Business Strategy Analysis of Tesco: PESTLE, VRIO, and Porter's

This report provides a comprehensive analysis of Tesco's business strategy, focusing on its external and internal environments. It begins with an introduction to business strategy and then delves into a PESTLE analysis to evaluate the macro-environmental factors influencing Tesco's operations, considering political, economic, social, technological, legal, and environmental aspects within the UK market. The report then applies the Ansoff matrix to explore growth strategies, concluding that product development is the most suitable approach for Tesco. Subsequently, a VRIO analysis is conducted to assess Tesco's internal capabilities and resources, identifying strengths such as IT integration and financial assets, as well as weaknesses related to debt and profit margins. The report also utilizes Porter's Five Forces model to analyze the competitive landscape within the retail industry. The report concludes with a strategic plan for Tesco, aiming to achieve a competitive edge by leveraging its strengths and addressing its weaknesses within the dynamic market environment.

BUSINESS
STRATEGY

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
TASK 2............................................................................................................................................4
TASK 3............................................................................................................................................6
TASK 4............................................................................................................................................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Business strategy is defined as the set of tactical decisions which direct the actions to be
taken in order to achieve competitive edge. These set of actions provide a direction in which
organisation must move in order to deal with threats present in market and availing the
opportunities for further growth or success (Bell, Bryman and Harley, 2018). TESCO is a larger
British multinational organisation which is headquartered in London, UK. It is discount retailer
which offer several product categories like grocery items, clothing, electronic, furniture,
software, petrol, toys, financial services etc. This report contains information regarding
evaluation of macro environment and ansoff matrix for external environment evaluation along
with VIRO to determine internal capability. It also describes porter's five force model along with
porter's generic to formulate effective strategic plan for achieving competitive edge.
TASK 1
Business growth and success depends upon the strategic decision an organisation takes in
order to perform its operations effectively. But for formulating effective strategic decisions, it is
crucial for TESCO to consider forces that are present in external environment which have direct
influence over the operations performed by them (Brewster, 2017). Hence, for performing macro
environmental analysis, a strategical tool is used, i.e. PESTLE which perform evaluation of 6
macro-environmental factor to determine the opportunity or threat present in external
environment that may influence organisational performance. The PESTLE analysis of TESCO is
mentioned below: -
Political: - It evaluate the current state of government and changes in political policies
that affect business operations. The political situation of UK is stable and government of UK
maintains good political relation with US and many other countries along with having permanent
membership in UN. This is the greatest opportunity for TESCO as it can expand its trade
practices in these countries and maintain it for longer duration which ensures higher flow of
profit as well as growth.
Economic: - It perform evaluation over the factors like Forex rate, inflation-deflation,
taxes etc. UK considered as 5th largest economy in world and it considers as popular destination
for FDI which is a biggest opportunity for TESCO as it can get investment from the foreign
investors much easily for the business (PESTEL analysis of the UK, 2019).
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Social: - It involves analysis of factors like customer taste, preferences, cultural influence
etc. that directly influence the buying behaviour of customers. UK considers as big consumer
market where it holds the population of 66.4 million recorded in 2018. Among them 18% people
were 65-year-old while 2.4% population is 85 or over it. Hence it is a greater opportunity for
TESCO as it offers one-stop solution where range of household products can be access by people
at a time which old age people mainly seeks.
Technological: - It involves analysis of factors like advancement and up-gradation that
takes place within the technological environment and its influence over business. UK is most
technological advanced country in which London is a big hub of technology (Cavusgil and et. al.,
2014). Though it is a positive factor for TESCO as it gets easy access to advancement but, the
major threat which company hold is that there are majority of big retailers like ALDI, ASDA,
M&S etc. which provide high competition to TESCO. As these rivals are technological advanced
which increase the parameters of competition for TESCO.
Legal: - It involves legal aspects present in UK which need to consider by retailers
operating in country such as employment law, consumer law etc. UK government is strict toward
the implementation of laws and standards formulated for retailers (PESTLE Analysis for Tesco
discusses its Business Environment. 2019). This is biggest threat for TESCO as Food Retailing
Commission has brought a new code of practice and if TESCO fails to comply with any kind of
standard then, it directly influences the reputation of company.
Environmental: - The businesses that are operating as a part of economy are required to
perform their operations in interest of environment and society in order to survive in
marketplace. UK government put emphasis toward ensuring that organisations must involve in
such practices that leads to CSR, recycling, saving nature and reducing negative impact. This is
the biggest sustainability opportunity for TESCO as it has taken an initiative to reduce carbon
footprint and minimise its wastage within outlet which support in achieving higher goodwill.
