STRATEGIC MANAGEMENT ANALYSIS TESCO
Introduction ..................................................................................................................... 1
TASK A-Market Environment Analysis ............................................................................... 2
PESTLE Analysis ........................................................................................................................... 2
SWOT Analysis of Tesco .............................................................................................................. 3
Critical Success factors ................................................................................................................ 4
Task B: Resource and Capability Analysis .......................................................................... 5
MC-Kinsey 7s-Framework ........................................................................................................... 5
Value Chain Analysis ................................................................................................................... 6
Task C: Strategic Fit Analysis ............................................................................................. 8
References ..................................................................................................................... 10
Introduction
One major problem faced by companies from retail industry as identified by Retail Week (2014)
is, giving more emphasize on what happens outside, without concentrating on the problem
faced by one’s own business and not taking effort to increase market share by utilizing the
opportunities. But executing strategic fit analysis helps in overcoming this by estimating the
level to which organizational strategies become successful in utilizing its resources and
capabilities to match its opportunities. Garlichs (2011) says Strategic fit analysis is the tool for
determining whether the strategies of the organizations are appropriate considering the
available resource utilization and utilization of its major competencies in order to gain
advantage in the market place. Tesco, the multinational store head quartered in UK is studied in
order to carry out its strategic fit analysis. This process begins with analyzing the market
environment of Tesco and understanding its market situation and an effort is taken to identify
its core competencies and resource capabilities. After having an understanding of both the
strategic fit analysis is done.
Founded by Jack Cohen in the year 1919, Tesco became the largest retailer in 1995 by
overtaking Sainsbury, its competitor. Extending its services through online shopping in
2000(Retail Week, 2013) it accounts for 28.7% of market share in UK retail industry. The
company offer products like electronics, groceries, apparels, and other services related to
banking and finance. It employs nearly 205000 staffs across its 2478 stores in UK (Clark and
Chan, 2014) .As observed by Souitaris and Balabanis (2007), The Company, as a result of its
successful implementation of strategies was able to improve its competitive advantages in
retail market of UK, and thus is still in a position to maximize its customer satisfaction level. In
order to achieve its goal of being the most valued by customer and maintain steady long term
growth, it has put up a strategy set consisting of seven parts. Incorporating value with every
step of its business is an important factor the company strives for. (Nils, 2014). The company
emphasizes more on its three key driving strategies which include strengthening its UK
business, formulation of a multichannel leadership and setting up a sustained and steady
international growth.
TASK A-Market Environment Analysis
Substantial information about the forces that affect a business can be collected by conducting
market environment analysis (Ferell and Hartline, 2012) PESTLE analysis and SWOT analysis are
effective methods in understanding the macro and micro elements that exist in the
environment where the business operates.
PESTLE Analysis
Political: As per the UK work law, Tesco has taken effort to provide employment opportunity of
more than 2000 to the handicapped, aged workers, students etc with a minimum wage says
Makos, (2014).And this has resulted in increased loyalty among those employee.
Economical: Tejwan (2014) observes Tesco holds almost 29%of UK market share and main
business of Tesco comes from UK market. Thus the economic situation in the country directly
effects the Tesco’s performance to a greater extend. The major economic condition that
effected Tesco is the unemployment situation that prevailed in UK as a result of recession in
2008. It has adversely affected the firms demand for its product. James and Richard(2009)
pointed out that the company was not able to bring control on the effect of these elements on
its functioning and hence they are affecting the marketing mix and overall performance of the
firm. However, the effect of recession has made people to eat at home rather than eat out
which has helped the grocery sector to a large extend (Office for national statistics , 2009).
Social and cultural: Due to the changes in social scenario of the country there has been a lot of
changes in the buying behaviour of the customers. Bulk buying and one-stop buying has
increased which forced the company to concentrate on non-food products as well. Due to the
increased population and women workforce they are extending their services to value added
products also (Tesco, 2014).Due to the increased concentration on health related issues; Tesco
has also set out the sales of organic food in its stores.
