Tesco Strategic Analysis: Internal & External Environment Impact

This report provides a strategic analysis of Tesco, a major player in the UK retail industry. It begins with an introduction to strategic management and its application to the retail sector, followed by a detailed description of the industry and Tesco's operations. The report identifies key strategic issues faced by Tesco at a global level, including competition from discount chains, the rise of high-end grocery chains, and challenges related to its target market and brand management. The analysis further explores the influence of both internal and external factors on Tesco's innovation and overall business performance, examining elements like organizational structure, shared values, systems, skills, staff, political, economic, and social factors. The report concludes by highlighting the importance of adapting to these factors to ensure Tesco's continued success in a dynamic market environment.

Strategic Analysis

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK ..............................................................................................................................................1
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Strategic management refers to a process of creation and implementation of major
objectives and goals. Top management takes initiatives on the behalf of company's owners,
based on assessment of business environment, i.e., internal and external in which firm competes
and also, considers resources in same (Amaldoss, Desai and Shin, 2015). It administers the
overall direction to the company. It includes formulation of plans and policies, specify the
objectives and allocation of resources in order to implement plans. This report is based on Retail
Industry which has emerged as fast paced and most dynamic one because of entry of various new
players. The main responsibility of retailers is to satisfied demand that is determined by supply
chain. In the present assignment, chosen organisation is Tesco which is a general merchandise
and grocery retailer of UK. It is a British multinational organisation with having its
headquartering in Welwyn Garden City, England. The report includes key strategic issues faced
by firm globally and influence of internal as well as external environment on innovation that
takes place in company.
TASK
Detailed description of Industry:
Retail Industry is one of the rapidly growing industry in today's world. Tesco is a British
multinational grocery retailer of United Kingdom. It is the third largest retailer of world by its
profits and ninth by its revenue. Many stores of company are located in around 12 countries
across Europe and Asia. Company was established 99 years ago in the year 1919. Business of
firm expanded rapidly and has diversified geographically in the areas of electronics, petrol,
furniture, books, toys, software, financial services, clothing, telecom, internet services, etc.
Innovation is a process of translating invention or idea into products and services that
creates some value for customers. In businesses, when ideas are implemented by firm to satisfy
the expectations and needs of customers then it often results in innovation. It is not an
individual’s action but, a whole process of interconnected sub processes. All those activities that
includes in process of generating ideas, marketing technology development, manufacturing and
producing new goods is refers to as as innovation. In context of organisations, it is a procedure to
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develop or enhance new goods and services so that competitive advantage can be gained in the
market place (Andrews and et. al., 2011).
One of the effective innovation of Tesco is replenishment application system. This
collects data of sales from checkout points and transferred it to supply department. By the help of
this system, supply department easily knows requirement of products. It maintains the product
availability and stock control in its every store for consumers. Oracle retail supply management
system is an important system in Tesco. It assists the firm to manage chain administration across
their business world. By the use of this system, company easily maintains capacity, production
and distribution. Various types of systems are used by the management people of Tesco in order
to manage innovation. They always try to find new innovation (Büyüközkan and Çifçi, 2012).
In 1990, Tesco introduced club card or loyalty scheme card. In this, when customers
purchase something, each time they get points by using this card. This helps the firm in colleting
visiting data of customers, products they buy, the goods which are sold quickly etc. These
modern technologies help the firm in meeting out their main goals. Now, Tesco upgrading micro
focus the develops replenishment system in IBM server.
Key strategic issues faced by Tesco at the global level:
The economy of United Kingdom is changing. Since 1960, because of deflation, the
supermarkets of that region face many issues. Tesco is one of them which face many issues at the
global level. Some issues are defined as below:
High cost and low price of discount chains
The biggest threat to supermarkets is swift rise and entrance of discount models as chains
such as Lidl and Aldi have expanded from Europe in order to find success and growth in UK. As
per the previous data, these discount chains grew 10% to 15% in 2014. The firms that gain
profits are directly translated into losses for traditional chains of supermarkets. The market share
of Tesco fell from 28.8 % to 28.4%. The huge impact on success and growth of discount chains
has been that, the supermarkets like Tesco and Asda had to lower down prices of their own
products to discount levels so as to hold on and keep up large amount of market – the outcome
being diluent profit margins & the push to negative inflation (Jetzek, Avital and Bjorn-Andersen,
2012).
Outnumbered
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As per the reports, issues for discount chains of super markets of UK is not only just
prices, but more than that. It has become a game of numbers and these chains are winning.
