Tesco Strategic Report: Environmental Analysis & Strategic Directions

This report provides a comprehensive analysis of Tesco's business strategy, focusing on the impact of both the macro and micro environments. It utilizes frameworks such as PESTEL and SWOT to evaluate external factors like political, economic, social, technological, legal, and environmental influences, as well as internal capabilities and resources. The report assesses Tesco's strengths, weaknesses, opportunities, and threats, along with a VRIO analysis to determine the company's competitive advantages. Porter's Five Forces model is applied to evaluate the competitive landscape and identify strategies for improving market position. Ultimately, the report aims to develop a strategic management plan for Tesco, offering valid strategic directions, objectives, and tactical actions based on thorough environmental and competitive analysis.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Impact and influence of macro environment on the organisation .........................................1
M1 Analysis of macro environment in determining and informing strategic management........4
TASK 2............................................................................................................................................4
P2 Analysis of internal environment and organisation's capabilities..........................................4
M2 critical evaluation of internal business environment and strengths and weakness of
organisation..................................................................................................................................6
TASK 3............................................................................................................................................7
P3. Evaluation and application of Porter's five force model........................................................7
M3. Appropriate strategies to improve competitive edge and market position...........................9
TASK 4............................................................................................................................................9
P4. Application of models, theories and concepts.......................................................................9
M4. A strategic management plan.............................................................................................13
D1. Interpret information and data applying environmental and competitive analysis to
produce a set of valid strategic directions, objectives and tactical actions................................13
CONCLUSION..............................................................................................................................13
REFRENCES.................................................................................................................................15

INTRODUCTION
Business strategies are the ways through which the objectives of the organisation are met.
It involves long term planning about the activities that are needed to be performed along with
requirement of resources that are useful for carrying out those task. These are important for the
growth and development of business. As business environment is highly complex, there are
various factors that affects the state of organisation. Various tools and frameworks such as
SWOT and PESTEL are being used by the management in order to determine the different
elements that are prevailing in the environment and their impacts on business. The company
which has been selected in the following report is TESCO. This was founded in the year 1919 by
Jack Cohen and it's main headquarters are in England. It is one of the largest retailer in UK that
offers wide range of products and services (Bentley, Omer and Sharp, 2013).
In the report topics which has been covered are the impact and influence of macro
environment on the organisation, an assessment of company's internal capabilities, evaluation of
competitive forces and at last strategic plan is developed.
TASK 1
P1 Impact and influence of macro environment on the organisation
Macro environment: These are the factors which are prevailing in the economy and is
outside the control of organisation. Such elements significantly impact the decision making of
managers. PESTEL framework is used for the purpose of identifying these factors and preparing
the organisation in order to deal with the uncertainties of business. Using this technique helps in
determining the threats and weakness which is later explored in the SWOT analysis. Such tools
are adopted by the managers as they plays huge role in growth and development of the business.
Political- It is concerned to the political scenario of a country. Organisation is impacted
by the rules and regulations made by the political parties which are in power. TESCO is
operating in various counties therefore policies made by the government affects the position of
business. It includes duties and rates such as excise, interest rate, tax rate, employment rate etc.
Mangers had to keep up with the changing situations of every country. These can act as biggest
barrier in the growth of the organisation. For example when TESCO tax was proposed,
government rejected in order to stave off price hike.
1