Technological: Usage of the technologies like wireless devices, self check out machines,
intelligent scale, Radio Frequency Identification (RFID), Electronic shelf labeling etc has helped
the company in conducting its functions smoother. The technologies like Electronic Funds
transfer system, Electronic Point of sale (EPS) and Electronic scanner made the process of stock
activities and distribution effective.(Tesco,2014)
Legal: The proceedings of Food Retail Commission like banning of price alteration without
proper information to the suppliers had an impact on Tesco’s performance. Tesco (2014) ,tells
that Tesco has introduced many promotion offers for the fuel price reduction in order to
facilitate the government policies. A fat tax on fatty and processed foods advertisements by UK
government has adversely affected the fatty and processed foods sales at Tesco
Environmental: Tesco has taken effort in reducing carbon footprint by 50% by 2020 as a part of
its Corporate Social Responsibility. Inspiring customers, Tesco has successfully carried out the
activity of reducing the waste at its stores (Macdonalds, 2013).
SWOT Analysis of Tesco
Strength
Ellwood (2013) finds that Tesco has been at the third position among the world’s largest retail
grocery. The company maintained a steady growth rate in profits and turnover because of its
efficient performance (Dinkhoff, 2013).Retail Week (2014) identifies Tesco as the market leader
in UK and the large marketing budget of Tesco gives a bigger advantage over its competitors.
Further The Retail week (2013) points out that through the company’s Club card, it is able to
connect with the customers at a personal level which helps in the firms marketing and
promotion programs. Tourism consultant network (2013) says that Tesco Club card helps to
collect data thereby maintaining a efficient CRM system .Being the first to introduce the loyalty
cards ,Tesco could attract a large number of customers accounting to nearly 15 million active
users of the card. Farre(2013) reports that the company stands for a steady home delivery
system through the click and collect service through its online presence, Thus has become the
leader in online retailing. The company has diversified itself into financial services and
broadband that helped in increasing the income, reports BBC, 2013.
Weaknesses:
Tesco corporate social responsibility (2012) reports says that it has called back many of its
products in the year 2009. More than 75% of Tesco’s revenue is from UK retail sector and the
same can be regarded as a weakness that lead to lack of diversification and accounts for the risk
factor. Barry (2009) argues that because shopping in hypermarket is tiresome, customers do
not prefer hypermarket as shopping destinations. Since many of UK’s stores are hypermarkets
it adversely affects the customer preference. Increased spending on non food items has also
adversely effected Tesco’s sale Telegraph(2013).Emphasize on international expansion has
made the company concentrate less on Uk business reports Retail Week(2013).
Opportunity:
Growing popularity of Tesco.com as an opportunity to attract new customers and a way of
overall cost reduction which ends in profit. Entry into Indian market ,and opening up franchisee
agreement with the TATA group shows a positive sign in strengthening its operation in global
market.(Leahy,2008).Even in the time of recession due to the nature of the industry that
focuses on the products of first priority ,has helped to withstand it.( Anagboso and McLaren,
2009).Retail week(2013) says that an investment of more than £ 1 billion in renovating their
stores in UK will surely strengthen the business. Success of its private labels like Choka Blok ice
cream, Lathams dog food and Nutri Cat cat food etc. provides a big opportunity reports
Euromonitor(2011) .Financial services of Tesco has also shown a positive sign with an increase
in customer number by 13.9% growth, reports financial Times(2014).
Threats:
The increased unemployment rate and reduction of income level that came out as a result of
the economic crisis in Uk in 2008 has seriously given threat to the firm especially the non food
retail of Tesco .Concentration on the Uk market therefore is a factor to be seriously considered.
Grocery market being intruded by competitors like Sainsbury, Asda , Morrisons etc. poses great
threat in the market even though Tesco was the major player for the 15 years. Adding on to the
stress of competition other players like Aldiu and Lidl were able to increase their combined
market share to 3.5%.
The SWOT analysis brings in to notice that lack of focus on UK market has been resulting in
lowering the revenue and market share in the primary market of Tesco.
Critical Success factors
According to the SWOT analysis the elements that contributes to the success of Tesco are,
Multichannel operation: Since in the developed world ,the accessibility to products and
services are widened ,customers opts different medium for buying like internet, mobile phones
etc (Nunes and Breene,2011).So its mandatory that Tesco relay upon such medium for its
operations.
Relationship marketing: The marketing strategy of providing services to a large market
segment is decreasing its importance as personalized relationship marketing is gaining
importance identifies Ofek and Wathieu (2010).Here Tesco has a great advantage with its Club
card that utilizes this relationship.
