Strategic Management: A Business Strategy Analysis Report on Tesco

This report delivers a comprehensive strategic analysis of Tesco, a multinational retail giant, using various strategic management tools and theories. It begins with an external analysis employing the PESTLE framework to assess political, economic, social, technological, environmental, and legal factors affecting Tesco's operations across its global markets. Porter's Five Forces model is then applied to evaluate the competitive intensity within the retail industry, considering factors like industry rivalry, bargaining power of buyers and suppliers. The report also features an internal analysis, utilizing value chain analysis and the BCG matrix to identify Tesco's primary and secondary activities, strengths, and market position. A SWOT analysis further examines the company's internal strengths and weaknesses, as well as external opportunities and threats. The strategic analysis section critically evaluates Tesco's strategies using Ansoff's Matrix to assess marketing strategies and associated risks. The report also explores Tesco's international expansion strategies, including strategic alliances and joint ventures, and its approach to integration and outsourcing, particularly in knowledge management systems. Finally, it discusses Tesco's business-level strategies, providing a holistic view of the company's strategic management.

Running Head: BUSINESS STRATEGY 0
BUSINESS STRATEGY
(STUDENT NAME)
12-24-2018

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Executive summary
Strategic management includes planning, monitoring, and assessing an organization
strategy and everything that is necessary for the company. For the discussion of
strategic analysis, Tesco organization case will be taken in the report. Jack Cohen
founded Tesco organization in 1919, headquartered in UK, within the retail industry. For
effective strategic analysis, initially the external analysis will done, for which PESTLE
analysis tool will be used. Political environment of the company was an essential factor,
as the company operates in more than twelve countries, and different political factors
are to be considered. Some of the major political factor effects on operations of the
company are where EU referendum was creating a great risk element for investors.
Moreover, for external analysis, Porters five-force model was also used. Analysis the
industry of the company included, high competition, due to which price needs to be
minimum by the company.
Another aspect of strategic analysis was internal analysis, for which value chain
analysis and BCG matrix was used, and company primary activities, secondary
activities were assessed. Moreover, Tesco’s strengths, weakness, opportunities, and
threats were observed and analyzed through SWOT analysis, for analyzing internal
factors of the company.
Further, for critical analysis of strategic analysis of TESCO, various tools and theories
were conducted. Ansoff’s Matrix was taken for this purpose, where the marketing
strategies were created and risk attached to each strategy was analyzed, to select the
most suitable strategy for the company. Considering international strategy of Tesco, for
entering into the international market, the company adopted the Strategic alliance and
Joint development strategy. Moreover, considering the integration and outsourcing
strategy, Tesco under its strategic decision, outsource knowledge management system
and knowledge to ICT, for a more effective information system use in the company.

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Contents
Executive summary...........................................................................................................1
Introduction........................................................................................................................3
Tesco limited..................................................................................................................3
External Analysis...............................................................................................................5
I. PESTLE Analysis.....................................................................................................5
II. Porters five force model.......................................................................................7
Internal analysis...............................................................................................................10
I. Value chain analysis..............................................................................................10
II. BCG matrix.........................................................................................................11
SWOT analysis................................................................................................................14
Strategic analysis.............................................................................................................17
I. Ansoff’s Matrix.......................................................................................................17
II. Tesco international strategy...............................................................................19
III. Integration and outsourcing strategy..................................................................20
IV. Business level strategies....................................................................................20
Recommendations and Conclusion.................................................................................21
References.......................................................................................................................22

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Introduction
In this report, the major focus will be on Strategic management. Strategic management
could be introduced as a plan, which includes rapid planning activity, the act of
monitoring, analyzing the strategies, and assessing everything that is essential for a
company to accomplish its objectives and goals. Some of the dynamic environment and
need for innovation, customer expectations, and emerging technologies influence
companies to think and decide strategically for successful retention. This process is
helpful for the organization leader to analyze an organization’s current situation, and
existing strategies, deploy those strategies and check for the implemented strategies
effectiveness. Moreover, the decision related to cross functions is also analyzed under
this process prior to implementing (Petersen, 2015).
Considering the strategic management, the initial and important aspect is to analyze the
company’s internal condition, for which SWOT analysis plays an important role. It
consists as one of the crucial element because it is better to identify the weakness,
threats, strengths, and opportunities for analyzing external environment and various
more factors, which could be responsible for the change in strategic decisions. For
example, to create competitive strategies, it becomes essential to analyses major
aspects of the environment of the organization.
For a detailed study of business strategy in strategic management, an organizational
case will be considered. The selected organization for the same is Tesco. For this, the
organization strategies would be identified and for critically analyzing the study, creative
problem solving would be considered in the report. Moreover, the drivers of strategic
management include business environment, the purpose of the organization, strategic
capabilities, and cultural importance, which will be further discussed in the report. There
are many levels of strategy, among which business level strategy of Tesco would be
further discuss in the report.
Tesco limited
Tesco is one of the multinational general merchandise and groceries retailers’
headquartered in England, United Kingdom. It is considered as third largest retailer

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worldwide according to gross revenue and it is at ninth potion globally when revenue is
considered. Jack Cohen founded the organization in 1919. The products offered by the
company include diversifies area of clothing, retailing of books, furniture, electronics,
toys, software, petrol, telecoms, internet services, and financial services. The company
is operating in many countries, among the group, operation in the United Kingdom is
largest, serving around 3400 stores in the country, and around 300,000 employees are
part of the company for better customer service. The company has tried to strengthen
UK business foundations, and that had made a more competitive offer to the customers
with enhanced quality, better service, shared prices, and stronger ranges (tescoplc,
2018).