According to the previous data, it has been found that chains like Lidl and Aldi are expanding
more rapidly rather than traditional chains such as Tesco and Asda. Instead of expanding, the
referred organisation is closing some of its stores which are performing lower due to many
troubles faced by company over the last years. This serves to propulsion a further wedge among
traditional supermarkets and consumers. Even if customers have their favourite brands of
supermarkets, eventually suitability trumps all when compared with decline prices & wealth of
more convenient and closer options. It could lead easily to the customers who are loyal in
choosing these discount chains more frequently.
Competition on high end:
Traditional chains of super markets in United Kingdom facing problems from grocery
chains as they eating their market shares at higher end whereas discount chains dig on lower end
(Issues face by Tesco, 2017). By trading on high end cache, these brands was succeeded, similar
to chains such as US Whole food market and takes benefits of trends that experience growth in
consumer market of United Kingdom like organics. As per the reports of city AM, similar level
of growth have not seen by high end chains as discount chains and are also have not seen similar
losses as Tesco and Asda. If the supermarkets expect to overcome such kind of issues, they
need to find out the way to attract customers without restoring downsizing and price cuts.
Tesco does not know their target shoppers:
The major strategic issue of Tesco is that it unclear about their target shoppers. It caught
somewhere between upmarket offer of Waitrose, Sainsbury's and discounters like Lidl & Aldi.
These discount competitors put immense pressure on major super markets of UK in last some
years and they fail to cut prices enough in order to compete with German brands.
Sluggish retail market:
The situations across grocery retail market of UK have been tough. Customers have up to
now feel benefits of economic recovery of country. The sales of Tesco have been falling & in
June, it suffered its bad trading in history.
It's lost overseas advantage:
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The prior advantage of Tesco in form of overseas presence is not as similar before. As
easy operations constantly haemorrhage money, it shut down and write off £1 billion. £800
million is also wrote off by Clarke from value of land bank of Tesco (Madani and Hipel, 2011).
Consistency and Clarity is lacking:
In recent years, the company has been confused in context of its identity and brand
management. Bryan Roberts said that the proposition of Tesco, specifically in pricing is
confused and muddled. It does not need by Tesco to have lower pricers to recover – rather its
pricing requires more transparency, clarity and predictability.
Tesco lacks clear management strategy:
The company has been hassle with string of administration changes, involving departure
of finance director who had been in firm for 15 years. Before the departure of McIlwee,
stakeholders had described him 'abrupt and aggressive and ask questions about control of
management on business. They don't have clear management strategy and due to this many
issues are face by Tesco at global level (Merat and Bo, 2013).
Above mentioned are all the issues that are face by company in last few years. Firm
needs to take appropriate measures in order to overcome these.
Influence of internal and external environment:
In Tesco, the key factor to success is innovation. The company gives equal emphasize on
their customers as well as innovation. The major aim of firm is to make shopping experience
easy for its consumers and enhancing its services by administering good value for goods than
just only concentrating on prices. In order to attain its objectives, managers of Tesco analyse the
factors on constant basis that influence the firm. There are various internal and external factors
that impacts on company as well as its working. These may be internal or external and managers
needs to determine all those in order to get success in competitive market. It assists in growth
and success in many ways, such as For improving performance of firm, For examining likely
effects of future changes within organisation, Alignment of departments and processes at the
time of merger or acquisition and For identifying the best way of executing proposed strategy.
These business environment forces and their influence on firm are defined below:
Internal factors:
Structure: The organisational structure of Tesco is highly hierarchical & it involves
various layers from CEO to management to store sales. This structure hinders the processes and
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operations of firm. Therefore, it was examined that simple structure would assist the firm in
attaining its goals and objectives in better as well as effective manner (Sönmez and et. al., 2013).
Shared values: The beliefs and objectives of firm are depicted with the assistance of
shared values. Tesco has its own belief that via increasing composure of administration
techniques from just being a simple firm of manufacturing to standard value chain will assist
assist firm to attain its objectives. Shared values promotes coordination and team working which
ultimately brings innovation and development within company
Systems: The supermarket chain of firm basically rely on spread and wide scope of
systems for impending sustainable operations on regular basis. These kind of systems act as
hindrance in performing sustainable operations. So, in order to get back the business on track,
various steps were taken for simplifying the systems of organisation (Suri, 2011).
Skill: The capabilities of firm as well as its manpower to complete a specific task is
defined as skills of firm. In order to have positive influence of this factor, firm provides complete
knowledge to its manpower so that they are able to work effectively and efficiently within the
firm. Skilled workforce assists in bringing innovation within firm.