Supply chain efficiency: Maintaining efficiency in supply chain is mandatory for successful
implementation of multichannel operations says Nunes and Breene(2011).Tesco is well
equipped with a efficient supply chain which aids in its effective home delivery system.
Development of private label and diversification of operations: Nunes and Breene(2011)
identifies these elements as very important in increasing the revenue of the company
Improving Customer experience: People metrics (2008) marks the importance of enhancing
customer experience as a major factor in the retail industry. This in turn ensures customer
satisfaction and loyalty.
Task B: Resource and Capability Analysis
In order to understand the firms internal aspects, an understanding on its operations, strategies
competencies etc is essential. McKinsey-7s frame work and Value chain analysis is done to
conduct this process.
MC-Kinsey 7s-Framework
Figure 1:Mc Kinsey 7-s framework
Source: Jones, comfort and Hillier(2012).
The seven elements in the analysis include strategy, structure, system, staff, shared value and
skills.
Strategy: According to the reports from Tesco (2014), the three key elements included in their
strategy are making the Uk business stronger, enforcing multichannel leadership and focusing
on international growth.
Structure: Tesco follows a hierarchical approach in its organisational structure. Following such a
structure has helped Tesco in maintaining effective communication within the organization
thereby employee gets a clear job description says Jones, Comfort and Hillier (2012).
System: From the observations of Jakobsen and Lueg (2014). Tesco’s system has helped it much
to make improvement in its operational performance. This was possible by its Steering Wheel
balanced scorecard system that checks the operational performance in respect to the key
performance indicator.
Staff: According to John, Comfort, Hillier (2012) The huge workforce nearly equal to 205000
employee is a major aspect in Tesco’s success.
Style: As per the need Tesco changes its style of leadership in order to adapt itself to the
change, but basically it has an inclination towards transformational leadership style as it better
suits the hierarchical organisational structure of the company says John, Comfort and
Hillier(2012).
Skills :From the observations of Jones, comfort and Hillier(2012)Even though many low skilled
employees are working at stores, Tesco is very strict in appointing highly skilled employee to
occupy important position .And in order to maintain the standard it provides adequate training
and development programs for its employee.
Shared Value: Tesco uphold certain values like customer orientation, quality, teamwork,
reduction of waste etc. The nature of the shared values can be understood from its slogans like
“No one tries harder for customers”, “We treat the people how they like to be treated” and
“we use our scale for good”, Tesco (2014).
Interpretations from the above analysis clearly states that ,the internal elements that can be
accounted as the company’s resources and capabilities include the huge workforce, the
hierarchical organisational system and the steering wheel balanced scorecard system.
Value Chain Analysis
Value chain of any organization determines the value incorporated to each of the key activities
that are performed inside the organization. Value analysis determines how the inputs of an
organization are converted to outputs (Finne and Sivonen, 2008). The activities that are to take
place in every business are divide into primary activities and support activities.
Figure 2:Value chain Analysi
Source:Fernie and Sparks(2014)
Primary activities
Inbound logistics: Tesco is able to procure the materials from its suppliers at a low cost .Market
leadership and economies of scale comes to Tesco’s bargaining help..From the observation of
Fernie and sparks (2014), the company has upgraded the ordering system which has again
improved the effectiveness of the inbound logistic system. Thus it can be concluded that the
inbound logistic of the company is efficient
Operations: The customized IT named Tesco Digital Program manages the operation of the
company. Company has made systematic investment in the Tesco Digital development program
and thereby improved the efficiency of its operations observes Fernie and sparks (2014
Outbound Logistic: Tesco has come up with different store formats that are strategically
planned at various market segments so as to maximize the exposure and the store format
comes as Express, Metro, Superstores, Extra and Home plus observes Fernie and sparks
(2014)Carrying out weekly transactions up to 31 million . Offering services in the online and
offline retail marketing Tesco has become the market leader. The efficient outbound logistic
has played a well enough role in attaining this.
Marketing and Sales: The main aspect that Tesco utilize in marketing and sale is through use of
its Club card in tracking and keeping personal contacts with its customers. More than 16 million
users in Uk make use of Tesco club card. Thus marketing on personal level with the help of
information from club card is an important aspect to Tesco, observes Christie (2013).Club card
fuel save, club card Boost campaigns etc are some examples of their promotional programs
reports Tesco (2014)
Services: Tesco’s annual report (2014),claims that the company has seen an increase in the
customer rating on service by 40%.The company’s huge investment on store renovation
amounting to more than £ 1 billion is a step towards increase its service efficiency (Retail week
2013).