Ansoff matrix
It is a strategical tool which is based on four strategies that help in formulating future
course of action for further business growth and development (Chang, 2016). After evaluating
the macro environmental factors, TESCO must focuses toward evaluating strategical practices
that it can adopt for achieving sustainability in marketplace. Current company is using market
penetration strategy in order to maintain larger market base. But, in order to further enhance its
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market position TESCO must focuses toward adopting new strategy. Ansoff matrix for TESCO
is mentioned below:
Market penetration: - In this, company mainly focuses on improving its product or
services within current market which further support in increasing the customer base and
enhancing level of performance. For applying this strategy, TESCO is required to improve the
quality of its product offering and try to reduce its price from that of competitors' offering.
Market Development: - In this, an organisation enters into a new market while
continuing with existing products or services. Adoption of this strategy can help TESCO in
expanding its business practices and increasing the customer base which ensure higher growth.
Product development: - This strategy emphasizes on launching of new product in
existing market with an aim to approach new customers along with current customer base. In this
strategy, TESCO is required to focus over launching new product for dealing with changing
customer demand in order to remain competitive.
Diversification: - This strategy suggests an organisation to introduce new product in
untapped market for opening up enormous growth opportunity. Under this strategy, TESCO can
launch its new product or services within new marketplace for gaining a new consumer base for
further growth.
As per the above performed evaluation, it has been found that product development is
most suitable strategy for TESCO as there are number of growth opportunity present in UK
market (Chen and Jermias, 2014). So, by bringing new product range within same market,
TESCO become able to get easy acceptance which help in enhancing profitability and customer
base.
As per the view point of David, Jo., 2019, the UK market has several growth and
development opportunity for TESCO as the political, economic and social factors are in favour
of the company which provide greater support to operate operations effectively. Hence, it can be
said that product development strategy of Ansoff matrix is suitable as TESCO have more growth
opportunity. But on the other side, UK market also have certain drawback i.e. the technological
and legal factors are not in favour of TESCO which may create threat for its performance.
Therefore, product development will be beneficial to the company but, if new offering get copied
by the competitors then, it may affect the profitability of TESCO.
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TASK 2
Strategical capability considered as the pillar of an organisational performance which
ensure effective execution of operations at marketplace. Strategic capability refers to the ability
of a business to harness all of its resources, skills and capability in right manner to achieve
competitive advantage (Davies, 2016). In order to formulate effective strategy toward the
accomplishment of competitive advantage, TESCO must focuses toward aligning its internal
capability in right manner by using VRIO analysis.
VIRO analysis: - This framework put emphases over the identification of internal factor
within an organisation like skills and capabilities that are needed for achieving competitive
advantage. There are basically four type of resources/capability which TESCO have such as IT
integration, financial asset, and cost efficiency.
Valuable: - The prominent competencies of TESCO is that it holds up strong Financial
assets as well as market goodwill which support organisation in performing its operations in
effective manner without worrying about the arrangement of fund for execution of particular
plan.
Rare: - The financial assets are valuable to TESCO but are not rare. The workforce or
employees of TESCO are rare to the organisation due to higher capability or skills they are
having and maintain a better working environment which ensure higher productivity.
Imitable: - The financial asset of TESCO is valuable but not rare as it is available to
most of the organisation (Goffee and Scase, 2015). On other hand, workforce of TESCO is
valuable and rare at the same time but the skills of employees can be imitated easily. IT
integration of TESCO can't be copied by other as it works over a RFID technology in supply
chain that support it in improving quality, eradication of waste and reduction of price.
Organisation: - For achieving competitive advantage, the organisation of resources in
right manner is very crucial as it support in applying the efforts in right directions. The biggest
competency of TESCO is its cost efficiency approach within operations. For this TESCO mainly
operates over the formation of policies in a manner that it offers high quality products at lower
price. On other side, for keeping its product price low, TESCO focuses over enhancing
efficiency, avoiding waste and designing delivery system.
Resource/Capability Valuable Rare Difficult to Is it organised
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imitate
Financial assets Yes
Employees Yes Yes No
IT integration Yes Yes Yes No
Cost efficiency Yes Yes Yes Yes
This model support TESCO in determining its internal capability which support it in
formulating effective strategies by making use of its strength which further contribute toward
enhancing the performance level at marketplace (Jeston, 2014). The internal strength and
weaknesses that TESCO have is mentioned below
Strength The biggest strength of TESCO is its IT integration for enhancing
shopping experience where it uses RFID-enabled barcode system for
count product automatically. It also offers advanced mobile payment
app.
The diversified strategy in term of product offering adopted by
TESCO is most successful which supported it in capturing larger
market share.
Weakness The weakness of TESCO is that because of high debts and credit
card liability, the financial profit of company gets profoundly
affected (Jocovic and et. al., 2014).
TESCO is the price leader within UK market as it follows low cost
strategy to offer product. But, sometimes its low cost strategy leads
to reduction in profit margins.