 Opportunity: This can provide ample of opportunities for the business to flourish. If the
organisation has good relation with the parties, interference from the government can be
reduced. There are times when policies introduced by the government can increase the
growth of business (Björkdahl and Holmén, 2013).
 Threat- Following the government rules and regulation is essential, If TESCO does not
adhere to such measures than the company might have to face the consequences which
can threaten the survival of business. These are important to maintain the long term
sustainability of organisation.
Economic- These factors are associated with the economic situation of country, factors
like inflation rate, employment rate, foreign exchange rate can impact the state of business. For
example labour cost in the UK supermarket affects the provability TESCO. Change in the prices
of goods and services, their costs are also part of these factors.
 Opportunities- Economic factors like recession does not have huge impact on the retail
sectors. Therefore TESCO can affectively manage it's business and take measures for it's
further growth.
 Threat- Low employment rate can negatively affect the TESCO as in retail sectors there
is a huge requirement of labour. It is vital for the managers to assess the changing labour
rate and use appropriate strategy to deal with such issues.
Social- These are related to societal aspects such as the culture, lifestyle, taste,
preferences etc. of buyers. TESCO need to consider all such factors and make effective
marketing strategies that can help in attracting large number of customers. As consumers forms
society that's why such factors can positively and negatively affect the business. Managers had to
keep up with the changing demands. Person's belief and perception plays huge role in changing
the needs of customer.
 Opportunities- After the digitalisation there is increasing trend for the customers to buy
goods and services online. This created ample of opportunity for the TESCO to further
expand the business through online retail business. Day to day things such as Groceries
are now being delivered to customers at their door step (Borland and Lindgreen, 2013).
 Threats- Issues like obesity is an increasing concern for the business this has led to
increased demand for the organic food. TESCO had to update the food categories to deal
with the reducing demand of customers. The management main purpose is to understand
2

the trends that are currently going in the market and ensures customer satisfaction by
launching innovative products and services.
Technological- Technological advancements impacts the structure and operation of
business, developing technology and using them to produce goods and services helps in
increasing the efficiency of business. Increased technical awareness in the market has pushed
organisation to spend extra money in the research and development sector.
 Opportunities- This has created increased opportunities for the TESCO, the company is
required to use new ways to sell goods and services. This has helped in improving the
customer experience and increasing it's market presence.
 Threat- TESCO should find innovative ways to enhance the customer experience due to
the availability of other substitute where customers can switch to. Buyers are no longer
patient and do not want to compromise on the quality of goods and services (Cadez and
Guilding, 2012).
Legal- Laws regarding labour, tax, etc. are created by the government to stop the
business entities from performing unethical practices. They do so in order to maximise their
profits, TESCO has to follow labour laws and maintain quality of food in by strictly following
the standards of Food retailing commission standards.
 Opportunity- Complying to these norms like reduced working hours can increased the
productivity of employees. Performance of business can be improved if the workers are
satisfied.
 Threat- Legal action from employees can affect the image of the TESCO. Existing
workers can stop others from joining the organisation. In this way hiring talented
workforce will not be possible.
Environmental- These factors are associated with the elements like climatic condition
and weather. With the increased consciousness of government towards the environment has led
to the changes in the operations of business. Government of UK is making regulation to reduce
the green house affect. TESCO is taking measures like renewable of plastic begs.
 Opportunities- Environmental protection rules provides TESCO an opportunity to
establish strong brand image in the market.
3

 Threats- TESCO will loose the trust of customer if such rules are not being followed.
Companies who does not show concern towards the environment will automatically
looses buyers.
M1 Analysis of macro environment in determining and informing strategic management
Macro environment is studied by the organisation to determining those element that can
pose serious threat on the business. Identification and evaluation of opportunities is also part of
this analysis. Managers collect all the information related to these aspects and then make plans
and strategies accordingly. As strategic management involves formulating and applying goals, it
helps in guiding the organisation. Future uncertainties can be dealt if they are found at
appropriate time (Cândido and Santos, 2015). PESTEL is framework which is used to
systematically define the factors that can affect the business. TESCO has effectively made use of
this in identifying and estimating problems. This is the reason the the company has able to
achieved higher growth and profits.
TASK 2
P2 Analysis of internal environment and organisation's capabilities
Internal environment- These are concerned to the factors which are prevailing within
the organisation. Such elements are controllable and affects the company as whole. It includes
the workers, customers, investors, financial and non financial resources etc. Determining these
factors are vital for improving the position of organisation. SWOT is one such model which is
used to understand the different aspects such as strengths, weakness, opportunities and threat of
business entity.
Strengths- This aspect is associated with the company's expertise in a particular area. It
is related to identifying the competencies or potential of organisation. Managers needed to
determine such areas as these the main reason that helps in attracting customers. TESCO huge
presence in the market is it's main strengths. It offers wide range of products and services in
different categories at an affordable prices. Due to this, TESCO has become well-known brand in
the market of UK.
Weakness- This factor is concerned with those areas where organisation lacks. TESCO's
main weaknesses is the low quality of goods and services. It's competitors like walmart,
Sainsbury are providing better quality goods and services in similar prices. Determining the
4

