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Strategic Management: Analysis Of Tesco

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Question:

Describe about the Strategic Management for Analysis of Tesco.

 

Answer:

Introduction

The report mainly starts with the mission, vision and the value of the company. The external analysis of the report includes the political, economical, technological, environmental and the legal factors that affect Tesco. The five forces of Poster have also been explained in the report, along with different types of resources that are available and used to work towards achieving the goal of the company.

The report also provides an overview about its generic strategies with the help of the Strategic clock. The strategies are identified and described with the help of the strategic management that is mainly carried by the managers in order to achieve better performance. This report provides an overview about the company Tesco and its strength as well as weaknesses.

Strategic Purpose

Mission, Vision and Value:

Mission: to be the champion for customers, helping them to enjoy a better quality of life and an easier way of living (Tarata, 2013)

The vision statement of the company determines the aspiration view of the company. The vision statement provides a standard that a company desires to achieve. Tesco is the company, which is mainly built around the consumers and the colleagues. “The vision statement of Tesco is that it wants its business to be highly valued by the customers they mainly serve as well as the community in which they function.”

The TESCO (Freelogovectors,2012)

Figure 1: The TESCO (Freelogovectors,2012)

(Source: Freelogovectors.net 2012)

The management, which is associated with Tesco, recognizes the fact that the missions, vision as well as the values are important for the success of the company.

Strategic Statements and functional objectives of the company

The future plans and the direction of the company are provided by the strategic statement of a company. A strategy of a company should be a merged with positive actions on the part of leaders to progress the market position of the company and monetary position and reactions to predictable developments and fresh market conditions.

The functional objective of Tesco includes the fact Tesco wants to become a pleasing place to work where the workers should get a chance of being themselves. Its main objective is to expand the company with the sale of the organic products.

External analysis

Macro Environment of Tesco

Political factors – The performance of the company, Tesco is greatly influenced by its political factors. The factor, which determines the performance of the company, includes the rate of tax, the act of legislation as well as the constancy of the country in which the company operates. The governments are known to persuade the retailers in order to generate employment due to the ongoing instability. However, Tesco plays a significant role in generating jobs for the individuals, which in turn increases the demand for the products produced by the company (Srdjevicet al. 2012). For example UK exist from the EU, will affect the company’s work force as visa restriction would come in soon.
Economic factors –It was reported that in the year 2009 the growth rate of Tesco was below 10 percent due to the financial crisis that in turn made all the customers cash rigorous. However, not in spite of all this company incurred any loss. The key reason for the success of the company was the strategy that included both internalization as well as diversification. For example unemployment rate, this will affect spending power and in turn affect the revenue and profitability of Tesco.
 
 The Macro Environment
 
Figure 2: The Macro Environment

(Source: Li et al 2014)

Social factors – As per the report, most of the customers in the UK has shifted to one-stop shopping due to the changes in the social habits as well as the culture. As a result, Tesco has increased the variety of non-food items, which are offered for sale. Tesco is mainly focusing on the social changes, which includes ready to cook and eat. For example, age will be the main demographic issue as Tesco will need to consider age when marketing there different products and plan for future market change.

Technological factors- The progression in the technology has influenced Tesco to incorporate new prospects. One of the advancement in the technology includes the introduction of the online shopping that makes possible the free home delivery. The other advancement includes the self-service checkout point, which in turn provides both effortlessness and expediency to the customers. As a result, Tesco has invested an enormous amount on the project related energy efficiency (Dhakal 2012).

Ecological factors - It has been clearly committed by Tesco that the company will minimize the carbon footprint by 50 percent by the year 2020.

Legal factors –The legal factors that include the policies of the government, which in turn affects the performance of the company. For Example, The law that includes the National Minimum Wage Act 1998 that will deal with the performance of the company.  (Ndungu2014)

The threats of the company – One of the most common threats of the company is the increasing cost of the raw materials that in turn impacts the overall margin of the profit.

The opportunities of the company – Tesco should mainly focus on the augmentation of the sales of the non-food items (Dudovskiy 2016). Example the products related to health and beauty.

Porter’s five forces of analysis

The five forces of analysis of Porter help to determine the extent of the overall competition of the company.

