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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