Unit 32: Business Strategy Analysis of Tesco's Macro Environment

This report offers a comprehensive analysis of Tesco's business strategy, examining both its internal and external environments. It begins by analyzing the macro environment using the PESTLE framework, assessing political, economic, social, technological, legal, and environmental factors impacting the company. A SWOT analysis is then conducted to evaluate Tesco's strengths, weaknesses, opportunities, and threats. The report delves into Tesco's internal environment, exploring its capabilities through a resource-based view, the McKinsey 7-S framework, and the VRIO framework to understand its competitive advantages. Porter's Five Forces model is applied to assess the competitive landscape of the retail sector. Finally, the report interprets and devises strategic planning for Tesco, discussing business-level strategies, the business management plan, Porter's generic strategies, and Bowman's strategic clock, culminating in a hybrid strategy recommendation. The analysis provides insights into Tesco's strategic positioning and potential future directions.

Unit 32: Business Strategy

Table of Contents
INTRODUCTION ..........................................................................................................................3
P1: Analyse the impact of macro environment................................................................................3
Environmental analysis: PESTLE..........................................................................................3
SWOT analysis ......................................................................................................................4
P2: Analyse the internal environment and capabilities of Tesco ....................................................5
Resource based view..............................................................................................................5
McKinsey 7-S framework......................................................................................................5
VRIO framework....................................................................................................................6
P3: Applying Porter's Five Forces model .......................................................................................7
Porter's Five Forces................................................................................................................7
Balanced Scorecard ...............................................................................................................8
P4: Theories, concepts and models, interpret and devise strategic planning for Tesco...................9
Business level strategies.........................................................................................................9
Business management plan ..................................................................................................10
Porter's generic strategies.....................................................................................................10
Bowman's strategic clock.....................................................................................................11
Hybrid strategy.....................................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Every business organisation gets affected by various internal and external factors.
Companies identify and determine these factors to face competition in market and build good
image in market. The factors are identified so that its impact can be minimised (Auliandri and
et.al., 2019). This enables them to enter in new markets. Furthermore, structure and goals are
defined by evaluating change in factor. The strategy is formed on basis of analysing of factors
from market, business, etc.
The report will emphasis about different organisation, its purpose, number of employees,
etc. Also, the relationship between different organisation functions will be discussed. Moreover,
in internal environment SWOT is explained and in external Pestle will be described along with
positive and negative impact. At last it will be discussed about macro environment with strength
and weakness.
P1: Analyse the impact of macro environment
Environmental analysis: PESTLE
Political factors- Tesco is known as the British retailer which operates within several
nations as the home market of company is within UK so there are several political environment
that can be stable but due to some changes the company has to face lot of problems. Thus, it is
said that Tesco is operating within the political environment which is considered as conductive
regarding business.
Economic factor- Due to Covid 19, global economies impacted severely as it is etimated
that various people's income will go down. Tesco company should be aware of changes in
taxation, demand of the products, profits and prices. Although, the business is growing and the
company is depending on UK market as its 30 % share is in the market of UK (Agustia.,
Muhammad and Permatasari., 2020).
Social factor- Social changes refers to the change in need and requirements of the
customer according to the latest trend and fashion. As there is change in trends and tastes and
preferences of the customers, UK customers have started buying in bulk. Tesco has increased
non food items and offer at sale to customers . These non food products were demanded by the
customers and this change was done as people in UK are becoming aware of health issues. Due
to this awareness the demand of consumers is changing and Tesco is adopting these changes by
bringing organic products in the UK market.

