Business Strategy for Tesco: PESTLE, SWOT, VRIO and Porter's Five Forces Analysis

This report provides an analysis of Tesco's business strategy using PESTLE, SWOT, VRIO and Porter's Five Forces model. It includes evaluation of internal and external environment, capabilities, and competitive position in the industry.

Business strategy

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1............................................................................................................................................3
Influence of the macro environment.......................................................................................3
TASK 2............................................................................................................................................7
Evaluate the internal environment and capabilities of a given organisation..........................7
TASK 3............................................................................................................................................9
Analysis using Porter’s Five Forces model............................................................................9
TASK 4..........................................................................................................................................10
Formulation of strategies based on models..........................................................................10
CONCLUSION .............................................................................................................................13
REFERNCES:................................................................................................................................14
Books and Journals:..............................................................................................................14

INTRODUCTION
Business strategy involves set of plans, goals and actions that helps a business to achieve
goals and objectives of an organisation. The business environment is complicated and it is
important to formulate the strategies that assist business in gaining advantage over the
competitors (Yuan and et.al., 2020). Tesco is taken into consideration in order to complete this
report. It is a British multinational groceries and general merchandise retailer in the England. The
organisation is the third-largest retailer in world measured in gross revenues (TESCO PLC,
2021). The report is based on internal and external analysis of the organisation so that they are
able to formulate effective strategies. Competitive analysis of the organisation is also done with
the help of Porter Five Force's Model. In the end of this report there is formulation of strategies
that will help in achieving goals and objectives successfully.
MAIN BODY
TASK 1
Influence of the macro environment
Tesco is a multinational organisation that was founded in 1919 by Jack Cohen. There are
around 423,092 employees in the organisation as per the details of 2020.
 Vision: “To become highly valued in front of customers and serve them effectively”
 Mission: “To make something better together”
 Objectives: To encourage staff so that they can work effectively and achieve the goals
and objectives of organisation.
 Core values: To satisfy the needs and wants of customer's by treating them effectively.
They believe that even little help makes difference.
The business environment is dynamic and it keeps on changing on a continuous basis. In
this regard, it is essential to identify the macro economic factors that have impact on the working
of an organisation (Liu and Kong, 2021). To formulate effective strategies, it becomes essential
to know the external factors and their impact on operations of business.
PESTLE Analysis

It is a framework that helps organisation to scan the macro economic factors and their use
is strategy formulation (Tesco PESTLE Analysis, 2020). There are six factors that are external to
the organisation and their impact on business if Tesco is discussed below:
Political Factors: Tesco is one of the largest retailer in the world. So they analyse the
political condition of all the places of operations in order to survive in the market. The political
circumstances also keep on changing across the countries (Adamyk, 2019). It is an opportunity
for Tesco as there is political stability in UK, so they are able to work effectively over there. The
organisation is able to formulate strategies based on the stable condition of country. There is
benefit of political stability on Tesco as they do not have to change their strategy frequently.
Economic factors: There are wide variety of products that are served by Tesco, and
economic factors play a major role on success of business. The company must take care about
the taxation policies, inflation rate, interest rate, demand and supply as all these factors have
direct impact on the operations of the business. The changes in economic condition has impact
on working of the company. In case of inflation the buying power of the customer reduces and
because of which sales of organisation goes down. In this regard Tesco formulates the strategy to
provide the goods and services at affordable prices to the customers.
Social Factors: It is seen that people like to purchase all the things that they want under
one roof. It is due to their busy lifestyle. In relation to Tesco, the company provides most of the
items at a place that shows they take care of need of the society. The organisation analyses the
demand of the customers and provide them goods and services as per their needs and wants
(Perera, 2017). Also, the trends are changing and for this reason Tesco analyse the current trend
and provide the customers with best that satisfies them. This strategy of Tesco helps them to
achieve success. Tesco forms their business strategy by analysing the need of customers and that
is the reason of satisfied customers.
Technological Factors: It is important to note that the company that is able to use latest
technology gain advantage over the competitors. The customers also prefer the organisation that
is updated and serve their needs and wants in a better way. In this regard Tesco provides self-
checkout points for customers. Tesco has made new strategy of using digital marketing
techniques and that also shows the company considered technological factors.
Legal Factors: It is one of the important factor that is considered under the macro factor
analysis. There are certain laws that are essential for an organisation. Tesco is a multinational

