Tesco Plc: A Comprehensive Analysis of its External and Internal Environment

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Executive Summary
In contemporary Business literature, Strategy has been defined as the major tool for replacing
the previous managerial activities of an organisation along with recent measures of
“administration” and “planification”. In addition, this strategic compliance within a business
organisation has therefore included relative measures regarding research and development
areas, technological advances, logistics and supply chain management, human resource
management and managerial approaches as well. Tesco Plc has been a reputed presence
within the British Multinational chain of general merchandise and grocery supplies. Within
the retail market of the UK, Tesco Plc has owned around 4,074 stores and developed a brand
value of 10.7 bn USD.
In order to analyse the external opportunities and threats, a PESTLE analysis has been
conducted. As for the external environment, it has been observed that political, economic and
social factors have left a moderate impact on the organisation. However, the legal and
environmental factors have laid a negative impact on the organisation. On the other hand, for
micro-external analysis, Porter’s Five force analysis has been conducted. This has helped to
analyse its position in the industry and identify the threats and opportunities for strategic
positioning. In addition, the vision and mission of the company has also added value to the
customers to gain advantage.
This report highlights the internal environment of “Tesco” which is important in maintaining
business growth in a highly competitive market. Analysis of the internal environment helps
organizations to find out their strength and weakness which is important for business success.
In the analysis of the internal environment “VRIO” analysis is done to analyze the valuable,
rare amenable and organised resources of the organizations that reflect on the business
performance. Financial structure of Tesco is considered as the most valuable resources of the
organization for their international expansion. Critique of “VRIO” analysis included in the
report.
“Boston Matrix” is adopted for the discussion of the company portfolio. Discussion about
the company portfolio is necessary to maintain business performance. It helps to identify the
strength and weaknesses of the company. Following the steps of “Boston Matrix” is
necessary to build a strong brand portfolio which is important to lead the organization in
proper direction. It also discussed about the four stage of the model which are Dogs, Cash
cow, Stars and Question mark. This report also highlights on the revenues and profits gained
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by the Tesco in recent years. It also discussed about the gross margin, net profits margin,
liquidity, cash flow, ROCE, and Gearing ratio.
The study, through SWOT analysis, highlights the organisations, strengths, opportunities,
threats and weaknesses. The SWOT is based on the models like PESTLE and Porter 5 forces;
hence, it aligns the determinants identified from those models. In addition to this, the study
through effective models like the Generic strategy of Porter and Ansoff Matrix highlights the
business strategy of the organisation. The main findings from the section include the
company's rapid expansion and competitive pricing. The report gathers that competitive
pricing has advantages and disadvantages for the organisation. Furthermore, the company
utilizes rapid expansion without proper research. Hence, these strategies both benefit and
challenge organisations.
In the concluding segment of the report, the report uses the TOWS matrix along with the
SAFe model to establish conclusions and recommendations. The matrix is necessary to focus
on the strategy's effectiveness. On the other hand, the SAFe model identifies the three major
factors that include suitability, acceptability and feasibility. Hence, the strategies are ranked
and scored. Lastly, the recommendations of the report are based on the suggestions that Tesco
requires to focus on additional research before expansions. Furthermore, rather than
launching existing products in new markets the company should focus on differentiation.