  1. Threat of new competitors –In the food retail industry, the threats of the new entrants are low, however Tesco needs to undergo a huge investment of capital in order to ascertain a brand name. The most important brands which have already captured the food retail market and can prove to be a threat for Tesco are ASDA, Sainsbury and Morrison (E. Dobbs 2014).also the likes of LIDL and ALDI.
  2. The bargaining power of the buyers – In the case of the food retail industry the bargaining power of the buyers are substantially
  3. The bargaining power of the suppliers – In the case of the suppliers, the bargaining power is relatively low. As a result, Tesco is benefited as the negotiations are positive.
  4. Threat of Substitute and foodstuffs - The menace of substitutes in the food retail market like Tesco is noticeably low for food items and average to elevate for non-food items (Arline 2015).
  5. Rivalry among the existing firms – The rivalry among the existing firms in the food retail market is significantly high and as a result, Tesco faces a powerful competition from its competitors. The competitors in this case are ASDA, Sainsbury and Morrison.

Internal Analysis

Resources

The human resources of Tesco are responsible for hiring people in order to execute the activities in the company. The main objective of the human resource is to recruit the workers and they are also responsible for their dismissal. They mainly aim to hire the individuals with high quality and are also responsible for maintaining them. Tesco operates in more than 11 countries with almost 476,000 employees. As per the reports, the total number of employees in United Kingdom is 315,829 and in Asia the numbers of employees employed are 96,471. Out of the total workers, 88 percent of the workers are employed on the part time basis. There is total of11 top management in Tesco.

The financial resources are mainly concerned with the capacity of the business to finance the chosen policy of the business. The policies include the investment in new products as well as the distribution channels. These policies of Tesco needs to managed from the finance view point.

The financial statements of TESCO from the year 2013 to 2016 are as follows:

 

2013

2014

2015

2016

Financial

l statistics (£m)

 

 

 

 

 

UK & ROI

 

 

 

£38,228m

£37,189m

International

 

 

 

£10,678m

£10,208m

Tesco Bank

 

£1,044m

£1,021m

£1,003m

£947m

Group revenue (exc. fuel)

 

 

 

£49,853m

£48,352m

Revenue

 

 

 

 

 

UK & ROI

 

 

 

£45,062m

£43,080m

International

 

 

 

£10,916m

£10,398m

Tesco Bank

 

£1,044m

£1,021m

£1,003m

£947m

Group revenue

 

£63,916m

£63,406m

£63,557m

£56,925m

Operating profit before exceptional items

 

 

 

 

 

UK & ROI

 

 

 

£498m

£505m

International

 

 

 

£254m

£277m

Tesco Bank

 

 

 

£188m

£162m

Group operating profit before exceptional items

 

 

£940m

£944m

Operating profit margin before exceptional items

 

 

1.7%

1.7%

Operating profit/ (loss)

 

 

 

 

UK & ROI

 

 

(5,334)

599

International

 

 

(569)

286

Tesco Bank

 

 

153

161

Group operating profit

4,182

2,382

2,631

(5,750)

Share of post-tax profits/ (losses) of joint ventures and associates

91

72

60

(13)

Net finance costs

 

(397)

(432)

(571)

Profit/ (loss) before tax

4,038

2,057

2,259

(6,334)

Taxation

(874)

(529)

(347)

670

Profit/ (loss) for the year from continuing     operations

£3,164m

£1,528m

£1,912m

(5,664)

Discontinued operations

(350)

(1,504)

(942)

(102)

Profit/ (loss) for the year

2,814

24

970

(5,766)

Attributable to:

 

 

 

 

 

Owners of the parent

2,806

28

974

(5,741)

The broad ranges of the operational resources, which are mainly concerned with the physical capability, are categorized under the physical resources.

The VRIN model used by Tesco is categorized in the following way:

  1. Valuable – The resources can be a source of competitive advantage if they are able to bring value to Tesco.
  2. Rare – In order to provide a competitive advantage to the firm, the resources needs to deliver a unique strategy (Talaja 2012).
  3. Inimitable –If the competing firms are not able to obtain the resources in that case the resources will become the sources of sustained competitive advantage.
  4. Non-substitutable – The resources are strategically important if two resources can be used separately.

Physical resources: There are a total of 6,849 stores of Tesco in the worldwide basis. There are 2,348 numbers of factories in Tesco. There are three types of franchisee associated with Tesco. It includes the Telecom Franchisee, one stop, Carlisle. The core competency of Tesco is that it is a customer-focused strategy. Tesco has introduced a club card reward scheme that allows the company to collect and analyze their targeted customers. Tesco uses the information and adapt their services to the local market, thus adding value to the customer experience.

