Tesco's Strategic Management: A Comprehensive Analysis

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STRATEGIC MANAGEMENT: TESCO
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STRATEGIC MANAGEMENT: TESCO
Table of Contents
Introduction......................................................................................................................................3
Company Background.....................................................................................................................3
Business Policies and Strategic Management in Tesco...................................................................4
Business Policies of Tesco...........................................................................................................4
Strategic Management in Tesco...................................................................................................6
Issues in Tesco.................................................................................................................................7
Impact on the Business Operations..................................................................................................9
Recommendation...........................................................................................................................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................14
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Introduction
Strategic management is planning, analyzing, monitoring and assessing all the necessities of a
company in a continuous manner (Wheelen et al., 2017). This helps the organisation to achieve
its set of goals and objectives. This plays an important role in the success of the company. This
process basically helps the leaders of the company to assess the present situation of their
company and chalk out strategies for the company to overcome the issues that exist within it.
The effectiveness of the implementation of these strategies should be accessed. The process
involves the analysis of cross functional decisions for the business before implementing them in
real life.
In this report, the concept of Strategic Management and its importance in an organisation will be
discussed. The company chosen for the report is Tesco. A detailed background of the company
will be provided along with the various business policies and strategic management in Tesco will
be highlighted. The various issues existing within the company will also be analysed in a detailed
manner. Apart from this, the impact on the business operations of Tesco will also be evaluated.
Recommendations to overcome the existing issues will be provided. Lastly, a conclusion of the
whole report will be drawn.
Company Background
Tesco is a British multinational chain of grocery and retail stores. The headquarters of the
company is situated in England, United Kingdom. The company was founded in 1919 in
Hackney, London and is 100 years old. The company was founded by Jack Cohen. It is known to
be the ninth largest retailer globally. Tesco started expanding globally from the year 1990. It has
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6569 stores all over Asia, Europe, UK and many more. It operates over 11 countries in the world.
The current CEO of Tesco is Dave Lewis. Tesco has almost 28.4% market share in United
Kingdom. It employs around 460000 people all over the world (Tesco plc, 2019). The revenue of
the company is approximately 57,491 million pounds as per the last financial year.
Jack Cohen was a son of a Jew who migrated from Poland. He found Tesco at 1919 when he
started selling was surplus groceries in the East End of London. The brand was first established
in 1924. The name of the company originated when he took the initials of the supplier named
Thomas Edward Stockwell and added the first two letters of his surname CO with it. TESCO
originated from then on. The first Tesco store was opened in September, 1934. In the year 1961,
Tesco was recognized as the largest shop in Europe by the Guinness Book of Records. In the
year 1987, Tesco took over on the Hillards Chain that had 40 supermarkets under it in the north
of England. Tesco took over Hillards with 220 million pounds.
Business Policies and Strategic Management in Tesco
Business Policies of Tesco
As Tesco is a large multinational retail supermarket chain and banking service provider
operating in the UK, their business policies are also properly aligned with the business
environment of the UK. For instance, Kukreja and Gupta (2016) argued that since their main
products are various types of groceries are general merchandise, the management of Tesco has
adopted a policy of maintaining very strong follow-up connections with their customers in order
to increase the loyalty of their customers. For instance, Lazibat, Baković and Damić (2015)
opined that the publications department of Tesco regularly publishes magazines that include the
detailed information regarding the various existing and new products that have been released by
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Tesco. A portion of these magazines are distributed to the customers in the stores of Tesco who
make purchases over a certain threshold amount of items.
However, a major part of these journals are sent to their repetitive customers by post, and the
magazines to be sent are selected in such as way that their contents perfectly match with the
needs or purchase habit of that customer. This is where the significance of this business plan of
Tesco lies, as this allows Tesco to make those customers more interested to their products.
Haddock-Millar and Rigby (2015) has opined that this allows Tesco to maintain a proper
business relation with these customers, as well as enhancing their loyalty towards Tesco,
increasing the sustainabi9lity of their business. This business strategy of maintaining contacts
with existing customers with product catalogues and offering attracting discounts on them is one
of the most effective business strategies of Tesco. Moreover, it has also been seen that this
strategy had increased the average store revenue of Tesco by approximately 34.2% within the
years of 2012-17.
On the contrary, as opined by Riboldazzi (2016), this business strategy of Tesco has several
disadvantages as well, as it requires Tesco to expend an additional cost for printing and
distributing these magazines. On top of that, this strategy can only be effective when Tesco
offers an attractive amount of discounts, coupled with a new array of various groceries and
general merchandise products. Otherwise, this strategy may backfire as fruitless expenses,
ultimately resulting in huge monetary loss of Tesco.