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Table of Contents
1. Introduction............................................................................................................................8
1.1. Aim and objectives..........................................................................................................8
1.2. Definition of Strategy......................................................................................................8
1.3. Background of the company............................................................................................8
1.4. Evaluation of the Industry...............................................................................................9
2. External Environment............................................................................................................9
2.1. Macro-Environment Analysis..........................................................................................9
2.1.1. A Brief overview of PESTLE Analysis...................................................................10
2.1.2. Impact of PESTLE Analysis on Company.............................................................10
2.1.3. Critical Analysis of External macro environment...................................................12
2.2. Micro-environment Analysis.........................................................................................12
2.2.1. A brief overview of Porter’s Five Forces................................................................13
2.2.2. Porter’s Five Force Analysis on Tesco....................................................................13
2.2.3. Critical Analysis from theoretical perspectives......................................................14
3. Internal Environment...........................................................................................................14
3.1. Vision, Mission, Values and Cultures............................................................................14
3.1.1. Critical Analysis of Tesco’s Vision, Mission and Values........................................14
3.1.2. Critical Evaluation of Tesco’s Culture and Leadership..........................................15
3.2 Resources and VRIO......................................................................................................15
3.2.1 Definition of VRIO..................................................................................................15
3.2.2 Application of VRIO................................................................................................15
3.2.3 Critique....................................................................................................................16
3.3 Portfolio analysis............................................................................................................17
3.3.1 Boston matrix...........................................................................................................17
3.3.2 Application of Boston matrix...................................................................................17
3.3.3 Critique....................................................................................................................18
3.4 Financial performance....................................................................................................18
3.4.1 Revenues..................................................................................................................18
3.4.2 Profits.......................................................................................................................19
3.4.3 Gross margin............................................................................................................19
3.4.4 Net margin...............................................................................................................19
3.4.5 ROSE.......................................................................................................................19
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3.4.6 Liquidity...................................................................................................................20
3.4.7 Gearing ratio............................................................................................................20
3.4.8 P/E ratio...................................................................................................................20
5. Strategic Options Analysis...................................................................................................22
5.1 Definition of Business Strategy......................................................................................22
5.1.1 Definition of Model.................................................................................................22
5.1.2 Application of Model...............................................................................................23
5.1.3 Critical Analysis.......................................................................................................24
5.2 Strategic Directions and methods...................................................................................24
5.2.1 Definition of Ansoff.................................................................................................24
5.2.2 Definition of Methods..............................................................................................25
5.2.3 Application of model...............................................................................................25
5.2.4 Critical Analysis.......................................................................................................26
6. Conclusion and Recommendations......................................................................................27
6.1 TOWS.............................................................................................................................27
6.1.1 Application of Tows.................................................................................................27
6.1.2 Critical Analysis.......................................................................................................28
6.2. Definition of SAFe........................................................................................................28
6.2.1 Application of Model...............................................................................................29
6.2.2 Critical Analysis.......................................................................................................29
6.3 Conclusion......................................................................................................................29
6.4 Recommendations..........................................................................................................30
6.5 Balanced Scorecard........................................................................................................30
References................................................................................................................................32
Appendices...............................................................................................................................37
Appendix 1) Company History............................................................................................37
Appendix 2) PESTLE Analysis............................................................................................37
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List of Figures
Figure 1: Revenues generated by Tesco from different countries..............................................9
Figure 2: Profits of Tesco Plc...................................................................................................10
Figure 3: Liquidity ratio...........................................................................................................11
Figure 4: Balanced Scorecard..................................................................................................21
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List of Tables
Table 1: PESTLE analysis of the UK.......................................................................................11
Table 2: Porter’s Five Force Analysis......................................................................................13
Table 3: VRIO analysis............................................................................................................15
Table 4: Boston Matrix.............................................................................................................16
Table 5: SWOT Analysis..........................................................................................................20
Table 6: Porter’s Generic Strategy...........................................................................................22
Table 7: Ansoff Matrix.............................................................................................................25
Table 8: TOWS model..............................................................................................................27
Table 9: SAFe model................................................................................................................28
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1. Introduction
1.1. Aim and objectives
The aim of this following report is to analyse the probable strategic management approach
available to Tesco Plc in association with a critical evaluation of the company’s strategic
evaluation based on its internal and external environment and develop future
recommendations for further improvement. Hence, the following report has focused on
mitigating the following objectives-
 To critically evaluate the micro and macro external environment of Tesco Plc to
analyse the threats and opportunities for business operation
 To critically analyse the internal environment of Tesco Plc to analyse their strength
and weakness
 To assess the present strategic directions applied to the company in relation to its
external and environmental factors and their impact on the organisation
 To develop probable recommendations for a further improvement in business
operation and strategic direction of Tesco Plc
1.2. Definition of Strategy
As per the observations of Fuertes et al. (2020), strategy in business has been defined as the
detailed explanation of the “long-term goals and objectives of a company” along with its
adoption of measures and resource allocation in order to attain that objectives and measures.
On the contrary, as per the findings of Taouab and Issor (2019), Business strategy has also
been defined as a tool to provide alignment between the key challenges in both financial and
non-financial implementations.
Hence, based on the above academic definitions and interpretations regarding business
strategy, it can be stated that it includes the development of a clear set of goals, plans and
actions that help the business leaders to determine the direction of operation within a specific
market or an industry.
1.3. Background of the company
Tesco Plc, the leading Multinational retailer has its headquarters based in Hertfordshire, UK
and currently has been operating with more than 345,000 employees (tescoplc, 2022). The
company has been established in 1919 and has been operating with a wide range of products
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