organisations that has to follow all the laws and legislation. The organisation has to follow the
rules and regulation given by Food Retailing Commission to operate smoothly in retail sector.
The company abides with the laws applicable to workplace such as Health and Safety Act, 1974,
Equality Act, 2010 so as to value all the employees. This helps the organisation to work
smoothly without any intervention of government. It is one of the strategy of company to follow
all the laws and legislations.
Environmental Factors: It is important for business organisation to take care about the
environment. Tesco takes care that they do not harm the environment. The company uses all the
resources in an optimal manner for success of company and forming its brand image in market
(Thomas and et.al., 2021). The company is working to reduce the carbon footprints and minimise
the negative impact on environment. The company has changed around 800 products in past
years so as to make them recyclable.
It is important to note that all these factors are helpful in formulation of business
strategies. The company must make rules and regulations as per the political condition of nation
and by check all the legal aspects. There is need to consider the needs of society and take care
about minimising the wastage of resources in order to formulate suitable strategies. All these
factors benefits the company to achieve goals and objectives.
SWOT Analysis
SWOT Analysis is the study of internal environment of an organisation. It is important
for an organisation to check their strengths and weakness in order to form strong business
strategy. There are opportunities and threats that are present in business environment. So, a
company must be prepared for the opportunities and take first mover advantage. Also, the
company must be ready to face the threats. The company must form strategies that will help them
to deal with the threats in an appropriate manner. SWOT Analysis is relation to Tesco is
discussed below:
Strengths
 Tesco is one of the leading grocery
retailer is UK. The company has higher
sales and is known for its high
profitability.
Weakness
 The company has made various
financial errors and that is one of the
weakness of Tesco. Under which they
created a “misleading impression”

 The company is able to gain huge
market share and satisfy most of its
customers. They provide quality goods
and that helps the company to retain the
customers.
 Tesco has diversified operations. The
company has more than 68000 stores in
14 countries and that assist them in
earning more revenues.
 The company provides employment
opportunities to 423,092 employees
(Aiello and et.al., 2020).
about the values of its shares and
debentures in market. That created a
bad impression of company and was
called market abuse.
 The organisation follows low pricing
strategy. So that reduces the profit
margin for the company..
 The operational performance of the
stores of Tesco is low. There is lack of
proper research that is the reason of
loss for the organisation. They are
unable to manage the stores in an
effective manner.
Opportunities
 The organisation has various
opportunities to expand the business.
The company has diversified range of
product that assist them in expansion.
 Tesco grabs the opportunity and use
latest technology. The digital
marketing techniques used by
organisation helps them to serve more
customers.
Threats
 The major threat is regard to Tesco is
competition with major players in the
market. As these reduces the growth of
the organisation.
 Covid-19 is also a factor of threat that
is seen by the company. There is
increase in consciousness of the
customers.
Internal Factors are also helpful for the organisation as they provide a base for strategy
formulation. They must use their brand value to enhance their business operations and expand
their business. The company must form effective strategies that help them to beat the
competition. Also they must follow the norms related to proper sanitising and taking care of
health and hygiene in the organisation.
VRIO Model

VRIO is the framework which is necessary for an organisation to use in their business
practices so that they will be able to analyse their resources that develop competitive advantage
in the market (Buzatu and et.al., 2019). It is the strategic tool that consists of four important
components that shows different resources of organisations. All the components are explained
below:
Valuable
 Financial resources of TESCO has highly valuable for organisation as they have an
opportunity to invest in other activities as well.
 Their local food has also a valuable one as these are highly differentiated which can be
able to competitive advantage to the organisation.
Rare
 TESCO's local food is not rare as there are many competitors are present in the market
that have an opportunity to imitate their products.
 Employees are the key of organisations' success and growth, that's why employees are
rare for TESCO. They have high;y trained employees which become a valuable asset for
organisation.
Imitable
 Financial resources of TESCO can not easily imitate for their other competitors as it
becomes costly for them.
 Similarly patent of TESCO is highly costly for imitate purpose that becomes difficult for
organisation to imitate.
Organised

