Internal Resources, External Environment and Innovation Strategy of Tesco Plc

This report discusses the internal resources and capabilities of Tesco Plc, key drivers of change in the external environment, and the innovation strategy adopted by the company. It includes SWOT and VRIO analysis, PESTLE analysis, and Porter's Five Force Framework.

Strategy, Enterprise and
Innovation

Table of Contents
INTRODUCTION...........................................................................................................................1
Main Body.......................................................................................................................................1
Analysis of internal resources and capabilities...........................................................................1
Key drivers of change in the external environment....................................................................3
PORTER'S FIVE FORCE FRAMEWORK................................................................................5
CONCLUSION................................................................................................................................6
References:.......................................................................................................................................7

INTRODUCTION
Business enterprise is platform to conduct the commercial activities in order to earn
profits in exchange of product and services. In a business enterprise there are multiple
operations and in order to conduct the effective and efficient operational activities company must
develop the strategies and strategic plans. Innovation is one of the most important strategy that
every organisation adopt because this lets and business enterprise to gain competitive advantage
in the market it operates in (Velikorossov and et. al., 2020). Enterprise must plan and manage its
innovation strategy very precisely to have successful innovation that can help the company in
gaining success and competitive edge. The present report is in context of Tesco Plc the global
grocery and general merchandise retailer and supermarket headquartered in Welwyn Garden
City, England. The report will aim to discuss internal resources and capabilities that provide
Tesco competitive edge. Further the key drivers of change in external environment and porter;s
five force analysis is conducted in report.
Main Body
Analysis of internal resources and capabilities
SWOT ANALYSIS OF TESCO PLC
SWOT analysis is the strategic management tool that helps an organisation like Tesco Plc to
identify its internal strengths and weaknesses and the opportunities and threats associated to the
enterprise.
Strengths Weaknesses
 Innovation: Innovation is the biggest
strength that Tesco holds currently as
the company has strategic goals to
drive innovation within company in
order to stay largest competitor and
also to maintain its market share in UK
market (Ketchen Jr and Craighead,
2020).
 Market share: this factors of the
Low pricing strategy: this is the major
weakness of the tesco plc as the company due
to this is not able to ear high amount of profit
margin due to which company may face the
financial instability and loss in some of its best
products that has capability of earning good
profits.
High dependency on UK market: the Tesco
plc relies highly on the UK market for its sales
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company is strength that gives the
company a position of ninth largest
supermarket in terms of revenue. The
market share of Tesco is incompetent
which make the company a leader of
the retail industry of the UK.
due to which company is lacking in expanding
effectively in other markets like India and
other states of Europe. It is analysed that the
company has very low share of profit from the
other countries in which they have outlets.
Opportunities Threats
Technology: the technological advancements
are at its peak which is also throwing many
market opportunities for the retail sector to
make their operations flexible and easy. The
Tesco can leverage the technology to digitalize
their supply chain , payment methods etc.
which will improve their customer service and
give customers satisfaction after shopping from
Tesco.
Diversification of product range: the tesco
has huge opportunity to expand its product
portfolio by adding, healthy, vegan and organic
food in order to meet new customer trend after
the covid-19.
Competitors: In the retail industry of UK the
Tesco has huge threat of competitors like
Sainsbury, Asda, etc. as their strategies are
beating the strategies of Tesco plc strongly.
Therefore, company has changes of losing
some market at some time (Stoyka and et. al.,
2020).
Decrease of disposable income: After the
Covid-19 the company has been facing fincial
downturn due to the low disposable income of
the people in UK. As the many people has lose
their jobs.
VRIO ANALYSIS OF TESCO PLC
Resources and
capabilities
Valuable Rare Inimitable Organised
Innovation
Strategy
yes yes yes yes
Financial
stability
yes yes yes no
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Technology yes yes no no
Human resource yes yes no no
Strong global
presence
yes no no no
Valuable: these resources and capabilities of the Tesco are highly valuable are they are reason of
sustainable competitive advantage. The company's innovation strategy, financial stability,
Technology, human resource and strong global presence all are valuable to company. All thesee
internal resources and capabilities of the Tesco plc has helped the company to succeed and stay
competitive (Jun and et. al., 2020).