Technological factors- These factors affect the organisation as daily new technology is
coming in the market. The advancement in the technology nowadays has bring new opportunities
for Tesco. The first change in technology in this digital world is online shopping. Today
customers want home delivery facility with no charges and online shopping. Further, it has
reduced labour cost. Tesco has invested in project of energy efficiency so that the company can
achieve its long term objective.
Legal factor- Government rules and regulations impact the organisation directly. There
are many restrictions from the government side which affect sales of products of Tesco. To
compete with legal factors company provide price reductions to its customers on fuel which they
purchase and also offer products at discounted rates. Tesco uses all these discount policies and
offers to attract customers and increase its sales (Baraibar‐Diez., Odriozola and Fernández
Sánchez., 2017).
Environmental factor- Organisations should focus on environment also while producing their
products. Tesco has promised to reduce use of carbon by 50%. Company is also working on
how to reduce or eliminate the waste that is produced within the stores. Organisationis giving
some part of its profit for Corporate Social Responsibility.
SWOT analysis
Strengths : Tesco has good financial turnaround as operating profit of year 2020 is £1.9
billion. The company has 26.9% market share in the Great Britain. So, Tesco has its dominance
in the market and it is unchallenged. During the Covid-19 organisation register 10.5% growth,
the company was selling its products online. The company makes creative and innovative
products which differentiate it from others. Company adopts every situation easily and find the
solution to increase its sales (Cubas‐Díaz and Martinez Sedano., 2018).
Weakness : There are some competitors of Tesco like, Sainsbury's, Asda and Morrisons.
The leadership of companyis not so good as compare to its competitors, the quality control of the
company needs improvement to maintain good reputation in the market. To avoid shortage of
products company keep some products in stores and when customer demand for the product they
sell the product. Inventory management of the company is not good as compare to its
competitors.
Opportunities : As in this digital world where Tesco is using advanced technology, there
are lot of opportunities available for the company to explore or expand its business. In today's

scenario, everyone is purchasing products online so, the organisation is increasing its sales by
online sales of the products. During the pandemic time organisation was selling its product
online and increase its revenue. The high unemployment rates can help the company in
expanding its growth. Nowadays customers of UK are preferring meat products so, the company
is planning to increase its sales of meat alternatives by 300% by year 2025 (Kong, D and et.al.,
2020).
Threats: There are lot of competitors that are present in the UK market, EU-UK relations
are not so good so trading there is not possible, economic recession is also a threat for Tesco
company.
P2: Analyse the internal environment and capabilities of Tesco
Resource based view
The resource view can be defined as strategic resources that can be used by an organization
to achieve competitive advantage. It focuses on managerial attention of company's resources and
identify assets and capabilities with the aim to provide competitive advantage (Eker and Eker.,
2019).
McKinsey 7-S Model
The McKinsey 7-S framework was also developed through Robert Waterman through
Robert Waterman and Tom Peters at McKinsey firm. It also argues that effectiveness of firm
includes more than simply putting within place the control as well as right command.
Style- It presents the way where the things are done as well as specify the way leadership team
conducts within firm. The leadership style will impact the behaviour of the rest of the employees.
Thus, if the leadership embraces visibly, demonstrates as well. In Tesco participative leadership
style is followed which allow them to engage in decision making.
Skills- It focuses on the skills required to deliver all the management strategy and cost
transformation. Thus, have right amount of skills in order to deliver the strategy is crucial as well

as skills gaps can pose in order to accomplish. The management of Tesco is highly skilled as
they possess skills such as leadership, communication, etc.
System- These are several processes, activities as well as procedure that individuals engage
within to do their work. It also involves software systems that are enhancing processes, activities
and procedures. There are 6 six key performance measure through which is process is highly
simplified.
Structure- The hierarchy regarding control exercised by delegated accountability. The structure
must be as simple as accountable in order to help individual understand who is responsible for
particular outcomes. The structure of tesco is hierarchical where there consists of 10 members in
BOD and there are 11 executive member (Leonidou., and et.al., 2017).
Staff- It involves several inherent talents of the firm's people as here number of employees as
well as diversity required within each area in order to optimize firm's capacity and capabilities.
Here, Tesco staff is highly experienced and trained. They work in different departments.
Strategy- Firms requires competing within uncertain, volatile ambiguous and complex
environment. So the strategy requires to responsibilities alongside agility. Firm also regularly
adapt to strategies that are succeeded. Tesco applies different strategy in order to gain
competitive advantage.
VRIO framework
VRIO- it is a framework which helps in analysing internal situation of enterprise in context of
the use of resources and competitive advantage. It contain value, rare, imitability and
organisation. Thus, for Tesco as well the framework is defined as :
Valuable
It is identified that Tesco financial resources is highly value as they have invested it in
proper and effective way. Also, it enable in investing in relevant opportunity.
The local food products are of high cost as they are easily differentiated and it led to generate
value by customers.
The employees of Tesco are valuable as they are effectively trained and experienced. Besides,
they are loyal towards firms and retention is high.
Moreover, patents are of high cost because company sell its products with no competitive
advantage. with that they are able to generate huge revenue (Prashar., 2018).

