Tesco's Business Strategy: A Comprehensive Analysis

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This report delves into Tesco's business strategy, examining its environmental audit using Porter's Five Forces and PESTLE analysis. It analyzes the appropriateness of partnership and merger & acquisition strategies for market entry and substantive growth. The report also explores the resource requirements for implementing a new strategy and evaluates the contribution of SMART targets to strategy implementation.

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Business Strategy
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Table of Contents
Introduction
................................................................................................................................ 3
Task 2
......................................................................................................................................... 4
Task 3
......................................................................................................................................... 7
3.1 Analyse the appropriateness of two alternative strategies relating to market entry,

substantive growth, limited growth, or retrenchment for a given organisation.
........................7
3.2) based on 3.1, justify one of the chosen strategies.
..............................................................8
Task 4
......................................................................................................................................... 9
4.2) Analyse the resource requirements you will need to implement a new strategy at Tesco.
9
4.3) Evaluate the contribution of SMART targets to the achievement of strategy

implementation at Tesco.
.........................................................................................................10
Conclusion
................................................................................................................................12
Reference List
..........................................................................................................................13
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Introduction
Business Strategy refers to the working plan of the firm in order to achieve its vision, gain

competitive advantage, prioritise objectives, and even optimise financial performances along

with the business model. A business strategy can help an organisation to clarify, direct, and

focus on their work and gives an impetus to the functioning of the business. The strategy

helps to understand the current business in a much more synchronised manner. Tesco being

one the most popular multinational retailers also formulated their business strategy to attain

new opportunities for their business.

The task will focus on the various external factors that can hinder or create opportunity for

Tesco in the global market. It will also focus on the different strategies used by an

organisation to make as market entry and to roles and responsibilities of personnel in

formulating such strategies.

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Task 2
2.2
Carry out environmental audit for Tesco.
To understand the environmental factors that can affect the workings of Tesco a detailed

Porter’s 5 Forces analysis has been done in this task.

Porters 5 Forces

Figure 1: Porters 5 Forces

(Source:
Bischoff, 2016)
The Porters five forces that can analyse the five separate forces that can help in determining

the competition present in the retail industries of grocery are:

Threat of Substitute
: Tesco sells a wide range of products like groceries, clothing, jewellery,
home electrical, beauty products, home appliances, baby products and many more. The range

of products sold by the organisation n is immensely comprehensive and Tesco being a huge

retailer sell the substitute products too. Hence, threat of the substitutes is not at all relevant in

this scenario.

Bargaining power of suppliers
: Tesco’s vastness leads them to have number of suppliers and
hence bargaining power of suppliers remains low. The company has been known to delay

payments to their suppliers to enhance their operational profit margin. Moreover, previous

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records show that suppliers are not satisfied with the relationship with Tesco (Williams,
2018).

Bargaining power of Customers:
The bargaining power of buyers is high as people are
always in search of new brands with affordable price

(Fabbri and Klapper, 2016). Tesco has to keep their price low and thereby attract customers.

Threat of the established rivals:
Tesco has to face a high threat from rivalry organisations, as
competition in the retail industry is immensely high. The customers do not have to pay any

switching cost and these increases the competition. However in spite of all this Tesco has a

sharp leadership position in the global market.

Threat of new entrants: Threat
of new entrants is low for Tesco as this brand already has
established as a huge brand and new entrants need to produce something that is exceptionally

unique and cost effective at the same time (Moatti
et al ., 2015).
To understand the position of this organisation a PESTLE Analysis has also been done here:

Factors
Analysis
Political
Due to China’s accession to the WTO has helped
a free flow of trade by removing all the stumping

stones and hence Western companies including

Tesco has also been a part of this profitable

market. Immediately after Brexit the retail sector

was immensely impacted however presently UK

has regained their position and this has a positive

impact on retail sector (Jones and Comfort,

2018).

Economic
The exchange rates and rise in inflation after
Brexit had a negative impact on retail industry.

But in present days economy struggled in the first

quarter of 2018 however it is expected to recover

slightly in the second quarters but overall will

remain lacklustre and this will have an effect on

the spending habit of consumers and will thereby

out pressure on certain commodities

Social
The social life brings a change in the customer
buying habits (Drucker, 2017). Tesco although

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has huge variety but the clothing range
sometimes does not cater to all ages as well as

sizes of people. The fashion demands of people

keeps on changing and this can pose a threat to

Tesco, as quick shift of fashion will not be easy

for the organisation to adapt.

Technological
The automation, innovation, social networking,
use of robotics and artificial intelligence can help

the business to run more successfully. A shift to

e-commerce is in vogue and online presence of

Tesco can help them to get a worldwide presence

with growing technology. Use of automotive

machine has made their business much faster

however; this has led to unemployment too. Data

storage has become easier and self service check

out pints has provided convenience to customers

too.

Legal
The food retailing Commission in 2004 led to a
code of practice that led to banning of practices

like price changes without any notice or even

demanding payments from suppliers too. To

facilitate such policy Tesco has provided to

customers a reduction in price of fuel in

alignment with the amount they spent on their

groceries. The consumer right act has been

formulated in the year 2015 to ensure that

customers can buy their goods comfortable and

can reject and claim refunds too.