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The internal environment can be judged for the organisation on the basis of strength and
weakness. The use of RFID technology is a strength for the company but on the other hand, it
affects the efficiency as their debts increases also they seeks to enhance their market share by
providing diversified product and this all is dependent upon the internal capabilities of the
companies. After evaluating internal capability with the help of VIRO analysis it has been found
that the Financial assets is most valuable capability of TESCO which further support in
managing other internal capability effectively such as IT integration, employees and cost
efficiency that support in achieving core competencies which result into achievement of
competitive edge. Their employees are difficult to imitate this is a strength for them which will
contribute them in achieving their goals. Tesco has the strategic capability to reduce the impact
of the weakness so that they can utilise their updated technology in increasing their market share.
TASK 3
Porter's five force model is basically a framework that work toward analysing the
competition present for business within industry (Klettner, Clarke and Boersma, 2014). It works
over five competitive forces which shapes every industry that support in evaluating the
weaknesses and strength that a company have within that particular industry. With applying
porter's five force model, TESCO will be able to identify its market position and area to be
focused for achieving sustainability in marketplace. This analysis is mentioned below:
Bargaining power of buyer: - Within retail sector, the bargaining power of buyers are
relatively higher. Hence it is a threat for TESCO as if it started reducing the quality of its product
or raising their cost up to competitors for gaining profit then, the customer might switch the
brand. Hence, it is crucial for TESCO to put more emphases over continuously offering high
quality product to its customer at lower price for keeping its customer retained for longer
duration.
Bargaining power of supplier: - The bargaining power of supplier within retail sector is
relatively low as there are number of suppliers available which offer high quality product at
reasonable price (Laudon and Traver, 2016). TESCO is operating at larger scale which provide
greater strength to company for negotiating with supplier as it holds a larger network of supplier
who are ready to offer products at lower price.
Threat of new entrant: - The retail industry consists of higher competition as larger
number of players are dealing from year and maintain greater customer base which requires new
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entrant to make huge investment for entering into market. This is the greater relief for TESCO as
it has to fight with only existing competition. In addition to this, new retailers are required to
take government permission regarding resources to use and time which also act as a barrier for
new entrant to enter into retail industry.
Threat of substitute: - With retail industry, the threat to substitute is relatively lower as
the major substitute for food retailers are small chain food shops, organic shops and other stalls
that offer food to people (Lawton, 2017). Hence, this threat is relatively lower as TESCO is
already providing good quality food services at lower price which make it difficult for other
substitute to deal with TESCO.
Rivalry within marketplace: - The competition within retail sector is relatively higher
as there are majority of players who are offering same product or services with different price or
benefits. Hence, the threat of rivalry for TESCO is relatively higher and main competitors of
TESCO are ASDA, Morrison’s, Sainsbury, Waitrose, Mark & Spencer etc. that provide tough
competition to one another in term of products, prices and promotional techniques. These
competitors also share equivalent customer base which affect each other's profit.
Porter's five force model work toward determine the competition present in industry so
that opportunity and threat which company have can be determined so that strategy formation
can be performed. This model is advantageous as it provides alternatives and ways through
which TESCO can deal with suppliers and buyers by maintaining cost efficiency. On other side,
the drawback of this model is that it is not applicable to every kind of industry. In addition to this
it also ignores main factors like government, tax issues and obligations. In order to deal with
higher competition, TESCO must regularly adopt sales promotion strategy which support in
keeping the interest of customer with organisational offering.
TASK 4
Strategical planning plays a crucial role in directing the efforts applied by an organisation
in right direction so that competitive advantage can be achieved. In order to formulate effective
strategy, TESCO must make use of Porter's generic strategy framework which describes about
the manner that must be followed by the company in order to achieve competitive advantage at
marketplace (McCahery, Sautner and Starks, 2016). The porter's generic model is mainly focuses
over three major type of components that support in providing pathway which an organisation
must be adopted to deal with the competitors present in marketplace. With the application of
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Porter's generic strategic model, TESCO be able to develop better strategic plan for
accomplishing the competitive edge,
Cost leadership: - According to this strategy, if an organisation wants to achieve
competitive edge at marketplace then it must focuses toward offering products or services at
relatively lower price than that of its competitors. TESCO is a discount retailer which offering its
product or services at lower price. But, in order to achieve competitive edge, it is crucial for
TESCO to keep its price of product lower than its competitors for the implementation of cost
leadership. For implementing this, TESCO can focuses toward reducing its operational cost by
enhancing employee’s efficiency, reducing error or wastage so that appropriate profit can be
generated.
Differentiation: - As per this strategy, for achieving the competitive edge a company
must try to offer its product or services with some unique feature which is not being offered by
other players in marketplace (Mittal and Dhar, 2015). TESCO can offer its product or services
with some unique benefits and attributes in order to keep customer interested in the offering of
brand. With the adoption of this strategy, TESCO can be able to develop a base of loyal
customer which also provide company an advantage of demanding higher price from the
customer regarding its product offering.