On the other hand, Wood, Wrigley and Coe (2016) has argued that another one of the most
successful business strategy of Tesco is to maintain various sizes of stores throughout different
locations. Before deciding on the size of their store buildings, Tesco hires marketing experts and
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engineers in order to evaluate the most optimal size of their store. This size of Tesco store is
determined on the basis of the number of customers, possible sales revenue, and their future
possibilities of growth as a branch store of Tesco. Tesco has many varieties of sizes for their
stores, such as Tesco Extra, Tesco Superstores, Tesco Express, Tesco Metro, One Stop, and Dark
Stores catering to online sales and services. Babajana and Hughes (2015) stated that this allows
Tesco to run their business in the most optimised and profitable manner.
However, Kukreja and Gupta (2016) argued that this is not without its own drawbacks, as it
requires Tesco to allocate a significant amount of their business capital for performing the
designing of their stores every single time, which may hurt the business efficiency of Tesco.
Strategic Management in Tesco
As Tesco operates their business in a large and competitive business environment of the retail
market of the UK, it is absolutely essential for Tesco to optimise their business strategies in order
to remain competitive in the market. In this context, according to Jenkins and Williamson
(2015), it can be said that one of their most profitable business strategies is to carefully choose
their business partners. As it can be seen, Tesco has also stepped into the field of banking
service, launching Tesco Bank. According to Hanson et al. (2016), it has been seen that while
choosing the banking business partners, the management of Tesco has shown excellent judgment
and foresight, which has allowed them to identify the most suitable financial organisations as
their business partners. Naturally, this has allowed Tesco Bank to compete with other
heavyweight financial organisations like HSBC Holdings and The Royal Bank of Scotland.
On the other hand, Rosenbaum-Elliott, Percy and Pervan (2015) argued that always choosing the
best business partners in terms of presence in market might not be the best business strategy to
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follow, as it has been seen in the case of Tesco Supermarkets. While operating their retail
business, Tesco has always build business relationships with the best brands in the market,
especially for the groceries (Fernie and Sparks, 2018). While it is undeniable that this has earned
Tesco a number of different benefits, such as strong sense of brand loyalty among their regular
customers, but on the other hand, it has certainly reduced the chances of Tesco to provide huge
amount of discounts at regular intervals in order to draw in even more customers.
Issues in Tesco
While there are significant business policies and strategic management in Tesco, however the
company is faced with multiple strategic management issues which has heavily affected the
business operations of Tesco. The strategic management issues that Tesco has faced are as
follows:
 The customer relationship polices of Tesco was aimed at building a strong customer base
by catering to the needs and requirements of the customers. However, as opined by
Nastasoiu and Vandenbosch (2019), it has been found that Tesco has been unable to cater
to the needs of the customers which have led to dissatisfied customers for the company.
Tesco has failed to analyse the needs of the customers due to the fact that the company
was involved in analysing their own needs while totally neglecting the voice of the
customers (Peeroo, 2019). The company tried to implement a strategic method for
maintaining high profits by cutting down costs on the stores throughout the country. As a
result of this action, the customers not only became dissatisfied with the services of
Tesco due to not getting any product that meets their needs, but they also joined
competitors such as Marks & Spencer, ASDA, and many more. This caused the company
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to suffer from loss in their customer base as well as a decline in their revenue generation
as the trust of the customers placed upon them has eroded.
 Another issue faced by Tesco was the fallout between the suppliers due to their business
policy. Tesco was faced with high competition from multiple retail organisations in the
UK market such as Marks & Spencer, ASDA, Waitrose, and many more. In order to gain
a competitive advantage, the company decided to implement a strategy that would allow
them to sell their products at a very cheap price (Macpherson and Macpherson, 2015). As
a result of this, the company were faced with loss of profit and sales of their products
which not only affected their business operation, but also their brand image. The
company implemented a poor strategy where they would have instead run promotions.
However, the company was able to run a staggering number of promotions after the
strategy failed so that they can gain payments from the suppliers that would help to
support their balance sheet (Macpherson and Macpherson, 2015). This not only led to a
rift between the suppliers and Tesco, but the company was also unable to generate or
gross the expected revenue and profit leading to a poor financial year.
 Another strategic issue faced by Tesco is falling out with the partner companies. From
the research works of Correspondent (2019), it has been found that the management of
Tesco tried to implement a strategic policy that would be able to boost their revenue
generation as well as profitability by tampering with the supplier agreements. This
strategic policy aimed at extracting more money from the partner companies for their
products to be retailed by Tesco in the stores. However, this policy was implemented
after agreements were made by the partner companies, which not only went against the
policies, but also created partnership issues for the company. An example of this is when
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Tesco had a falling out with L’Oreal where the L’Oreal disputed over £1 million fine
from Tesco over supplier agreements issues and threatened to take legal actions to
remove their products from Tesco’s stores (Correspondent, 2019).