Rare: the resources ad capabilities that are in the market and are not visible often. Apart from
global presence all the other resources and capabilities in above table are the rare to the Tesco
plc. Also they are the reason of the competitive advantage and profitability of the company.
Inimitable: the resources of Tesco that cannot be copied by any other firm of the same industry
are under this category. The innovation strategy and financial stability of the company are two
most inimitable factor that provides Tesco plc a temporary competitive advantage as they require
continuous evaluation and modification.
Organised: The resources that are organised and planned effectively within an organisation but
are not the reason sustainable competitive database as they have associated risk. In Tesco plc the
innovation strategy is one of such factor (Yang, Qin and Moulaert, 2021).
Key drivers of change in the external environment
In order to identify the key drivers of change in the external environment and its key
impact over the entrepreneurial activities of the organisation the PESTLE analysis framework is
used. The framework is appropriate tool to analyse the external market of the Tesco plc and the
drivers of change. The Pestle analysis is discussed below:
Political factors: the political condition of the UK are changed after the Brexit. The Brexit has
caused major implications on the business of the Tesco plc. The Brexit has completely changes
the operations of the company in the rules and regulations. Also due to the Brexit UK
organisations like Tesco faced downfall of sales.
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Economic factors: the economy of UK is highly stable and any changes in economy possess
some severe impact on the sales, profit and revenue of the Tesco plc. Therefore, it is essential for
company to stay aware of the economic changes such as change in taxation policies, import-
export prices etc. Due to the low disposable income caused by Covid-19 the company has faced
the downfall in sales and revenue. Due to this company also has to reduce its prices (Hnatenko
and et. al., 2020).
Social factors: in the fast pace world the customers are demand to buy quickly and as fast as
possible. The customers trends are also changing overnight which impact the business operations
of the Tesco plc. As the consistent change in needs of the customers pressures Tesco to manage
its entrepreneurial activities as per the social customer changes. Also with the changing lifestyle
and eating habits people of UK are more preferring healthy, gluten free, oil free food which is
beneficial for Tesco plc to pursue entrepreneurial activity new product development as per
customer needs.
Technological factors: the technology is growing at fast pace and also provides the company an
competitive advantage. Tesco has made its payment system and transaction process completely
digital in order to improve its customer service. This also helped the customers to avoid long
queues (Shao and et. al., 2020). The company has also foster its key driver innovation using the
technologically advanced equipments. The technological factors always foster the
entrepreneurial activates of the Tesco as they act as the catalyst ad supports for the innovation
entrepreneurship.
Legal factors: any change in legal laws bring direct impact on operations of Tesco plc. The
Food Retailing Commission of UK has set certain rules and regularities for the retail segment
which bounds the operations of Tesco to act in certain way. Also in UK there are strict
employment rules and regulation that are compulsory for the Tesco to comply with such as work
from home rules, equal pay, minimum wages etc. These legal factors makes the entrepreneurial
activities of the Tesco more ethical and legal but the company also has to research well about all
the legal factors associated with new entrepreneurial activities in order to avoid disruption in
success.
Environmental factors: Tesco effectively take care of the environment through its various
actions. In order to reduce the CO2 emission the company has started an agenda of making the
Tesco plc completing CO2 emission free retail supermarket in 5 years which is good for the
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image of the Tesco. The company has also taken an initiative of reuse, reduce and recycle in
order to avoid wastage and also create sustainable development. Due to these factors the
entrepreneurial activities of Tesco plc remain environmental friendly and also has sustainable
competitive advantage.
PORTER'S FIVE FORCE FRAMEWORK
The Porter's five force framework is utilized by an organisation to analyse and evaluate
the key impacts of the competitive forces of external environment on the company's competitive
edge, profitability and entrepreneurial activities (Di, Hui and Enxu, 2020). The framework is the
basically a competitive analysis frame that is discussed below in context of Tesco:
Threat of new entrants: Tesco operates in the retail industry of UK and is part of supermarket
industry where there is very threat of new entrant because of several factors. Firstly, the the
Tesco plc is the leader of the industry with largest revenue and market share which bring nor
threat of new entrants. Also there is requirement of huge investment when entering this industry
which lower the changes of new entrants. But as the competition in this industry is friendly
which sometimes provide a likelihood to the new entrants to enter the retail industry of UK.