Support Activities:
Firm infrastructure: Tesco annual report (2014) reports an increase in the size of workforce and
implementation of new IT system .This is an indication on improvement of firm’s infrastructure.
Human Resource Management: According to Tesco’s Annual report (2014),as a step towards
improving the quality of service, the firm has undertaken new training and development
programs for its employees which in turn effectively improves the HRM process.
Technology Development: An investment of about £150 million in IT by 2012 (Tesco Annual
Report, 2014) marks the importance of technology development by Tesco.
Procurement: Tesco Annual report (2014) says that the company is trying to reduce the
expenditure by improving its procurement division. The company has spent an amount of
around 6 billion in the purchase of non retail goods.
Value chain analysis of Tesco shed light on the importance of inbound logistic, outbound logistic
and operation in creating value. It also identifies the weakness of service in Tesco’s value chain
link.
Above analysis of the company’s internal process reveals the resources and capabilities of Tesco
and they include, efficient inbound logistic management, efficient outbound logistic
management, efficiency of operations, use of club card in marketing and sales, using club card
to conduct market research, huge workforce, Customer orientation, steering wheel balanced
score card system, hierarchical organisational structure.
Task C: Strategic Fit Analysis
Strategic fit analysis helps in understanding the extent to which the strategies of a firm are
successful in utilizing the resources and capabilities in taking advantage of the opportunities
and overcoming the threats related to competitiveness in the market place, point out Garlichs
(2011).Thus here an analysis of Tesco’s strength and weakness with respect to its opportunities
and threat is carried out to perform the strategic fit analysis.
Ofek and Wathieu (2010) identify the importance of offering quality customer experience in the
retail industry. But the resource and capability analysis of Tesco reveals the fact that service
offered by Tesco was not good enough in terms of quality. This is marked as biggest drawback
and threat of the firm. However, the company’s strategy include strengthening its UK business
and the effort taken by the company towards improving its business in UK by investing 1 billion
pound aims at offering better customer experience .This strategy helps in overcoming the
threat to a great extend.
Ofek and Wathieu (2010) observes that relationship marketing as a key factor of success in UK
retail industry. Use of Club card in maintaining relationship marketing as identified in the
resource and capability analysis becomes the important factor in making use of this opportunity
as it aids in conducting market research successfully by maintaining personal customer
relationship.
From the market environment analysis it can be inferred that multichannel operations are
important in retail industry. Customers do expect multichannel service from players like Tesco,
observes Nunes and Breene (2011). So this opportunity of Tesco can be utilized to increase the
customer satisfaction. The current strategy of Tesco in establishing multichannel leadership aids
in successfully taking advantage of this opportunity in the market place.
Market environment analysis reveals the importance of supply chain efficiency in determining
the success in retail industry and this is supported by Fernie and Sparks (2014) observations
stating the importance of supply chain efficiency in improving the multichannel operations.
Market environment analysis identifies efficient inbound and outbound logistics-the key factors
of supply chain, as the core competencies of Tesco (Fernie and sparks (2014) thus the company
is in a position to take advantage of this opportunity with its strategy of multichannel
leadership.
Another threat faced by the company as reported by, The Telegraph (2014-A) is the tough
competition in the UK market. Since the market environment analysis reveals the company’s
dependency on UK market, this competition poses a great threat. Company’s strategy for the
disciplined international growth is a very crucial step to eliminate the risk associated with the
threat by an alternate solution to maintain the growth and market share.
The decrease in rate of spending on food items by Uk customers poses a serious threat to the
retail industry and Tesco in particular as its business is concentrated much on retail of food
products. So diversification of business into some other area is essential for a player like Tesco.
Tesco has diversified its operations into financial services but Tesco’s current strategy neglects
the wide opportunity in such diversification and to find alternate solution to the threat faced by
the food retail industry in the UK market.
Thus it can be concluded that Tesco’s current strategy helps the company in making advantage
of most of the opportunities but lags behind in overcoming the threat faced by the company
and eliminate the risk by finding alternate possibilities.
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