disability of organisation is required to overcome them as this can negatively affect the business,
growth of the company can be hampered due to this.
Threat- These are the challenges or obstacles that business face. After the Brexit every
company has gotten affected, TESCO had to face various uncertainties regarding cost and
increased competition in the market. If studied properly these threats can be turned into potential
prospects, it requires strong leadership on the part of managers to take appropriate decisions that
can improve the position of business (Combe, 2012).
Opportunities- It related to the determining the potential prospects that can help in expanding
the business in different areas. TESCO has to keep up with the changing trends in the market for
the purpose of enhancing the growth and development of business. For this managers have to
scan the environment and develop strategies accordingly. Continuous investment in the research
and development sector is required.
VRIO model- This model is used to analyse the capabilities of organisation, it answers questions
like what are the resources and capabilities of the firm and how they are beneficial. It's main aim
is to explore the strengths and weakness of business entity.
Capabilities Valuable Rare imitable Organised
Range of products
and services
✔ ✗ ✗ ✗
Customer
relationship
✔ ✔ ✗ ✗
Market share ✔ ✔ ✔ ✗
Brand image ✔ ✔ ✔ ✔
Valuable- It is concerned to knowing those resources that the company possess and what is their
worth in the eyes of customers. Determining the competencies and their exploitation in an
optimum manner helps in providing competitive advantage in the market. TESCO's brand
image, effective customer relationship, range of products and services and it's vastness in terms
of market share are the main valuable aspects. The company enjoys loyalty from customers due
to it's ability to satisfy different sections of market.
5

Rare- Under this aspect it is explained that how common are the company's valuable item in the
market. If the resources of the company are rare gaining competitive advantage becomes easier.
TESCO abilities are common as there are various other retailers like sainsbury that are offering
similar range of products in the similar prices but the organisation is known for effective
customer relationship which rare to find. Workers are being trained in such way that are able to
make long term bonds with the customers. Market share of the company is also rare along with
the strong brand image (Lloret, 2016).
Imitable- This aspects discusses about the company's capabilities being imitable or not. If there
are other substitutes available then growth of business can be negatively affected. Though the
Competitors of chosen organisation are also taking similar measures to improve relationship with
the customers but this ability of TESCO can not not be imitated because the level of commitment
from workers is very high they go extra miles to serve their customers. Market share and brand
image is imitable as various other companies within the retail sector are expanding day by day.
Organised- This is concerned to the organisation having enough systems and procedures to
further to capitalise the capabilities. TESCO's capabilities are organised as large sum of money is
invested in the research and development department for the purpose of maintaining the brand
image though it is difficult to sustaining the market share due to growing competition. The
company is making amendments in the training of workers and developing new attractive ways
to satisfy customers in order to further maintain customer relationship. These are essential in
increasing the sustainability of business.
M2 critical evaluation of internal business environment and strengths and weakness of
organisation
The company has to perform an internal analysis to assess the strengths and weakness of
business. SWOT is an effective model that is used to determine the current position of business.
It comprises of factors like Strengths that explains the capabilities of the organisation while
weaknesses explain the incompetencies of entity. This information is further used by the
manager in taking decisions and devising strategies for the purpose of enhancing the business
performance. Determining the threats and opportunities are another elements, managers has to
completely to make use of every other sources to understand the impacts of such situations.
Overcoming risks and grabbing opportunities can provide benefits to the organisation in terms of
maximising the profitability and growth.
6