 Financial resources of TESCO are highly organised according to the VRIO analysis. That
means it is the source of sustainable competitive advantage.
 Their distribution system is also well organised which is effective in order to sell their
goods and services.
TASK 2
Evaluate the internal environment and capabilities of a given organisation
McKinsey's 7S model of TESCO
It is the model that shows linkage between all the seven important elements of
organisation that increase overall effectiveness of organisation (Mirbabaev and Ilkhamov, 2018).
It gives a huge impact on employees' behaviour and performance. It contains 7 elements that are
categorised into two categories which are explained below:
Hard Elements Strategy: TESCO is pursuing a cost effective leadership strategy as they believe in
providing cost effective products and services to their consumers so that they are loyal for
company. Structure: The structure of TESCO which they are following is hierarchical that
comprises of different management layers.
 Systems: TESCO relies on a wide range of systems as they have to work according to the
sustainability in their operations. Organisation involves many departments such as
Human resources department, marketing, finance, operations, public relation
management, sales, supply chain management, etc.

Soft elements Shared Values: It includes all core values and beliefs that are shared by TESCO. They
communicate all the core values to their employees. Skills: It is found that employees of TESCO have commendable skills and knowledge
which is the reason for their success and growth. Style: TESCO is adopting a participative leadership style which helps employees to
participate in the decision making process.
 Staff: TESCO have around 423,092 employees as they are dealing in global operations.
After analysing the hard and soft element of TESCO, it is analysed that they have key
elements that plays a crucial role in achievement of goals and objectives. By following
hierarchical structure and having proper communication business organisation is able to operate
smoothly. The staff is given proper training and that enhances their skills. Also, the participative
leadership style followed by organisation helps them to form strong strategies.
TASK 3
Analysis using Porter’s Five Forces model
The Model is given by Michael E Porter in 1979. This model helps to analyses the
competitive position of an organization in the industry. It also helps the organization to formulate
such strategy that assist the organization in gaining competitive strength (Adelakun, 2020). There
are five forces that are given under the model that define the position of organization in the
industry. Applicability of all the five force's on Tesco is explained below:

Bargaining power of the buyers of Tesco: There are million of customers that purchase
their goods from Tesco. But, at the same time it is necessary to consider the competitiveness
present in the industry (Bruijl, 2018). There are several retailers such as Aldi, Lidl that provide
the products at cheaper prices. This shows the bargaining power of buyers in high in case of
Tesco. The company must form business strategy that includes providing discounts and offers to
its customer's so that they are able to retain their customers.
Bargaining power of the suppliers of Tesco: There are around 2500 suppliers of Tesco.
But, the power of supplier is low in this case. There are so many suppliers present in market and
the company can switch among them (Kung’u, 2017). Tesco in their strategy works to build
strong relation with the suppliers as they get quality raw materials from them. It helps them to
get the material in time and manage their production.
Threat of new entrants affecting Tesco: The threat of entering the retail sector is low as
there is high capital requirement. Along with that it is not possible for new entrants to beat Tesco
as they have benefit of economies of scale (Adelakun, 2020). The strategy used by Tesco to deal
with the new entrants help them to gain success.
Threat of substitute products affecting Tesco: There are various substitute products that
are present in market. But, at the same time Tesco takes care of the quality of product that they
serve and that helps them to gain lead over the companies offering substitute products. This
lower down the threat of substitute products.
Rivalry amongst Tesco’s existing competitors: There is intense competition present in
the market. There are players like Aldi, Lidl that are its major competitors (Bruijl, 2018). To beat
the competition Tesco maintains quality of goods and that is the reason the customers are loyal
for organization.
It is seen that all the five forces helps to formulate effective strtaegies for gainning
success. Tesco must take care of quality of goods and provide offers in order to attract
customers. They must also maintain good relation with customers so they are able to get supplies
on time.