Environmental
Tesco has developed their corporate social
responsibility and considers the environmental

factors while manufacturing their products, Tesco

has to take initiative to reduce their carbon

footprint and Tesco recognises the climate

changes that forms the biggest threat to the world

and hence they initiate to follow Paris Climate

Agreement and encourage their suppliers to set

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credible science based targets.
Task 3

3.1 Analyse the appropriateness of two alternative strategies relating to market entry,

substantive growth, limited growth, or retrenchment for a given organisation.

Market entry is crucial for all forms of business in order to expand their business. Two

alternative strategies that can be followed by Tesco are
Partnership and Merger and
Acquisition.
These strategies help in
For market entry

Analysis of Partnership Strategy:
Partnership strategy can be helpful for an organisation like
Tesco (Amrouch and Yan, 2015). Retail partnership helps in gaining a win outcome and an

additional exposure and generation of revenue. In recent times, Tesco has joined their forces

with French supermarket chain Carrefour that will help them to keep low prices and make

more opportunities for suppliers too.

Merger and Acquisition:
Merger and Acquisition can make two companies combine and
become a single entity and is generally a decision taken by two equal companies. Tesco made

an acquisition of Booker group and thereby created a leading food group in the UK.

For substantive growth:

Related and unrelated diversification:
Diversification can help organisation enter new
market with a fresh product. An analysis of diversification demonstrates that business will be

achieving a return on investment more than the compensation of risks and the costs (Boschma

and Capone, 2015). Related diversification helps in adding the current product line or the

market and this helps in understanding the business whereas unrelated diversification relates

to unrelated products line or market. An efficient diversification help in labour cost saving,

enhance productivity serve customers in a better ways too.

Retrenchment Strategies

Turn around strategies:
Retailers like Tesco can face cash crisis that can require immediate
cash management and eve n debt restructuring measures too. It is necessary turn their

business around and thereby leads to a sustained success too. Tesco can undergo five stages

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of turnaround namely wake up, prove everything, act aggressively, create a cash runway ,and
find out the root causes, change the model of the business too and finally create a control

tower too.

Liquidation:
Liquidation can involve ending the business and even distributing the assets
when the working of the organisation becomes insolvent. Tesco can implement this strategy

however being one of the biggest brands chances of such situation is low for them.

3.2) based on 3.1, justify one of the chosen strategies.

Tesco uses strategic partnership as a market entry strategy for enhancing their overall

business model in an effective way. The company has chosen this strategy due to several

reasons. By working together, Tesco will be able to accomplish their goals and objectives

quicker. Additionally, it is also possible to enhance the quality of product that offers greater

value, greater innovation by collaborating with the business partner. Partner can assist to

identify the business issues that are creating difficulties within the firm. Partner can assist to

improve the brand awareness also. By enhancing the brand awareness, company will be able

to improve their business functions and products for increasing the brand in the market place

(Bailey
et al., 2015). Thus, increasing the sales and revenues will be possible for the
company in a more significant way. Business partner can assist Tesco, by providing adequate

financial support to improve the product and services. Customer base can be improved

through partner business firm. Additionally, customers will get more fast and accurate

services through strategic partnership.

On the other hand, by not using the strategic partnership market entry strategy, company will

face several difficulties while expanding an existing business to a new location. Being one of

the leading retail chain industries across the UK, Tesco needs partnership support to

undertake all the business functions in an effective manner. Additionally, risks and costs of

operating all the business functions will be increased, if the company fails to make any

partnership with any organization. Additionally, Tesco can get several extra opportunities to

increase their business model by making partnership with new business venture. Therefore, it

can be said that strategic partnership is an appropriate market entry strategy that can assist

Tesco to enhance their business model by improving their business functions as well.

Consequently, it is justified that strategic partnership can be used by Tesco to develop

business performance.

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Task 4
4.2) Analyse the resource requirements you will need to implement a new strategy at

Tesco.

In order to implement a new strategy at Tesco, several essential resources such as technical

resources, financial resources, physical resources, human resources and others are required.

Technical resources

Advanced technology always plays a vital role in implementing a new strategy within an

organization. Being one of the leading retail industries across the globe, Tesco needs several

advanced technology for implementing a new strategy within the firm (Wheelen
et al., 2017).
Equipments, machineries, communication channel and others are included in the list of

technical resources. In addition, company also needs to adopt advanced digital technology for

the better implementation of new approach. Through using internet and digital technologies,

Tesco will be able to outsource communication barrier from the organization.

Financial resources

All of the business organizations need financial resources for implementing new strategy

within the firm. Heavy investment and financial support is such needed in order to implement

a new strategy more effectively. Additionally, having an adequate financial resource is

essential and effective for all business organization including Tesco for the implementation of

new strategy.

Time

Time is another important factor that needs every business organization for managing all

business functions and implementing a new effective strategy within the firm. Tesco is a

popular brand across the globe and for implementing a new strategy; the company needs

adequate time.