7

TASK 3
P3. Evaluation and application of Porter's five force model
Porter's five force model: It is a model which is propounded by Michael E. Porter in
1979 with the purpose of helping companies to identify the competitive forces in the market
place. The forces helps in determining the structure of an industry as well as competition level in
the relevant industry (Lueg, 2015). It is used to determine the industry attractiveness in terms of
profitability. The forces includes threat of substitute, threat of competitors entry, intense
competitive rivalry, bargaining power of buyers and bargaining power of suppliers. The porter's
five force model of Tesco as as follows:
Illustration 1: Porter's five forces, 2018
(Source: Porter's five forces, 2018)
 Threat of substitute: Substitute products are those products which includes the same
benefits as the product of any company. There are various substitutes available in the
market place. When close substitutes are available in the market, it increases the
8

costumer cost of switching towards the substitute, reduces the suppliers powers,
decreases brand attractiveness of the organisation. Threat of substitute for food items is
generally low as compared to threat of substitute for non food items. In relation to Tesco,
the substitute retailers are organic shops, various convenience stores which provide
substitute food items. The threat of substitute for Tesco in relation to the food items is
low where as for non food items it is high as various speciality shops are in the market
which provides items of same quality and low prices (Markides and Sosa, 2013).
 Threat of entry: it refers to treat to the new entrants in the prevailing competitive
market. The profitable industry leads to attract more entrants for the purpose of achieving
more profits. New entrants decreases the profitability of various other companies in the
industry. Various effects which are possessed by the threat of new entrant includes
customer loyalty, capital requirements for establishing a brand image, switching costs of
the customers, barriers to entry existence. In relation to food as well as non food industry,
the threat of new entrant is generally low. It is same with Tesco as various brands have
already captured the market position and government has prescribed some legislation in
the barrier of new entrants.
 Bargaining power of customers: Powerful customers demand better quality of products
and services and capture more values. Their decision making power leads to decrease or
increase the profitability in the pertaining industry. They have negotiating powers if
products or industry are standardised, switching costs is low, only few buyers are
available in the industry. The bargaining power of customers is high with Tesco as few
suppliers are available in the market which provide differentiated and standardised
products at low costs according to the demand of buyers. The high bargaining power of
buyers leads to create negative impact in the profitability of the selected business. In
order to deal with such situations the managers of Tesco have to formulate appropriate
prices for various products for attracting and retaining the customers (Norton and Pine,
2013).
 Bargaining power of supplier: Suppliers capture more values by providing labour, raw
materials, services and components to the companies as per their demand. They charge
high as well as different prices from different firms in the same industry. The factors
which provide suppliers the powers includes presence of differentiated, substitute inputs,
9

distribution channel strength, cost impacts,employee solidarity. In relation to Tesco, the
bargaining power of suppliers is low as multiple suppliers are available in the market.
Due to the high position in the industry, the managers of chosen organisation are able to
get inputs at low prices from multiple suppliers. If any supplier is charging high prices
then the firm switches to another available supplier to acquire the materials and this helps
in increasing profits as well as brand image with in the industry.
 Intense rivalry among competitors: There are various competitors available in any
industry. The competitors puts pressure on one another as well as limits the potentiality
of making more profits. Intense of competitive rivalry determines the level of
competition in the industry. In relation to Tesco, the competitive rivalry is high as various
competitors are available who competes with each other. The competitors of Tesco
includes Morrisons, Asda, Waitrose and Sainsburys. Various other competitors also
offers undifferentiated products in the rural areas which reduces the market attractiveness
of the firm. They are the direct competitors of Tesco who competes for prices, services,
promotions as well as products (Okereke, Wittneben and Bowen, 2012).
M3. Appropriate strategies to improve competitive edge and market position
All the organisations formulates and implements various strategies to improve the
competitive edge and market position. By analysing Porters five forces model, Tesco
understands and implements various strategies to remain in the competition. Some of the
strategies includes generic strategies and diversification strategies. Generic strategies helps in
pursuing competitive advantage in the market. It includes strategies related to cost leadership and
product differentiation. Diversification strategies are those strategies which helps the
organisation to diversify the products or services in the new market or industry. It includes
horizontal, conglomerate and vertical strategies which helps Tesco to enter in the new market for
perform the operations to improve the competitive edge as well as strengthen the market
position.
TASK 4
P4. Application of models, theories and concepts
Ansoff matrix: It was introduced by H. Igor Ansoff in an article “Strategies for
Diversification” in the year 1957. such matrix provides companies to set the objectives and
10

