Tesco Business Strategy: A Strategic Management Analysis

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BUSINESS STRATEGY
Tesco

Table of Contents
INTRODUCTION........................................................................................................................3
LO1 ANALYZE THE IMPACT AND INFLUENCE WHICH THE MACRO ENVIRONMENT HAS ON AN
ORGANISATION........................................................................................................................ 4
Figure 2: Pestle analysis....................................................................................................... 6
Political Factors.................................................................................................................... 6
LO2 ASSESS AN ORGANISATION’S INTERNAL ENVIRONMENT AND CAPABILITIES....................9
LO3 EVALUATE AND APPLY THE OUTCOMES OF AN ANALYSIS USING PORTER’S FIVE FORCES
MODEL TO A GIVEN MARKET SECTOR....................................................................................13
LO4 APPLY MODELS, THEORIES AND CONCEPTS TO ASSIST WITH THE UNDERSTANDING AND
INTERPRETATION OF STRATEGIC DIRECTIONS AVAILABLE TO THE CHOSEN ORGANISATION 17
CONCLUSION.......................................................................................................................... 21
REFERENCES........................................................................................................................... 22
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LIST OF FIGURES
Figure 1: TESCO Logo..........................................................................................................3
Figure 2: Pestle analysis......................................................................................................5
Figure 3: SWOT Analysis.....................................................................................................8
Figure 4: Porter's Five Forces analysis...............................................................................12
Figure 5: Porter’s generic strategy matrix.........................................................................14
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INTRODUCTION
The report analyzes the impact of the macro environment on the business and strategic
management decisions of Tesco. The internal and external environment of the company is
examined in order to develop a set of strategic decisions objectives and tactical actions. The
strengths and weaknesses of Tesco are analyzed in reference to the internal environment
assessment. Further, Porter’s five forces model is used to evaluate the competitive forces
which affect the operations of the company. The competitive position of Tesco can be
analyzed with the help of this model which improve its market position. For strategic
planning, various theories and models are evaluated in the report. At last, a strategic
management plan is developed by analyzing different aspects of the company along with its
tactical and tangible strategic priorities.
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LO1 ANALYZE THE IMPACT AND INFLUENCE
WHICH THE MACRO ENVIRONMENT HAS ON AN
ORGANISATION
TESCO’S PROFILE
Tesco is the leading retailer of the United Kingdom which was founded in the year 1919 by
Jack Cohen. It is considered as the third largest retailer in the world in terms of gross
revenues and ninth-largest retailer in the world measured by revenues. Tesco sells a large
number of products which include books, clothing, electronics, furniture, toys, petrol,
software, financial services, telecoms, and internet services.
Figure 1: TESCO Logo
Mission and Vision
The mission and vision of Tesco are described in the phrase ‘we make what matters better,
together’. The operations and businesses are Tesco work on the mission of providing quality
to their customers in the form of the products they offer. The mission and vision of the
company are evaluated and monitored continuously in order to make business strategy
(Tesco Plc, 2019).
Values
The core values of Tesco is focused on working hard for the customers and these values are
inspirational for the employees and workers of the company. The value of Tesco is
embedded by letting the customers and employees know their operations and business. The
values of Tesco are inspirational and motivational when put into a substance (Mihăiloaie,
2013).
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Objectives
There are many objectives of Tesco which help in accomplishing its business objectives and
strategies. The main objectives of Tesco are discussed below:
 Making the products cheaper for the customers which belong to the average
household.
 To increase sales with an aim to maximize the profits of the company.
 Introduce a new range of healthy products in order to attract more customers who
are health conscious.
 Ease shopping of the products by the customers by providing the facility of the online
and offline store.
 To provide job to the local community and reduce the ratio of unemployment in the
local areas.