Staff: It here refers to numbers of workers a firm has. By Tesco, more than 400,000
individuals are recruited worldwide. Employees are the main asset for every organisation and it
is necessary to ensure that they are working effectively. If they don't work efficiently,firm wlii
never succeed.
External factors:
Political: Many countries encourage the firms like Tesco to invest in developing market.
For instance, all foreign trade barriers has removed by China and is encouraging free flow of
foreign direct investment. The company has entered into joint undertaking with china & have
agreed on establishing shopping malls. This has administered the firm with great hike in
international market and hoped to increase profit of company by one quarter.
Economic: Customer's buying behaviour directly influence by economic factors & this is
the most concerning element for Tesco. The country has been already declared that United
Kingdom is under recession. But, government is taking initiatives in order to reduce effects of
unemployment by lowering down the interest rates that assists in minimizing recession effects.
Because of these initiatives by government, customer's buying power has stabilized & provides
confidence to consumers about financial position of company (Tijssen, 2012).
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Social: Beliefs, population, lifestyle and religion of individuals comes under social
factors that impacts on working of firm. Main population of United Kingdom includes elder
people who as compared to adult and young generation, eats less food. So, they do not go to
supermarkets for making purchases. For such people, internet is becoming the best helping hand.
Today, consumer's food habits are also changing. Health conscious and organic food are more
demanded by people. So, it is required by Tesco to alter its product range in order to meet
demands of customers.
Technological: Today, technology is becoming the main part of daily life. Individuals are
preferred to making online purchases of grocery instead of going to super markets for making
purchases which influence retail business of supermarkets. From last few years, a steady growth
has shown in internet shopping (Walker and et. al., 2014). Above 50% of population is using
internet on constant basis which is supposed to be increase by 70 percent in upcoming future.
Some of the technologies that are utilized by company are Intelligent scale, Electronic shelf
labelling, Wireless devices, Self check-out machine, Radio Frequency Identification. Emergence
of new technology assists in bringing innovation in goods and services offer by company.
Environmental: Because of increasing sustainability demand, environment friendly
goods and their packaging is now promoting by government. People are now becoming more
aware of sustainability as in use of reusable bags, there is sustainable growth from 71 to 74%.
Plastic bags have not been utilized by people as they stopped using that which results in
reduced expenses of company and assisted in providing it good image. The firm is aware about
consciousness of customers regarding carbon foot prints. Therefore, carbon data has added on
orange juice, dairy products, potatoes and planning to implement it on bread & other non food
products.
Legal: Because of financial recession, it is predicted that VAT is going up to 22 percent
that indirectly put negative impact on purchasing power of customers and this will result in
declined demand for non food items like shoes, clothes etc. In order to increase the wage rate up
to 15%, National minimum wage is planning which adds in operating cost of firm. This is going
to influence profit ratio of firm (Xu, Liu and Zhang, 2012).
Consequences of internal and external factors:
The firm understands the significance of internal forces and taking good care of
employees by satisfying their needs. It leads to enhance the skills of manpower to work
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according to standards of firm. There are many uncertainties related to actual financial position
of country. This makes consumers spend less and save more have a future backup. Various steps
has been taken by Tesco in order to attract consumers back to super markets by introducing
offers and starting loyalty programmes. Steps has taken to reduce cost expenses of its goods in
order to balance increased expenses. Tesco discourage making small deliveries as these are
ineffective and expensive in regards of profits (Zott and Amit, 2013). The firm provides overall
knowledge to its workforce so that they are able to work effectively in firm. Firm now share
values with workforce in order to improve their efficiency level via making them part of
organisational goals. Government of developing markets are encouraging free trading blocks
which is a great perk for firm because of increasing globalization.
CONCLUSION
As per the above mentioned essay, it has been concluded that the process of strategic
management helps in creation of major goals and objectives of firm. Strategic analysis is
important for every organisation in order to grow and maintain its position in market. For growth
and success of business, it is very important to bring innovation in products and processes. Retail
industry is one of the fastest growing industry as there are many new players enter in this sector.
Various issues are faced by company such as competition on high end, outnumbered, high costs
etc. which needs to be overcome. There are various internal and external factors which needs to
be considered by management as it put both negative as well as positive impact on working and
operations of business. It is necessary to constantly analyse these factors in order to overcome
the issues that are face by company.
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REFERENCES
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Online
Issues face by Tesco, 2017. Online available through <https://www.reuters.com/article/us-
britain-tesco-breakingviews/tesco-has-three-issues-but-only-one-matters-
idUSKBN16Z1A8>
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