Rare-
The financial resources are rare as only few organisation in retail sector is having such a
strong financial resources.
Here, food products are not rare as there are many other companies who are providing
same type of products. Thus, resources of Tesco company are rare so it is competitive advantage
for the company.
The staff of Tesco is rare as only few companies are there who are having such a highly trained
and experienced staff. Moreover, staff does not leave for other firms.
Patents of the comapny is rare as they are not easily been possessed by other organisation in
retail sector.
Imitable-
It is identified that Tesco financial resources is costly to imitable as other companies can
not generate such large profit and revenue in short time. They require long time to earn such
revenue.
Local foods products are also costly to imitate as companies will require a huge
investment in R&D to produce such a type of products for people.
It is stated that Tesco employees are not costly to imitate as other companies can also train them
to enhance their skills. This will enable in retaining them for long term.
This is because it is not legally allowed to imitate a patented product (Yasa and et.al., 2020).
Organisation-
Tesco financial resources are effectively organised as they invest in it right place at right
time. This has led to gaining competitive advantage by company in retail sector.
The patent is not properly organised in well manner as they are not using it fully.
P3: Applying Porter's Five Forces model
Porter's Five Forces
There are five forces which are given by Porter i.e., competition, buying power of
supplier, buying power, threat of substitutes and threat of new entrant. Tesco is one of the
famous company in world.
Competitive rivalry: This refers to the competitors that are present in the market and
which can affect the business of Tesco. There are number of powerful competitors of company
in UK. The competitors are spending huge amount of money on advertisements and other

promotion strategies to attract more customers. So, to fight with these competitors company is
finding solutions to compete with them (Lieder and et.al., 2017).
Buying power of supplier: According to porter, bargaining power of suppliers refers to
pressure that is put by suppliers by increasing the prices, lowering their quality or reducing
availability of product. In UK Tesco is working with 2500 suppliers and many other suppliers in
abroad. The comapny is purchasing its raw material from other countries and manufacturing
products. Organisation is negotiating with its suppliers to increase its profit or revenue.
Power of customers: This refers to the buying power of customers. In UK the
bargaining power of customers is low as compare to other countries buyers. Competitors of
Tesco keeps low prices of the products to attract large number of customers. So, to maintain its
position organisation should keep its prices low to increase revenue of the company and build
good image in the market.
Threat of new entrant: There are many new competitors that are ready to enter into the
market and the buying power of customers is low. The competitors offers products at low prices
to enter into the market and attract more customers to increase their profit. In the UK market
there are very less new entrants so, Tesco should not worry about new competitors as it enjoys
economies of scale and it has made its reputation in the UK market (Madhushree., Kumar and
Aithal., 2018).
Threat of substitutes products: It refers to the availability of other substitute products
that customer can purchase from outside the industry. In the market there are lot of close
substitutes available so, customers can buy products. Tesco provides variety of products to its
customers and there are many substitutes available. But, the company offers its customers
substitutes so, threats of substitute product is irrelevant for company.
Balanced Scorecard
Balanced scorecard is a management tool that is used to improve internal and external
functions of the organisation. It is used by the companies to measure the performance and
provide feedback to the company. After measuring the performance information is collected and
improvements are done to make better decisions which can help the organisation in increasing
revenue of the company. The balance scorecard involves four elements i.e., learning and growth,
process of organisation, customers and last is finance.