directional policies. This matrix is used by the firms to analyse the market and organisational
situations and accordingly determine the growth strategies. The alternatives of the matrix are
Market Penetration, Product Development, Market Development and Diversification. All these
are helpful to attain the business goals. This matrix helps in planning the strategies for tapping
opportunities for producing products or services to sustain in the competitive environment for
longer time period. The selected business is following Ansoff model (Zott and Amit, 2013). The
applicability are as follows:
 Market Penetration: It is successfully providing the products and services after being
recognised by the customers in a specific market place. By implementing such strategy
organisations increases the market share of the existing product. It helps in making
relevant changes in the existing product to attract the potential customers. The managers
of Tesco uses such strategy for achieving the shares in the market. It includes strategies
and techniques related to price adjustment, product improvement, distribution channels.
 Product development: Such strategy includes the introduction of new product and
service in the existing market. Under such strategy, several risks are involved pertaining
to time and money requirement for the purpose of developing a new product. The
marketers of Tesco understands the perception of customers towards the product to
provide the information to the organisation and the organisational managers makes plans
to introduce a new product (Oriesek and Schwarz, 2016). They adopt different quality
level, new feature development as well as improving the technology to launch and
provide new innovative products to existing market.
 Market Development: It is also known as Market Extension. It is an approach to enter in
new market with existing product. It involves moderate risk at the time of implementing
such strategy as there are chance of failure due to unknown market situations and
preferences. With such strategy, new customers are recognised as well as attracted
towards the existing product. The executives of TESCO adopts branding, distribution,
sales, pricing and promotional strategies for attracting new customer segment towards
existing product (Yuliansyah, Rammal and Rose, 2016).
 Diversification: It is an approach of enlarging the organisation by entering into new
market with varying range of new products and services at a same time. It helps in
limiting the portfolio risks. The representatives of Tesco formulates and implements such
11

strategy to perform in a new market with new innovative product for the purpose of
capturing major market share, producing innovate as well as unique product according to
the customers demand and expectations.
Tesco is focusing on product development strategy for the purpose of attracting and
retaining larger proportion of market by providing new and innovative products to satisfy the
current customers in the existing market. It benefits the company by retaining current along with
new customers from competitive market segment.
Justification: Tesco should adopt Market development strategy as some promotional
campaigns and little market research is only required to attract new customers. The firm has
made good brand image as has loyal customers which reduces some risk for entering into new
market. The marketers have already analysed the needs and have provided the information
regarding the demands, preferences, requirements of clients.
Strategic management plan: it is a comprehensive plan which helps the managers to
formulate and implement actions or strategies to lead in the competitive environment. Such plan
helps in setting priorities along with goals, allocating resources to strengthen operations by
ensuring all that all the internal as well as external stakeholders are performing operations to
achieve the common goals. Such plans includes goals, objectives, mission, vision, strategies and
tactics to attain the standard results. The strategic plan for Tesco is the following:
Objective: The main objective of the selected organisation is to produce such products which
creates value of targetted customers and convert them into loyal customers by offering various
products and services.
Vision: The selected business is willing to become the world largest retailer by performing
operations in multiple countries (Scholes, 2015).
Mission: Mission of Tesco is to protect the brand image by enhancing efficiency and profitability
by attaining competitive advantages.
Strategies: Following strategies can be used by the Tesco managers to introduce new product in
the existing market:
 Research and development: Such strategy acts as the blue print to achieve the success.
The analysts of chosen business uses such strategy to identify the needs, requirements
and wants of customers by proper research. This will help in retaining the current
12