PESTLE ANALYSIS OF TESCO
A PESTLE analysis is a tool which is used to examine the macro or external environment of a
company. It is the combination of external factors of the company such as Political,
Economic, Socio-cultural, Technological, Environment and Legal environment. The PESTLE
analysis help in developing a fundamental knowledge of the macro environment which can
be used in different fields. This analysis generally has a qualitative structure which affects
the business decisions and relevant strategies of the company (Yüksel, 2012). The PESTLE
analysis of Tesco is described as follows:
Figure 2: Pestle analysis
Political Factors
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The political factors of Tesco include tax rates, acts of legislation and stability of the country
which has a substantial influence on the operations of the company. Tesco actively takes
participation in job generation and creating employment opportunities in the country which
help it getting support from the government and increasing sales of its products and
services.
Economic Factors
The economic factors affect the functioning of Tesco maximum which includes costs,
demand, profits, and prices. The company is growing continuously which has a current
market share of 30 percent. The profitability of a company is affected by economic factors
such as an increase in the decrease in disposable income levels and household incomes.
Social Factors
The social factors such as social trends, belief, values, culture, etc. affect Tesco and its
operations. Tesco is adopting a new range of organic products in order to fulfill the demands
of health-conscious people and has increased the number of non-food items for sale.
Customer belief and values are kept in mind by the company while framing policies and
business strategies.
Technological Factors
Tesco is bringing new technological advancements in its company which has developed new
opportunities for the company. The labor cost was reduced by introducing self-service
checkout points. PayQwid, an online payment system is started by Tesco which assists its
customers in convenience shopping.
Legal Factors
The legal factors of the company include government policies and legislation which impact
the performance of a company (Thiele, 2018). Change in prices without any noticeable affect
the profitability of the company (Jurevicius, 2013). Tesco provides different promotional
offers along with price reductions on the fuel purchased by the customers.
Environmental Factors
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Tesco is taking active participation in reducing environmental damage and committed to
eliminated carbon footprint by 50 percent up till 2020 which reduce the impact of
environmental legislation on the company. The van drivers of Tesco collects unwanted
plastic bags from its customers and use fuel-saving routes.
STRATEGIC MANAGEMENT DECISION
The macro environment of Tesco is analyzed with the help of PESTLE analyze of the
company. After analyzing various external factors of the company by stating the company's
mission and vision it can be said that the company is highly affected the external factors of
the environment. The political factors such as Tax rates, current and impending legislation,
political instability, unemployment rate, the economic condition of different countries in
which Tesco is established has a substantial effect on the country. Tesco should make
business strategies by keeping in mind these political factors and their effect. The economic
downturn of the country like the UK can be taken as an opportunity for business expansion
globally. Steps should be taken by the company in establishing efficient online and offline
stores.
In the UK around 65 percent of the customers are loyal shoppers according to the PWC
report. Tesco can use this opportunity developing relations and one to one connection with
the customers. Tesco should make new technological changes in the company so that the
operations can be carried on in an effective manner. These changes will affect the company
in a positive way which will enhance its sales and revenue.
The legal environment also has great influence on the workings of the company. Any
noncompliance with these legal requirements will call for statutory liabilities. The decisions
regarding plans and policies of Tesco should be taken by keeping in mind the positive and
negative impact of these factors on the growth and success of the company.
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LO2 ASSESS AN ORGANISATION’S INTERNAL
ENVIRONMENT AND CAPABILITIES
SWOT ANALYSIS
The SWOT analysis is a tool used for strategic planning which helps the management in
developing the goals and objectives of a company. It is an analytical measurement system
which assists the company in examining its strengths, weaknesses, opportunities, and
threats. The internal and external environment of the company can be determined with the
help of SWOT analysis (Rouse, 2019). The internal analysis of a company is done in the form
of strengths and weaknesses while the external analysis of a company is done in the form of
opportunities and threats of the company. The competitive advantage of the company can
be analyzed with the help of an internal assessment of the environment. The external
environment can be useful for developing business strategies by identifying market
opportunities. The five forces framework of the company can be reviewed which include
competitive rivalry, new entrants, suppliers, buyers, and product substitution. The political,
economic, sociocultural, technological, ecological, demographic, ethical, and regulatory
implications of the company can be known with the help of assessment of external
environment (Bonnici and Galea, 2015). Following is the SWOT analysis of Tesco which help
in developing business strategies of the company:
Figure 3: SWOT Analysis
[Source: Shaw, 2017]
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Strengths
Tesco is a leading brand of UK which has received many excellence awards for its retail
services. The company sells many diversified products which help it in getting access over
the wide range market and large customer base. By covering such a large customer base,
Tesco is not dependent on one market segment for earning its revenue. Tesco created a
strong brand image by serving its customers over many years. It has a powerful product
portfolio which helps the company in tackling competition in the market. The stores of Tesco
are well personalized to provide a better experience to its buyers which appeal to local and
cultural needs of the customers. Tesco is providing its services to the customers from many
years, this helps the company is earning the loyalty of the customers. It also gave credibility
and assurance that it will continue to operate long into the future.