TASK 4
Formulation of strategies based on models
There are some models that will help the organization to form effective business
strategies. The discussion related to models are done below:
Porter's Generic Strategies
The model helps to know about the position of a firm within industry. It assist in
analyzing that the firm is earning revenue above or below the industry average. All the strategies
given by Michael Porter are discussed below:
Cost Leadership: In this strategy the organization focuses on reducing the cost in order to
serve more customers (Islami, Mustafa and Latkovikj, 2020). This help the organization to
become leader of the market.
Differentiation: The organisation plans to provide something unique in the industry
(Buzatu and et.al., 2019). The organisation selects on attribute that is value by customers and use
the same to gain a differentiated position in the market.
Cost focus: This strategy is formulated for niche market (Firoz Suleman, Rashidirad and
Firoz Suleman, 2019). The company provides a product that is of low cost to serve the customers
uniquely well in the market.
Differentiation focus: In this case the organisation plans to provide a well-specified
product in the niche market to gain more and more customers.
Tesco will use cost leadership strategy in order to gain success. The company has
differentiated products and they can charge a premium price from customers. It will help them to
earn good revenues and above the industry average.
Bowman's Strategies

 Low price and low value added: In order to reduce the price of product organisation
provides low value products to its customers (Echchakoui, 2018).
 Low price: To lower down the price the company must try to achieve economies of
scale. So, they must enhance their operations and will help to provide goods at lower
price to customers.
 Hybrid: In this case the focus is on both differentiation and low cost . It is mixture of
both the strategies and it helps to add value to its products.
 Differentiation: In this strategy the organisation focuses only on differentiating its
product and there is no role of cost.
 Focused differentiation: This strategy is applicable for luxurious products as they only
focus on uniqueness of the product and not care about the high price (Chari and et.al.,
2019).
 Risky high margins: In this strategy organisation sets high prices to earn high margin
and that becomes risky for the company.
 Monopoly pricing: It is applicable to the organisations that are willing to create
monopoly in the market.
 Loss of market shares: As per the strategy organisation sets standard price so that they
can cope up with the losing market share.

In relation to Tesco, the company should adopt hybrid strategy as it helps them to
elements of both cost leadership and differentiation. It will be beneficial as the company will be
able to gain advantage over the competitors like Asda, Lidl and will become market leader.
Horizontal and vertical integration Horizontal integration: In this strategy the organisation increases the production of
goods and services at the same part of the supply chain (Pérez-Lara and et.al., 2020).
 Vertical integration: In this strategy the company controls its suppliers, supply chain or
distributors of the organisation.
Tesco, can go for vertical integration and it will help the organisation to control the
processes effectively. It also benefits the company relating to reduced costs and improve
efficiencies.
Devising strategic management plan
Background The business environment is diverse and
that is the reason company formulates
effective strategies that help them to
achieve goals and objectives. It is
impossible for Tesco to use innovative
technology to achieve success.
Organisational structure Tesco follows highly hierarchical
structure due to its large size of
operation.
Vision To reach more customers
Mission Use of social media platforms to reach
huge number of customers
Objective  To enhance marketing
expenditure by 5%
 To enhance sales of the company
by 10%
Marketing mix  There are diverse products served
by the company. They provide
high quality goods to custom.

 Tesco follows cost leadership
strategy that helps company
provide value to the customers.
 It is a multinational company that
has its operational around the
world.
 The company uses both
traditional as well as digital
marketing strategies in order to
promote products and service of
company.
Strategy formulation To use effective digital marketing
channels that directly enhances the sales
of Tesco
Implementation Proper plan of implementation including
steps for control will be used by Tesco.

CONCLUSION
From the above report, it is analysed that an organisation must formulate effective
strategies to gain success. There are various factors that have impact on the business operations
of an organisation. There are external and internal factors that have impact on the management of
business organisation. The internal capabilities of the organisation are also analysed by using
effective frameworks for forming business strategies. There is competition that is present at each
and every level so it is necessary for a business to analyse the competition and be ready to gain
advantage over the competitors. In the end of this report there is discussion related to best
strategies that can be formulated by an organisation to achieve success.

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Kung’u, A.M.U., 2017. Effects of selected porter’s five forces on competitive advantage in steel
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Online
Tesco PESTLE Analysis, 2020. [Online] Available through: <https://www.mbaskool.com/pestle-
analysis/companies/18023-tesco.html >
TESCO PLC, 2021, [Online] Available through: <https://www.tescoplc.com/>