customers as well as attracting targeted clients towards the organisational products and
services.
 Promotional campaigns: The marketers of Tesco can used various promotional
techniques to provide information to large targetted people at wide distance regarding the
launching of new product in the market. It will helps in marketing the product to persuade
targetted audience to achieve higher profits.
Tactics: These are the actions, strategies which are carefully planned for attaining the desired
results of the business. The managers of Tesco needs to focus on the following tactics:
 Technological enhancement: the marketers of selected entity have framed a plan to
introduce a new product in the market by enhancing the technological innovations to
attract maximum clients and satisfying them.
 Arrangement of funds: funds are required in all organisations to perform the operations
and tasks for smoothly achieving the desired profits. It is the duty of finance managers of
the chosen business to allocate or arrange the required proportionate of funds on time
through various sources. Sources for arranging funds includes banking institutions,
investors, lenders, assets securitization and many more.
STP model: It is a framework which constitute three different strategies for developing as well as
delivering relevant information to engage the segmented, targetted and positioned clients. They
help in framing decisions regarding introduction of new organisational product in the market
place. Following are the elements of STP focused by Tesco:
 Segmenting: Under such strategy, potential customers are identified and are divided in
different homogeneous groups. The divided market segment has common characteristics
which helps in understanding the requirement an accordingly plans to perform further.
For instance, the managers of Tesco, segments the market and launches the new retail
outlet for providing food as well as non food items as per the requirements of segmented
group (Spieth, Schneckenberg and Ricart, 2014).
 Targetting: The process of selecting the targeted group is termed as targetting. The
managers of Tesco targets every individual to provide food as well as non food items
according to the demands and requirements.
 Positioning: under such strategy, companies applies attractive plans, programmes and
procedures to set a brand image in the customers mind. The marketers of Tesco applies
13

promotional strategies such as discounting, buy one get one free, free samples and many
more to make aware the customers for the products and building an image in their
mindset.
M4. A strategic management plan
A strategic management plan is a statement where information related to organisation's
objectives, strategies, mission, vision, tactics etc. are stated. Such plan helps in providing
directions along with guidance to achieve the desired results. The plan includes objectives, vision
statement, mission statement, strategies, tactics. A proper monitoring of all the steps is required
to control the deviations at proper time to overcome from the issues to reach the objectives. Such
plan is used to understand the current market situations, framing priorities, resource allocation
and maintaining the brand image in the mindset of various customers in the prevailing market
place.
D1. Interpret information and data applying environmental and competitive analysis to produce
a set of valid strategic directions, objectives and tactical actions
Macro environment helps in determining various element which has great impact in the
business. PESTEL analysis is used for analysing the environmental situations. Such analysis is
helpful in define the factors that can affect the business. In relation to competitive analysis,
Porters five forces model is used. Both the models are required to frame decisions, objectives
and tactical actions. Strategic directions provides the path to use the formulated strategies in
appropriate directions. Objectives are the end target of any firm for their existence. The tactical
actions includes such actions which helps in overcoming the issues in the smooth functioning of
business to achieve the desired profitability (Wixom, Yen and Relich, 2013).
CONCLUSION
From the above report it has been concluded that macro environment and micro
environment are the significant aspects that is needed to be studied by the organisation. Tools
like SWOT, PESTEL explains the impacts of internal and external factors on business. While
competitive analysis is made using Porter's five force model. In order to gain competitive
advantage in the market such tools are being adopted by the firms. Based on the data collected
from this helps in forming several strategies to deal with the future uncertainties. Strategic plan
can be developed using various theories and concepts.
14

15