Focus: - This strategy state that in order to achieve competitive edge, an organisation
must put more emphasis toward either on reducing the cost of product or achieving
differentiation in its offering. With the adoption of cost focus strategy, TESCO can concentrate
more over the enhancement of internal capability and efficiency so that operational cost of the
company can be reduced while dealing with the pressure which is generated from the external
environment. On the other side, by applying differentiation focus, TESCO become able to
differentiate its product from that of existing player present in market that support it in
approaching larger customer base in order to achieve competitive edge.
Hence, porter's generic strategy is said to be a strategic framework which support an
organisation by directing over the actions to be taken for standing apart from the competition
(Peng, 2017). For achieving competitive edge, TESCO must put more emphasis toward offering
differentiation pricing strategy this is so because it is already offering products at lower price but
the competition is increasing over the price. Hence, it is not possible to reduce more price as it
directly affects the profitability of organisation (Ocasio and Radoynovska, 2016). The most
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appropriate strategy for TESCO is differentiation, because by bringing new product range which
is not offered by other retailer, it become easier to differentiate brand within marketplace this not
only support in attracting more customers but, also help in achieving the competitive edge.
Strategic plan refers to as a document which is basically used to communicate plans and
policies among stakeholders about the organisational goals, configure resources, strengthen
operations, focus energy and for ensuring that whether the employees a well as other
stakeholders are working over the common organisational objective. The strategic management
plan work over a particular vision or goal by enlisting the set of activities to be performed for
accomplishment of that particular objective (Peng, 2017). In context of TESCO, the strategic
management plan is developed by the top level management which is mentioned underneath: -
Mission: The main mission of TESCO is to work together for creating better things
which matters for customer (Vision, values and business strategies, 2019).
Vision: “To become a business that is highly valued by customers, community in which
it operates with loyal and committed colleagues.”
Objectives: The main objective of TESCO is to increase its customer base within UK
market by 10% within 1 year of launching customised dress services”
Strategies: TESCO is launching new product range under customisation of colours and
size. Under this facility, it provides dress in specific colour as preferred by consumers within 1
week. With the help of this facility, TESCO can come with new range of dresses and it is easy to
reduce wastage and possibilities of dead stock as well. To effectively position the customised
dress services within UK market, TESCO is required to put emphases over following key
strategies that are: -
Market research: The R&D department of TESCO must conduct a market research in
order to determine the demand of customers regarding such services. This will support in
determining the feasibility of this service while launching in marketplace that further support in
formulating effective strategy to attract customers.
Extensive marketing: For promoting this new service in marketplace, TESCO must
focuses toward forming a team which perform extensive marketing after introduction of this
service in UK market in order to determine reactions of customer over it. Despite of this, it also
supports in creating awareness about this new services among customers (Ritter and Andersen,
2014).
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Tactics: For accomplish these objectives, TESCO must use online channel to spread
awareness about it i.e., while customers are surfing the dresses over its official website it must
add an option of customisation so that they get proper instruction to get their own desired design
and colour dress. On the side, at physical store they can directly place order by interacting with
store keeper.
Strategic directions and tactical actions are the guidelines and strategies which helps the
organisation in achieving the objectives which can be decided by analysing the external
environment. Such analysis helps to identify various opportunities and threats that may arise due
to competition and various other factors of internal and external environment. From the external
analysis it is identified that Tesco has technological advantages as they use updated technology,
also they get economic advantage because of favourable situation as they can easily procure
funds but, they face legal issues as implication of law is high when companies directly deal with
the customers. Also a large population is above 60 this offers Tesco an opportunity as they
provide one stop solution for basic goods (PESTEL analysis of the UK, 2019). From internal
analysis, it is identified that they face stiff competition from the large market players but still the
other factors in their favour such as restricted entry, bargaining power of buyers and suppliers are
low etc. These analyses will help them to determine various tactics that can be followed by them
to achieve their goals and objectives. Analysis of these factors helps Tesco in increasing its
customer base in market. For this, company use strategy of market research and extensive
marketing and utilize online channels to spread awareness about its customized dress services.
CONCLUSION
From the above mentioned information, it can be summarised that business strategy
provides set of guidance which help in ensuring the long term growth as well as success of
organisation. But, in order to formulate effective strategy, it is crucial for an organisation to
perform internal as well as external evaluation so that tactics can be formulated by considering
all the factors that may influence the performance of company. Internal analysis performed with
the help of VRIO analysis support in determining the internal capability which build up strength
for dealing with challenges. On other side, by using framework like PESTLE and Porter's five
force model it become easier to evaluate opportunity or threat present in external environment.
So, that effective strategies can be formulated by using Porter’s generic and Ansoff matrix that
help in achieving competitive edge.
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