Human resources

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Human resource management such has great importance in managing all the business
functions in an effective way (Mellor
et al., 2014). In addition, Human resource management
and employees need to perform more effectively for handing the manual work in a more

significant way. Being one of the leading retail industries, Tesco needs better human

resources in order to implement the new business strategy effectively.

Physical resources

Tangible resources, which can be touched and seen, are included in the physical resources.

Tesco needs to open more stores at several different locations to increase the customer base

in a more significant way. Additionally, Tesco should have variety of products to continue

their business functions effectively during implementing new strategy within the firm.

4.3) Evaluate the contribution of SMART targets to the achievement of strategy

implementation at Tesco.

SMART targets are used to offer a more comprehensive definition of setting an effective

goal. It allows improving the performance level of the organization in an effective way (Naldi

et al.,
2015).
Figure 1: Smart Goal

(Source:
Haughey, 2015)
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Specific For maximizing the profit through setting
more numbers of stores at several different

locations across the UK

Measurable
It would be measured, while company’s
operating profits through the margin of 16%

Achievable
Reducing the company’s operating cost
allows accomplishing the set targets in an

effective way (Haughey, 2015).

Relevant
For increasing the operating profit’s limit by
at 10%

Time
10 months
Table 1: SAMRT Gaols

Source: (Created by learner)

Being one of the leading retail chain industries, Tesco needs to follow SMART targets. Thus,

the management of the company will be able to follow all the business goals and objectives in

a more significant way. By using SMART goals, Tesco will be able to provide direction to

employees in an effective way. Additionally, facilitating planning, motivating employees,

limiting stress, quicker results in business operations can be possible through using SMART

objectives and goals. Thus, Tesco will be able to maintain their all business functions in order

to accomplish all the business objectives more accurately. Additionally, company will be able

to implement new strategy for increasing the production, sales and revenue of the company in

a more significant way. In order monitor and measure the progress of the SMART goal

process, Tesco needs to improve the human resource management functions effectively. By

monitoring the improvement of the organization, company will be able to understand their

progress towards the business goals. Thus, company will surely accomplish their business

goals in an effective way.

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Conclusion
This can be concluded that effective business strategies are crucial for accomplishing the

business goals and objectives in a more significant way. Most of the successful business

organizations including Tesco, implement effective business strategy to improve their

business functions. Additionally, environmental audit including PESTLE analysis helps to

understand the present condition of the organization. Several resources are required during

implementing a new strategy within the firm. Required resources for implementing new

strategy at Tesco has detailed in this testimony. Additionally, SMART targets have great

contribution in accomplishing the business goals in an effective way. Smart target has also

been discussed in this testimony.

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Reference List
Amrouche, N. and Yan, R., 2015. Aggressive or partnership strategy: Which choice is better

for the national brand?.
International Journal of Production Economics, 166, pp.50-63.
Bailey, C., Mankin, D., Kelliher, C. and Garavan, T., 2018. Strategic human resource

management. Oxford University Press.

Bischoff, A.L., 2016. Porters Five Forces. Innovation through Business, Engineering and

Design.
European Journal of Business and Management, pp.75-85.
Boschma, R. and Capone, G., 2015. Institutions and diversification: Related versus unrelated

diversification in a varieties of capitalism framework.
Research Policy, 44(10), pp.1902-
1914.

Drucker, P., 2017.
The age of discontinuity: Guidelines to our changing society. Routledge.
Fabbri, D. and Klapper, L.F., 2016. Bargaining power and trade credit.
Journal of corporate
finance
, 41, pp.66-80.
Haughey, D., 2015. SMART goals. ProjectSmart. co. uk. Np, nd Web, 11.

IšoraItė, M., 2014. Importance of strategic alliances in company’s activity.

Jones, P. and Comfort, D., 2018. Storytelling and corporate social responsibility reporting: A

case study commentary on UK. food retailers.
Journal of Public Affairs, p.e1834.
Lee, I. and Lee, K., 2015. The Internet of Things (IoT): Applications, investments, and

challenges for enterprises. Business Horizons, 58(4), pp.431-440.

Mellor, S., Hao, L. and Zhang, D., 2014. Additive manufacturing: A framework for

implementation. International Journal of Production Economics, 149, pp.194-201.

Moatti, V., Ren, C.R., Anand, J. and Dussauge, P., 2015. Disentangling the performance

effects of efficiency and bargaining power in horizontal growth strategies: An empirical

investigation in the global retail industry.
Strategic Management Journal, 36(5), pp.745-757.
Naldi, L., Nilsson, P., Westlund, H. and Wixe, S., 2015. What is smart rural development?.

Journal of Rural Studies, 40, pp.90-101.

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Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2017. Strategic
management and business policy. pearson.

Williams, C. (2018).
Tesco faces fresh accusations of 'bullying' suppliers over price cuts.
[online] Telegraph.co.uk. Available at:

https://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11399558/Tesco-

faces-fresh-accusations-of-bullying-suppliers-over-price-cuts.html [Accessed 6 Aug. 2018].

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