Balanced scorecard helps in achieving organisational objectives and goals. It develops
strategic planning which help the Tesco in sharing vision and success of company. It helps
people to work properly and focus on achieving the objectives and results. Managers of
organisation should identify the customers and focus on market segments to improve the
performance of company (Martínez Hernández., Sánchez‐Medina and Díaz‐Pichardo., 2021).
Tesco retain its customers by offering them good quality products and variety of grocery items
are provided to customers. Learning and growth element refers to providing training to
employees and what are their learnings should be measured.
There are advantages of balanced scorecard in aligning vision and strategy for the
organisation. It gives proper structure to Tesco for making strategy to improve decisions
regarding the goals and objectives of the company. Balanced scorecard helps in easy
communication between employees to achieve the target of company. It helps the organisations
in identifying the areas where employees required training and learn new things or ways that will
be beneficial for the company. Balanced scorecard helps the Tesco in defining what is correct for
the company and in which area the organisation is lacking as compare to its competitors. So,
balanced scorecard helps in identifying vision and strategy by measuring the performance and
making changes to accomplish goals of the company.
P4: Theories, concepts and models, interpret and devise strategic planning for
Tesco
Business level strategies
Business level strategy refers to an coordinated set of actions that is used by the
organisations to take competitive advantage. Strategic management plan refers to document
which is used by the companies to communicate goals that are set, priorities are set, focus
energy, make sure that employees are working towards achieving the common goal of the
company (Moktadir and et.al., 2020).
Business management plan
The mission of Tesco company is to become the champion for customers by providing
them good quality products and easy way to buy the products. The vision of the company is to be
the most valued organisation by serving the customers, giving facility of online shopping, build
trust among customers and create good image in the market. Value statement of Tesco is that

they treat people equally and with respect, company work hard for satisfying the customers.
Managers of the organisation should conduct external analysis which includes external factors
that can affect an organisation. External factors includes change in political factors, economic
changes, legal change.
After external analysis, internal analysis of the organisation should be done which
involves, resources that are required and assets. Strategic issues for Tesco is it is a well known
company in UK and there are many opportunities available for the company to expand or
exp[lore its business. Goals and objectives are set by the organisation and now manager has to
give directions to employees and motivate them to work towards achieving a common goal of
the company.
Porter's generic strategies
There are three strategies that are given by Porter are: cost leadership strategy, differentiation
strategy and focus strategy.
Cost leadership strategy refers to strategy that focuses on earning more revenue and
increase profit. It also aims at competitive advantage by providing products at low prices in
industry. This strategy is applied by Tesco as it offers good quality products and services to its
customers to increase revenue. By providing products at low prices attract customers and it helps
in capturing market.
Differentiation leadership strategy refers to selecting one or more than one criteria that is
used by buyers in market and after that positioning them in unique way to meet the set criteria.
This strategy is used by Tesco as it identifies need of customer and according to that standards
are set.
Focus leadership strategy can be defined as targeting customers to sell your products. The
aim behind this strategy is to develop and sell the products to niche market like, particular type
of customer, particular product or target market (Navissi and et.al., 2017).
Bowman's strategic clock
Bowman's strategic clock is a strategy tool that provides options for positioning in the
market. It helps in identifying and analysing competitive advantage as compare to competitors.
As Tesco is leader of the market so it keeps its prices low to increase profit of the company.

Hybrid strategy
Hybrid strategy refers to achieve differentiation and kept the prices of products low in
comparison to competitors. The purpose of this strategy is to deliver products at low prices and
achieve margin for reinvestment.
Diversification refers to the strategy that mixes investment within a portfolio. This helps
Tesco company as if the sales of one product is decreasing and due to that organisation has to
suffer loss, so to balance company can increase sales of other products (Yuan and et.al., 2020).
Diversification can lead to poor performance of the company and there is lot of risk present and
high investment is required.
CONCLUSION
From the report it can be concluded that, there are many external factors that can affect
working of Tesco. Factors are political, economic, social, technological, legal and
environmental. SWOT analysis of the company is discussed by analysing strengths, weakness,
opportunity and threats of Tesco company. VRIO framework is described and it helps in
achieving sustainable competitive advantage. Strategic management plan is discussed in which
mission, vision, value statement, external analysis, internal analysis and competitors. Further,
balanced scorecard is described and it helps in aligning vision and strategy of the organisation by
measuring the performance. Lastly, porter's generic strategies, hybrid strategy, Bowman's
strategy clock and diversification are discussed.

REFERENCES
Books and Journals