 2020 onwards (Rastogi and Trivedi, 2016). This will have a significantly positive impact on the overall profitability of Tesco within UK, as for its current operations and customer base, it will effectively be able to generate greater profits by paying less to the government through corporate taxes, effectively increasing its overall profitability in UK. Social Factors:The most significant social factor that can have an impact on the operations, productivity and profitability of Tesco in UK relates to the social trend to emerge in the last few years of online shopping. Through thissocialtrend, increased numberof customersare exclusively opting to conduct all of their shopping operations through the internet by availing the services of online stores. Tesco too can take significant advantage of this social trend through its own online stores and service an ever increasing number of customers through its own online stores. Doing this will inevitably have an immensely positive impact on the customer share, market base, productivity and profitability of Tesco in the retail markets of UK. Technological Factors:Tesco can also make use of several technological factors present in tis external environment to improve and enhance its current operational performance and efficiency. Tesco can make use of the newly innovated technology of self-servicing checkout counters which are able to conduct the checkout operations of customers without any need of external guidance or supervision by staff members. Incorporating this innovative technology into Tesco’s operations can allow it to significantly reduce its staffing costs and employee wages and will surely result in significantly improved profitability for Tesco in the long run (Policy, 2016).In addition to this, Tesco can also upgrade its existing manufacturing machines and equipment in favour of new ones which are also able to perform with significantly increased efficiency and rate, while consuming less energy, thus significantly improving the existing productivity and profitability of Tesco in the retail markets of UK. Legal Factors:There are also various legal factors present in the external environments, which can have an impact on the operational performance, efficiency, productivity and profitability of
Tesco in the retail markets. Future changes to government mandated laws such as Health and Safety laws, minimum employee wages etc., can have a negative impact on the current productivity and profitability of Tesco within the retail markets of UK. Environmental Factors:There are also several environmental factors present within the external environments of UK which can influence and have an impact on the operational productivity and profitability of Tesco. Changes to environmental laws in relation to how Tesco’s suppliers procure the needed raw materials for Tesco’s operations can effectively result in increase in the price of raw materials. This can have a significantly negative impact on the productivity and profitability of Tesco within the retail markets of UK Evaluating Competitiveness of Tesco Using Porter’s Five Force Model In order to analyse the competitiveness of Tesco within the retail industries of UK, we can make use of the strategic model of Porter’s Five Forces. This model evaluatesthe competitive environment of a business organisation through five forces (Lewis, 2017). The competitive environment of Tesco using Porter’s Five Force model is as follows: Figure3: Porter’s Five Force Model Competition in the Industry (HIGH):As there as various business organisations operating within the retail industries of UK, all operating towards increasing their own market share, customer base, productivity and profitability in the consumer markets at the expense of their
perceived competitors, Tesco faces intense threat from the high competition within the retail industries of UK. In order for Tesco to hamper the negative effects of the high competition it faces within retail industries of UK, it needs to place greater focus on providing their customers with effective service in order to satisfy them and retain their loyalty for the future. Doing this can provide Tesco with a competitive advantage against their competitors within the retail industries. Supplier’s Bargaining Power (LOW):As the total number of suppliers within the retail industries is quite high, with all of them providing retail businesses with similar services, the bargaining power of suppliers within the retail industries of UK is quite low (Moreno-Izquierdo, Ramón-Rodríguez and Perles-Ribes, 2016). In the event that Tesco’s suppliers increase the prices of raw materials for no apparent reason, Tesco can simply choose to avail the services of other retail suppliers without much effort or impact on their overall productivity or profitability. Threat from New Entrants (MODERATE):Though other business organisation within the retail industries of UK can face high threat from new businesses entering into the retail markets, Tesco through their significantinvestmentsinto their developedinfrastructure,warehousing and logistical operations faces moderate threat from new businesses entering into the retail industries of UK, as although these businesses bring with them now innovation, they cannot hope to match the level of increased productivity and profitability that developed infrastructure, storing and logistical operations of Tesco provide towards its operations. Buyer’s Bargaining Power (HIGH):As there are numerous business organisations operating within the retail industries of UK, the customers have access to a wide variety of products from distinct businesses, providing them with increased bargaining power within the retail industries of UK (Huang, 2019). Should a buyer choose not to engage with the operations of one business organisation, due to various factors such as quality of product, price of product, level of customer service etc., provided by that business organisation, they still have a lot of choice within the retail markets and can choose to engage with the operations of other retail businesses based on their preferences, providing them with high bargaining power. Threat from Substitutes (Moderate):Due to the large number of products offered to the consumers by retail business organisations within the industry being quite similar to one another
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and can easily be substituted for by the products offered by their competitors, most businesses within the retail industries of UK face high threat from substitutes. Tesco faces moderate threat fromsubstituteproductsduetoitsinvestmentsintoitsownresearchanddevelopment department, which allow for it to create innovative products, which cannot be substituted by its competitors within the retail markets of UK. Contrastingly, Tesco also offers to its consumers its products, which can be alternated and substituted for by the products offered by its competitors within the retail industries. Review of Tesco’s Business Strategy This report judges the business strategy created and implemented by the leadership and management of Tesco to be quite effective as it clearly lays out the mission, vision, purpose and objectives that Tesco business organisation needs to achieve currently in the retail markets as well as in the future. Due to this there is no confusion in the various distinct operational processes of Tesco with regards to their own objectives and goals and how these contribute towards the growth and development of Tesco towards achieving its end vision and missions. The business strategy is also adequate, as it provides Tesco with a competitive advantage within the retail industries against its competitors allowing for it to operate with increased performance, efficiency and generate increased productivity, profitability, customer base and market share within the retail markets of UK, on the basis of its valuable, rare, organised and some inimitable internal components (Yuliansyah, Y., Gurd and Mohamed, 2017). The business strategy takes into account all the factors which are present in the external environment in which Tesco operates in, with the intention to avail opportunities these factors present and be wary of the threats present in the external environment within retail markets of UK. The business strategy of Tesco also factors in the competitive environment of the retail industries in order to assess how they can further gain a sustained competitive advantage within the retail industries of UK, allowing for increased productivity and profitability for the retail business. Though all the business strategy of Tesco is quite effective and adequate towards achieving its end goals, objectives and vision, there are still some recommendations which if implemented into the business strategy of Tesco can help the business organisation achieve its objectives and vision in a faster and efficient manner, while also providing it with a competitive advantage against their competitors within the retail industries of UK (Sia, Soh and Weill, 2016).
The business strategy of Tesco needs to emphasise and place focus on making use of the principle of economies of scale in order to make use of its large scale operations to manufacture products at large scales, which would effectively help the retail business decrease the consumer price of individual products, allowing for increased customer base, market share, productivity and profitability to be sustained by Tesco, while also providing it with a competitive edge against its numerous competitors within the retail industries, who cannot decrease their own product prices to the levels that Tesco can using this approach as part of their business strategy. CONCLUSION Based on the findings of the report, it can be concluded that Tesco possesses effective business strategy that allows it operate with increased performance, efficiency, productivity and profitability in the consumer markets, while also providing it with a competitive advantage against its perceived competitors within the retail industries. This report examines the value of vision, purpose, mission and objectives of Tesco’s business strategy. In order to assess the competitive advantage possessed by Tesco, the report makes use of VRIO framework. The report also evaluates the external environment of Tesco by applying PESTLE analysis. To analyse the competitive environment in which Tesco operates in, the report uses Porter’s Five Force model. Finally, the report reviews Tesco’s business strategy.
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