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External Analysis
To develop strategies for the company, the most important step is to analyze the
environment in which the company is working and to analyze the external environment
of Tesco, two models, or theories will be used that is PESTLE analysis to study the
macro environment, and Porters five-force model to analyze industry analysis.
I. PESTLE Analysis
1. Political factors
Tesco is operating in twelve nations including Europe and Asia. There are
various political factors, which may affect the operations and the strategic
decision of the company in various nations. The factors are tax rates, political
instability, economic condition, legislation, and the unemployment rate of the
nation in which the company is operating. For example, the company imports
some of its stock from East Asia and China to the UK, for which import duty plays
an important role in this factor, as this can increase the price of the product in the
UK (CultureWizard, 2018).
Some of the major political factor effects on operations of the company are where
EU referendum was creating a great risk element for investors. Moreover, the
economy of the British was having hard times. Moreover, a Tesco Tax, which
was a tax on huge supermarkets, was proposed by the local council, which was
nevertheless refused by the UK government in order to avoid the price hike.
Similarly, such intuitive could have a negative influence on Tesco (Doole & Lowe,
2008).
2. Economic factors
One of the major economic factors is Labor cost, which influences the company’s
operations, and decisions in a particular nation. To illustrate, Minimum wage of
UK in 2018 is incremented by 4.4 percent for people above the age of 25. This is
the major reason for the increase in cost for the company in the United Kingdom.
More such factors for influence are prices, cost, and profits. Due to increment in
borrowing cost in the United Kingdom, the overall price of the products has to be
increased by the company; which has affected its cost leadership strategy and

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brand reputation. Diversification and the company’s presence in the global
market are considered to be major strategies for many years, which are result in
a great success for the company (marketingtutor, 2018).
3. Social factors
The shopping trends and fashion is constantly changing with time. People have
difficult schedules and have to fulfill those requirements on the very same day,
and require fastest deliver. In various nations, the preference of the people are to
purchase the goods from one destination that is one-stop shopping, they do not
want to visit five different places for different products. Tesco major customer
segment is from the United Kingdom, and the company needs to accomplish the
needs of those customers to sustain in the market. The demand is majorly
shifting according to the customer attitudes and believes, which is another
consideration for the company. Similarly, health issues are another reason for the
offered products, like in some nations, obesity is a major issue, and the products
are offered according to that fact and figures, this increase the demand for
organic goods. According to the records of PWC, UK customers are 65%, loyal
shoppers. Due to this, Tesco must avail this opportunity by developing personal
relationships with the customers (Gugin, 2018).
4. Technological factors
Some of the major problem faced by the company was customer experience was
not up to the mark, which shows the technological advancement was one of the
major issues for the company loss. Therefore, the company strategy included
upgrading technology rapidly to gain the latest opportunities to regain trust by the
company. The company introduced with RFID technology in order to enhance in-
store customer experience. Moreover, the company took initiative to create their
own online mobile payment technique that was said to be PayQwid. Through this
system, customers have the opportunity to gain loyalty points, while paying from
this card for shopping from Tesco (Semanticscholar, 2018).
5. Environmental factors
Various brands are having the same issue, that is pressure from higher
authorities of the country to consider environmental problems, and companies

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are considered responsible for such issues, and need to work for the society as a
whole. For example, plastic uses are ban in various countries to promote more
degradable products or in various nations, such bag is collected back from the
customers in order to conduct recycle process, so they are not dumped and can
be used again. Moreover, the company strategizes, to minimize up to fifty
percent carbon footprint by the year 2020 (Bubel, 2015).
6. Legal factors
An organization is working in a legal environment, and for every country, rule and
laws are different and affecting differently for the company and their strategies.
To illustrate, a case of Tesco of 2016 was that seventeen workers of the
company took action against the organization employer for the discrimination on
the basis of gender And age, and were receiving lower nigh rate pays, or low pay
on weekends or on bank holidays (Trivedi, 2016).
II. Porters five force model
This model is responsible for shaping strategy, as the company is working the retail
industry. The five forces by Michael Porters are as follows:
1. Industry rivalry
The competition is very high in this industry, and the competition is generally
based on prices. There are various leaders trading globally and have a large
market share in this industry like Walmart. The company can handle this problem
by creating noticeable differentiation, collaboration can be another strategy to
overcome competition, that is working with competitors to increase the size of the
market rather than competing for the petite market (Vellas, 2016)
.
2. Bargaining power of buyers
In this industry, customers are very demanding. Since the completion is very high
in this industry, therefore the price has to be according to the competitive
companies. The reason for the bargaining power in hands of the buyers is that
the shifting cost is not as such, in case the buyers found high prices from one
company in the retail industry, they purchase from another company. Customer