 Another issue that Tesco is facing is the lack of clarity and consistency within
themselves. Tesco has been faced with confusion in their brand management and brand
identity, which has affected their pricing proposition leading to decline in sales, revenue
generation, and profitability that affected their whole business operations. Furthermore,
from the research works of Fernie and Sparks (2018), it has been found that Tesco has
had a variety of internal management changes throughout the years. The main reason for
these changes is because the company itself have been faced with turmoil pertaining to
their business operations which has affected their revenue generation and growth.
Therefore, in order to mitigate these issues, the company has been able to bring changes
in the management system. However, the changes were not well thought of which created
chaos within the company and business operations leading to changes and
implementations of strategic policies that affected the company.
Impact on the Business Operations
It can be noted that the strategic issues have created several problems on the business operations
of the company. The impacts on Tesco’s operation are being stated below:
- Customer service is one of the core deliverables for any kind of business. However, in
Tesco, the relationships with the customers are not good which is decreasing the brand’s
reputation in the global retail market. This is due to the bad service that Tesco is
providing their customers which is ultimately making them to leave bad feedbacks.
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Further, the value of the customers buying life is dropping which is making them to earn
less profit and hold the loyal customers. This shall increase the stress level on the
marketing budget and their relationship with the customer, which will turn bad to worse.
Therefore, maintaining a good customer relationship with customers is very much
essential for Tesco in order to increase their profit rate.
- Suppliers are very much important for any kind of business, which helps in better
management of the inventory and helps to maintain needs of the customers effectively. In
Tesco, the suppliers are not having a good relationship with them. This is leading to poor
inventory management which is ultimately decreasing the supply chain of Tesco (Jia et
al., 2015). The inventory problems are also decreasing the sustainability nature of the
operations through which operational performance can be increased easily. This is also
increasing the cost of inventory, supply chain and the lead-time that the suppliers need to
deliver the materials ordered by Tesco. It means that the business operations are
hampered, as the customers are not getting their desired products on time, which is
ultimately damaging their reputation in the market. Thus, it suggests that the economical
value of the stocks are reducing which increasing the cost of maintaining the inventory
- In order to increase their revenue, Tesco has increased the price of the products so that
they could extract more money from their partner company. However, the agreement did
not give them much opportunity as they tried to tamper the policies and any suppliers
backed out of it. This was against the policies that they made which ultimately led to
several problems and the suppliers backed out from the agreements. Therefore, this made
Tesco to face certain legal actions, which disrupted their reputation in the market.
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- It can be noted that maintaining the image of the brand is a good essence for any kind of
business. In Tesco, they are facing several regarding brand management (Zhou and Wen,
2019). This is eroding the trust level among the customers and makes the customers feel
that their needs are being fulfilled.. Further, it is also creating an impression in their mind
that the products are of bad quality which is ultimately damaging the image of Tesco in
the market of their operation
Recommendation
There have been various issues identified within the company of Tesco. Few implementable
recommendations are mentioned below. These recommendations will help mitigate these issues
to a great extent and improve the condition of the company. The various recommendations are –
 Establishing effective customer relationship – In order to boost the profits of the
company, Tesco has been neglecting the needs of their customers. This made them build
a bad customer relationship. Hence, the company should come with a plan that builds a
strong relationship with the customers. This will improve the customer base of the
product.
 Business strategy policy implementation for suppliers – the company has a history of
building bad relationship with its suppliers. This is because Tesco had been reducing the
price of the products in the markets and spent money on promotions. They demanded the
cost of promotions from the suppliers. This disappointed the suppliers. Hence, an
effective business strategy should be implemented which will benefit both the supplier as
well as the company equally.
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 Development of mutually beneficial agreement – Tesco has had problems with the
partner companies it had. There business strategies were designed in such a way that
benefitted only them and not the partners. The partners faced loss. Hence, to mitigate the
issue Tesco should come up with a plan that is mutually beneficial for both Tesco and the
partner companies.
 Stable Management – Tesco keeps making change in the management frequently. They
do not have a stable management system. There are frequent changes in the management
rules. This affects the business operations, brand image and the pricing of the company.
Hence, in order to mitigate this issue, an effective organisational structure should be
implemented that will stabilize the whole management system of the company.
Conclusion
The above report has analysed the various aspects of the business and management issues of
Tesco, and special emphasis has been given on their business policies and strategic management
issues and factors. It has been seen that the maintaining follow-up communication with their
customers and designing their stores according to the preferences of the customers are some of
the most important business policies, while choosing the best business partner and keeping only
the products from the best brands in the market are some of the most effective strategic
management movements of Tesco. Consequently, it can be seen that the strategic management
issues of Tesco are mainly related to their customer relationship policies, their supplier
relationship, company partnerships and internal conflicts within the management. Therefore, it
can be inferred that the impacts of these negative issues on the business operations of Tesco has
certainly been reflected in their market situation, and their business profitability has also been
negatively affected. The recommendations designed to mitigate these issues indicate that if
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