Business function of the company

The basic function of Tesco is mainly done by Human resource where Tesco needs to recruit the individuals who will be responsible for carrying out some vital activities. Once Tesco becomes successful in finding the correct individual, they will be able to meet the requirements of the customers. Another basic function of the company is to administer that is to fix the problem over the phone, which is mainly done by the ICT department (Yassleeman 2014).The staffs are mainly managed with the help of the HR. department mainly offers benefits such as childcare vouchers as well as pension to the staffs. The finance and the accounts department manage the revenue and the cost.

 The organizational chart of the company Tesco

Figure: The organizational chart of the company Tesco

(Source: profile, 2011)

The Marketing function is mainly responsible for promoting the goods as well as the services that is mainly offered by making the customers aware of them. In the sales department, the staffs related are responsible for selling within the store and the telesales staffs sells the product over the phone. 

The types of internal communication that is used by Tesco includes intranet which is accessible to each and every employee. The employees mainly keep the email conversation copy for reference. Tesco also organizes meeting in which the workers are free to share their thoughts which in turn helps the company to grow (Quirke2012).

The organizational chart of the company Tesco

Figure: The organizational chart of the company Tesco

(Source: Created by Author)

Basis of competitive strategy

There are three generic strategies, which include market segmentation, product differentiation as well as the cost leadership. This strategy helps to provide the overview about how Tesco will provide its customers with what they desire at a better price (Simister 2016)

 The Bowman’s Strategic Clock

Figure 3: The Bowman’s Strategic Clock

(Source: Mindtools.com, 2016)

Position 1: Low value/Low price – Mostly the companies avoid being in this position and this position is also referred to as the bargain basement bin. The only way Tesco can make it is by attracting new customers by incorporating cost effective selling volume. The product of Tesco ranges from Tesco value items to the Tesco Finest range that appeals the social groups.

Position 2: Low Price–The low cost leaders of a company generally compete in this category. The companies mainly drive down the prices of the products in order to bare minimum profit.

Position 3: Hybrid price – The companies like Tesco follow this strategy as the interesting companies mainly follow it. Tesco mainly offers their products at a low cost; however, they supply that product, which has a higher professed value compared to the low cost competitors. The customers are thus assured of the prices and the company becomes successful in building a reputation as they offer the goods at a reasonable price.

Position 4: Differentiation – With the help of this Strategic clock, the company will keep the price of the product low in order to seek a greater share of the market.

Position 5: Focused Differentiation - The expensive product that has a higher professed value as well as higher price mainly follows focused differentiation. The customers based on professed value purchase the products. As a result, the product does not have any more real value.

Position 6: Increased Price – With the help of this strategy, Tesco increases the price of its products and as a result, it enjoys a higher rate of profit. However, in the case of the opposite situation, the company faces a loss in their market share and they need to make a modification to their price or cost.  But as a company it hardly ever go into this stage

Position 7: High Price/Low Value – This position is followed when Tesco undergoes a monopoly pricing. However, Tesco does have competitors and it needs to focus on the price of its product. As a result of this Tesco tries not to operate in this level

Position 8: Low Value/Standard Price – In this case, there is no product in Tesco that fits in this part.

Strategic Choice

Ansoff’s Matrix

The Ansoff’s Matrix mainly focuses on the current and the probable products of the company. The Ansoff’s Matrix is shown below with the help of the table.

 

Existing Products

New Products

Existing Market

Market Penetration

Product Development

New Markets

Market Development

Diversification

Market Penetration – Tesco will seek to attain growth with their existing goods in their present market subdivision thus with the objective to augment the share of the market. The market penetration will help to secure dominance of growth markets and Restructure a mature market by driving out competitors and Increase usage by existing customers (Thijsen et al. 2014).

New Product Development – Tesco will develop new products that will be mainly targeted to its obtainable market segment. With the help of the New Product Development, Tesco will be able to export its product to the country it desires. (Hussain et al. 2013).

New Market Development–Tesco will search for growth by targeting the existing products to the existing segment of the market. Example could be the health and beauty range

Diversification – Tesco will grow by expanding into new businesses by increasing new products for new markets. Example taxis in each local store. As they do have a home delivery service some of its customer’s wants to buy and take home immediately, and this is an avenue to make more revenue.

Ansoff’s Matrix (Market Penetration Strategy)

The market penetration strategy helps to drive out the competitors as well as dominate the growth of the market. It also increases the usage of the customers.as Tesco is one of the largest retailers with a very high foot flow in majority of its stores and the Tesco express strategically positioned in most town centers, it has an edge over competitors like ASDA and can make full use of this. 