Weaknesses
Tesco is a globally operated company which has subsidiaries in many countries all around
the world. These subsidiaries are vulnerable to external factors such as political, economic,
legal, technological, and social factors as a result of operations in different countries. In
order to gain a competitive advantage in the industry, Tesco has reduced some of its
retailer's profit margin. Due to the less disposable income of the customers, they are not
able to purchase many items of the company. This results in a decline in sales and revenues
leaving the company with a high cost of inventory. Tesco has faced many controversies
related to patients with some of the companies like Varco and Weatherford. Any proven
claim will result in negative publicity and depleting Tesco’s image.
Opportunities
There are many opportunities for the company like Tesco which has diversified its
operations all over the world. There are opportunities for a strategic alliance with different
companies in the world. These alliance will help the company in getting global synergy with
the various companies operating in different countries. Advantages of online shopping and
home delivery can be utilized by Tesco to achieve growth in the business. Joint venture and
subsidiaries can help the company in diversifying its operations across the world (Linda,
2019). The company like Tesco has many opportunities for selling organic products in today's
health-conscious world. Products with low calories and low sugar will attract new customers
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for the company which will help in building new customers base. Technological
advancements in the production and other operations of Tesco will further help in the
growth and developments of the company.
Threats
The purchasing power of customers is declining due to the economic recession of the
country which has a substantially negative effect on the business of Tesco. The retail
industry is a very tempting industry for establishing new business start-ups which bring new
competitors every year. The emergence of new competitors in the retail industry makes it
difficult for the company like Tesco to continuously rebuild their business strategies. Labor
laws around the world are different in different countries. These laws create restrictions on
the operations of the company in terms of increased wages and benefits around the world.
Government regulations and political changes in various countries in which Tesco has its
subsidiaries bring another reason for concern for the company. Any non-compliance of
these regulations may generate legal liabilities against the company. Social responsibilities
such as compliance of environmental laws and fulfilling corporate social responsibilities are
also essential for the company.
After analyzing the internal and external factors of the environment with the help of SWOT
analysis of Tesco, it can be said that there are many strengths and opportunities which can
be used by the company for getting a competitive advantage over its rival in the industry.
The weaknesses and threats of Tesco are examined which should be kept in mind while
framing policies and business strategies of the company. Expanding its products in the new
organic products range will not only increase the sale and profitability of the company but
will help in forming a new customer base of Tesco. By keeping continuous eyes on the
threats and weaknesses, Tesco can convert the threats into its opportunities and
weaknesses into strengths. The company can make different market research in this regard
to market conditions and changing situations.
A SWOT analysis is a powerful tool which helps the company in making significant changes in
its policies and procedures according to the internal and external environment in which it
operates. In the year 2008, Tesco mobile has around ¼ million customers which helped the
company in further growth and development by developing its technological areas. Through
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online and catalog shopping the company has developed Tesco direct which provide a
launch pad for larger non-food based products with moderate to high margin returns. There
are many reasons for developing a technological base of the company which includes
changes in the buying pattern of the customers. Further, this evolvement in technology will
help the company in ensuring its competitive position in the market irrespective of the
change circumstances and market position.
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