Bargaining power of suppliers: Tesco plc operates it business of grocery and general
merchandise with approximately 2500 suppliers in UK and much more all across the world. Due
to this the suppliers cannot put any pressure or power over the Tesco as they company has many
other options for the same supplies. Also, because of this the suppliers of the Tesco are not able
to pressure for the cut off the price as they might lose their deal with Tesco. Thus, due to the
large number of suppliers in this industry the suppliers have low or moderate power over the
large retailers like Tesco plc.
Bargaining power of buyers: the buyers of retail industry are in huge amount and Tesco as the
multinational largest supermarket services millions of customer on weekly basis. The
supermarket of Tesco is at huge scale wehre the buyers is able to find whatever they need in
different prices and quality which lowers their power of the Tesco in terms of price negotiation
or cut off. Also as already Tesco plc keep its price highly reasonable which automatically
outshines the company among its competitors and customers (Liu, 2021).
Competitive rivalry: the competitive rivalry in the retail industry of the UK in which Tesco
operates is relatively high because of the high demand and supply of the commodities to meet the
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needs of the community. In the retail industry of UK there are many competitor's of Tesco plc
such as Asda, Morrison's, Sainabury etc. and all are competitive to each other at same level due
to the similarity of prices and quality they offer in their products. Hence, the existence of such
big retail organisations in the industry creates the fierce competition. Due to this Tesco is
exploring different opportunities to maintain its competitiveness in market and also focusing ion
lower prices, innovation in order to tackle the competition in healthy and friendly manner.
Threat of alternatives: In the retail industry of UK there are many organisations operating at
small and large level. This means there many options available for the consumers to try and then
choose the best one. But when it comes to the prices and quality both in products Tesco plc gives
the best alternatives of its own services and products which lower the impact of this factor. This
means the company has moderate threat of alternatives (Wellner and Lakotta, 2020).
CONCLUSION
It is concluded form the above report that the organisations must evaluate their internal and
external environment in order to identify their internal capabilities and the growing market
opportunities. For the company to understand its external environment and its impact over its
operational activities the Pestle analysis is the most appropriate model as they also determine the
key drivers of change. Thus, it is understood that in retail industry there is huge competition but
the power of suppliers is low. Which means the suppliers are in huge amount also the power of
buyers is moderate as they are needs are essential to be fulfilled.
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References:
Books and Journals
Di, W., Hui, L. and Enxu, W., 2020. A research on the evolution path of tourism enterprise dual
innovation based on dynamic capability: A case study of Wuzhen Tourism Co.,
Ltd. Science Research Management, 41(8), p.202.
Hnatenko, I and et. al., 2020. An approach to innovation potential evaluation as a means of
enterprise management improving. International Journal of Supply and Operations
Management, 7(1), pp.112-118.
Jun, W.U and et. al., 2020. Research on Enterprise Cooperation Innovation Strategy Based on
Evolutionary Game. Journal of Systems Science and Mathematical Sciences, 40(10),
p.1766.
Ketchen Jr, D.J. and Craighead, C.W., 2020. Research at the intersection of entrepreneurship,
supply chain management, and strategic management: opportunities highlighted by
COVID-19. Journal of Management, 46(8), pp.1330-1341.
Liu, C., 2021. Innovation Strategy of Enterprise Human Resource Management under the
Background of Big Data. In E3S Web of Conferences (Vol. 253). EDP Sciences.
Shao, S and et. al., 2020. Environmental regulation and enterprise innovation: A
review. Business Strategy and the Environment, 29(3), pp.1465-1478.
Stoyka, A and et. al., 2020. Features of application of innovative development strategies in
international enterprise.
Velikorossov, V.V and et. al., 2020. Strategic management.
Wellner, S. and Lakotta, J., 2020. Porter's Five Forces in the German railway industry. Journal
of Rail Transport Planning & Management, 14, p.100181.
Yang, J., Qin, Y. and Moulaert, F., 2021. The influence of employee pressure on the
management cost of enterprise technological innovation using mental health
education. Work, (Preprint), pp.1-10.
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