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loyalty is not very much in the case of this industry. Moreover, the customers are
becoming more and smarter and search for the products from many places, like
online retail platforms as well. To control this situation or problem, Tesco
strategizes to build a large customer base, which is helpful in increasing the sale
of the company and in case some of the customers are shifting to another
company, they can retain the remaining. Moreover, through offering innovative
products, schemes, and discounts, the company tries to retain the customer's top
maximum extent (beverland , 2016).
3. Bargaining power of suppliers
In the retail industry, there are a large number of suppliers available, due to
which the bargaining power is not in hands of suppliers. Nevertheless, the
suppliers can be in a dominant position when they are a powerful condition to
reduce the Tesco margin and can use negotiating power against the companies
in this industry. Tesco can handle this threat, by using certain strategies, like
experimentation with product design, and utilizing various materials, which will be
helpful in case of price increment of one raw material, another option can be
used. Moreover, the company builds an effective supply chain, along with various
suppliers (Anderson, 2015).
4. Threat of substitutes
Substitutes are the company that is not serving the same thing but can be used
for satisfying the similar needs of the customer. Some of the substitutes of Tesco
is Google Drive and Dropbox for hardware drives. The company can overcome
this problem by taking certain steps like by becoming a service oriented company
and focus on additional services instead of being a product-oriented company.
Moreover, Tesco understands the needs of the customers by core and offer the
products to them rather than understanding what the customers are purchasing,
because the two can be different. This can also be solved by enhancing the
shifting cost for the buyers; this will help the company to retain the customers for
a long time.
5. The threat of new entrants

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This sector is bringing innovation with new company entering, which held
pressure on the company. It can be said in the industry, the new companies are
a threat to the existing ones, as lower pricing strategy opts. Nevertheless, Tesco
Plc. has tackled this issue through introducing innovative services and products
to be a competition against new entrants, and through gaining an advantage by
economies of scale, which will be helpful in lowering the price and gain
competitive advantage. Moreover, the company builds capacities and a large
amount of money is spent on research and development in order to know the
external environment dynamicity and customer needs change, and fulfill those
need as soon as possible (fernfortuniversity, 2018).

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Internal analysis
Another important step is to analyze the internal factors of the company before
developing strategies, for which various models and theories will be used that are as
follows:
I. Value chain analysis
Figure 1: (Source: (research-methodology, 2018)
This framework is useful to assist in identifying the activities of business that can be
taken as a competitive advantage and create value for the business.
Primary activities
 Inbound logistics – these logistics of Tesco are very complex and included the
supply of various other product categories to a large number of store worldwide.
Moreover, the company gains economies of scales due to large production size,
which tends to be helpful in value creation of the organization. The company to
exploit economies of scale largely increases the capacity of rate logistics. To
illustrate, a case in 2013 where the trial program backed by the government for
testing the efficacy of the trailers, the company received twenty-five recent Adam
and gray refrigerated units (Armstrong & Giardina, 2016).

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 Operations – the operations of the company are diversified into three major
sections that are a retail section, where the company operates in different format
stores like metro, express, extra, and superstore. Another section is the
manufacturing department, which includes everyday value product ranges.
Thirdly, in the banking section, Tesco bank is owned by the company and has
three hundred and more human resource serving to more than seven million
buyers creating value to the company (Bhave & Mishra, 2014).
 Outbound logistics – cost-effectiveness and flexibility of the deliveries are the
major sources for value creation for a retailing company like Tesco. The chain of
supermarket offers various delivery options for the online purchase directly from
Tesco (Calboli, 2015).
 Marketing and sales – the marketing strategy of Tesco were to associate the
brand along with the competitive prices, best price or quality and wide product
selection. Moreover, the strategy was to influence the aim of restraining trust of
the stakeholder for the company to address the damage to the image of the
company caused by the scandal and bad treatment to the supplier under
leadership previously (Chung & Fiore, 2017).
 Service
The service is a major value creation for the company, customer loyalty depends
on the shopping frequency, and weekly spending has reduced by 2.3 percent
within 2015. The choice of strategy of the company was cost leadership strategy,
along with which it becomes difficult for the company to provide the best services
to the customers (Dahl & Solomon, 2014)
II. BCG matrix
There are various strategic-planning techniques, amongst which BCG matrix will
be taken to analyze the strategic formulation of Tesco. The Boston matrix was
developed to assist the managers of the companies to decide with a unit of the
business should be invested. Moreover, the product line idea can also be
decided using this matrix and which is to be backed off (Day, 2014)