Suitability

Market penetration is suitable as with the help of it, Tesco will be able to reduce their order processing times as well as display the entire portfolio of the product.

Acceptability

Market penetration is acceptable as Tesco will be able to share the growth of the market and be able improve the customer loyalty.

Feasibility

Market penetration is feasible in the sense that Tesco will be able to have various different formats of store outlets in diverse countries.

Conclusion: PESTEL and Porters5 forces have shown that

Tesco is one of the major retailers in the UK with a grocery market share of 27.9 per cent. Tesco first utilized the online sales channel with a high level of competency. In order to make the most of their strengths the company should continue to implement the online sales channel successfully. The company should also make a strong property portfolio, which in turn, will increase the overall value of the company.  

The high dependence of the company on the UK market affects the share of the market. As a result, in order to circumvent its weaknesses the company should lower the dependency upon the UK market, and look at a broader market environment

In order to capitalize on its opportunities, Tesco needs to continue to focus on the growth of the health and beauty ranges in the UK. This in turn, would help the company to expand their market.

Tesco will be able to manage its threats by offering price cuts on its products as well as giving special offers so that the Supermarket is not threatened by the growth of Asda.

 

References

Arline, K, 2015, Porter's Five Forces: Analyzing the Competition. Business News Daily. Available at: https://www.businessnewsdaily.com/5446-porters-five-forces.html [Accessed 28 Jun. 2016].

David, F. and David, F.R., 2016. Strategic Management: A Competitive Advantage Approach, Concepts and Cases.

Dhakal, S, 2012, Articles World: PESTLE analysis of Tesco. 123articlesworld.blogspot.in. Available at: https://123articlesworld.blogspot.in/2012/04/pestle-analysis-of-tesco.html [Accessed 28 Jun. 2016].

Dudovskiy, J, 2016, Tesco SWOT Analysis - Research Methodology. Research Methodology. Available at: https://research-methodology.net/tesco-swot-analysis/ [Accessed 28 Jun. 2016].

Dobbs, M., 2014, Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45.

Freelogovectors.net. 2012, Tesco Logo [EPS-PDF Files] Vector EPS Free Download, Logo, Icons, Brand Emblems. [online] Available at: https://www.freelogovectors.net/tesco-logo-eps-pdf-files/ [Accessed 28 Jun. 2016].

Havinga, T., 2013.Food Retailers as Drivers for Food Safety Standards.Available at SSRN 2331869.

Hussain, S., Khattak, J., Rizwan, A. and Latif, M.A., 2013.ANSOFF matrix, environment, and growth-an interactive triangle. Management and Administrative Sciences Review, 2(2), pp.196-206.

Li, Y., Li, Y., Li, Y. and profile, V. (2014).Li Yang: February 2014. [online] Yvonneeeli.blogspot.in. Available at: https://yvonneeeli.blogspot.in/2014_02_01_archive.html [Accessed 28 Jun. 2016].

Mindtools.com. 2016,Bowman's Strategy Clock: Making Sense of Eight Competitive Positions. [online] Available at: https://www.mindtools.com/pages/article/newSTR_93.htm [Accessed 28 Jun. 2016].

Ndungu, K., 2014. Analysis of TESCO. GRIN Verlag.

profile, V. (2011). Market Planning with Tesco. Marketplanningwithtesco.blogspot.in. Retrieved 2 August 2016, from https://marketplanningwithtesco.blogspot.in/

Quirke, M.B., 2012. Making the connections: using internal communication to turn strategy into action. Gower Publishing, Ltd..

Simister, 2016 Bowman’s Strategy Clock –Your Strategic Options. Differentiateyourbusiness.co.uk. Available at: https://www.differentiateyourbusiness.co.uk/bowmans-strategy-clock-your-strategic-options [Accessed 28 Jun. 2016].

Srdjevic, Z., Bajcetic, R. and Srdjevic, B., 2012, Identifying the criteria set for multicriteria decision making based on SWOT/PESTLE analysis: A case study of reconstructing a water intake structure. Water resources management, 26(12), pp.3379-3393.

Talaja, A, 2012, TESTING VRIN FRAMEWORK. Anita Talaja.

Thijsen, T., Tong, T. and van Leer, J., 2014,Ansoff Model. Marketing.

Yassleeman, y, 2014, ROLE OF HRM IN GROWTH OF BUSINESS: A Study on TESCO. boyzone2times. Available at: https://boyzone2times.wordpress.com/2014/03/22/role-of-hrm-in-growth-of-business-a-study-on-tesco/ [Accessed 28 Jun. 2016]

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