Critical Examination Of Corporate Strategic And Functional Management Policies At Tesco Plc Essay.

Strategic Purpose

1. Critically examine the relationship and the need for compatibility between corporate strategic and functional management policies.

2. Analyse the internal and external influences on corporate objectives and strategy.

3. Demonstrate the need for flexibility in strategic management and the practical limits of quantifying corporate strategy.

Assessment of the Strategic Purpose of the Organisation in terms of Mission, Vision and Values

The retail organisation selected for the current report is Tesco Plc., which is one of the biggest multinational grocery company based on the UK. The company was started in 1919 in London, UK by Jack Cohen. The core purpose of Tesco is, “Serving Britain's shoppers a little better every day” (Tesco PLC, 2014). The simple mission followed by the company is, “to be the champion for customers, helping them to enjoy a better quality of life and an easier way of living (Tesco PLC, 2014).”

The strategic purpose of the company is to offer great products to customers at great value and that too in the right way. The values of the company have been designed in a manner that allows it put its mission into practice. Tesco’s values are to try hard for customers, to treat customers the way they want to be treated, and to do every little help because it creates a big difference. 

Tesco in its strategic statements has stated that every step that it takes is related to its customers and serving them is at the heart of everything the company do. The main strategic intent of the company is to make sure that each of its customers gets a little better experience or service on every visit. The strategic statements of the company are compatible with its functional objectives because the functional objectives of the company are to understand customers by using any possible tools ranging from Clubcard to social media (Tesco PLC, 2014).

The company also take significant steps to act as per customers need and to innovate by every means possible. Moreover, to offer a better quality of life to customers the company also acts responsibly towards the communities. The company has made its values a prominent part of its culture to reinforce the relationship between its strategic statements and its functions objectives (Tesco Plc Annual Report and Financial Statements 2015, 2015).

Analysis of the Broad Macro-Environment of the Company

Political Factors: The government of UK has recently adopted a policy of fat tax with the main aim to lessen obesity and other health issues which are associated with it but these efforts can reduce the market share of Tesco but the company responded positively to this change by introducing the new range of “brand new healthy food” (Department for Business Innovation and Skills, 2013).

The Relationship and Compatibility between Strategic Statements and Functional Objectives of the Company

Economic Factors: The UK economy has suffered from a severe financial crisis in its past years but it has been showing recovery with positive outcomes as it has facilitated the growth in supermarket industry in which Tesco basically operates. The GDP has got a hike of 2.7% greater than its previous years and this effective recovery encourage greater revenue growth for Tesco (Department for Business Innovation and Skills, 2013).

Social Factors: Tesco has facilitated its customers to shop online which allows customers to get their favourite products during critical climatic conditions which reveals that Tesco has positively responded to social change in UK (Deloitte, 2013).

Technological Factors: This is the era of internet and mobile as these two elements are the main aspects of technological advancements. Hence, Tesco has implemented effective mobile technology in order to improve its distribution services.

Ecological Factors: Tesco aims to reduce the consumption of energy and ensure the utilization of green house gases with the main aim to balance and protect the environment in an efficient manner (Deloitte, 2013).

Legal Factors: Currently, the government of UK is reforming the formal agricultural policy in order to give direct subsidies to farmers for their betterment. This may impact Tesco to lower its costs and hence, it is working harder to overcome this issue.

In light of the above mentioned factors, some of the major threats and opportunities to gain sustainable competitive advantage may include:

The economic recovery in UK facilitates Tesco to enhance its market share by providing quality products at good prices but the previous recession has changed spending of customers which has reduced the significance of large super stores. This can be a major threat as the organization has invested very heavily on the growth of large super stores.

Threat of Substitute Products and Services: Tesco has gained maximum market share of United Kingdom which states that the new operators have to manufacture something very unique or at low prices in order to substitute the products of Tesco which reveals that threat of substitute products for food products in UK is very low.

Threat of Entry of New Competitors: It requires the huge investment of capital and it is really very difficult for a new company to make its name in this field due to high capital investment and effective marketing strategy. Hence, the threat of the entry of new competitors is very low (Hill and Jones, 2012).

External Analysis

Intensity of Competitive Rivalry: The intensity of competitive rivalry in regard to retail industry is quite high as Sainsbury and Tesco are neck to neck competitors but the recent survey has revealed that the sales of Sainsbury has slowed down. On the other hand, Aldi’s sales have seen a huge hike in its sales which enhances the intensity of competitive rivalry in UK.

Bargaining Power of Buyers: The population of UK has juggled with recent financial crisis due to which people have become very aware of their money and they want to get more in less money which states that the bargaining power of buyers in UK is generally high (Pycraft, 2000).

Bargaining Power of Suppliers: The bargaining power of suppliers is low as no one wants to lose great commercial contracts with huge supermarkets. Hence, the suppliers make sure to provide goods at minimum and legal prices to companies like Tesco (Tesco at a glance, 2013).

Strategic Capabilities in Terms of Organisational Competences

The key contributing factors in Tesco’s success is it strong customer focussed approach due to which the strongly localise and translates its stores as per the needs of the host country’s customers (Partridge and Sinclair-Hunt, 2008). It is notable that Tesco has always remained one step in front of its competitors. The policy of the company to offer high quality products to customers at low price is the strong strategic tactic of the company. The company has kept its prices low by enhancing employee efficiency, designing effective delivery system and avoiding wastes.

Tesco has set up a global sourcing team to pick non-food products from around the world, and thus, by procuring from developing countries like China and India, the company keep its prices low (DIW econ Economic Bulletin, 2011).

The website of the company is it’s another strategic capability that allows it to offer sheer convenience and comfort to customers. Moreover, the supply chain system of the company has been designed in a manner that effectively connects its stores with Tesco.com. The information technology (IT) of the company has been organisational competency since long as the company being the first to introduce RFID technology in its supply chain and has also implemented lean management for eradicating waste, improving quality and reducing price (Zhao, 2014).

Another prominent competency of Tesco is its strong financial assets and market goodwill. It is considerable that the goodwill of the company in 2014 3,771, which in turn increased to 3,795 in 2015. Also, Tesco has introduced cross docking operation and used collaborative plan, forecasting and replenishment (CPFR) for supporting its inventory management. This has skilfully allowed the company to shun the need to store and lessen the inventory holding (Tesco Plc Annual Report and Financial Statements 2015, 2015).

Porter’s Five Forces Analysis

The below mentioned VRIO analysis presents the difference between the unique and basic resources of the company:  

Resources	Valuable	Rare	Imitable	Organisation	Advantage
IT integration	Yes	No	Yes	Yes	Temporary
Supply chain management	Yes	No	No	Yes	Temporary
Workforce	Yes	Yes	No	Yes	Permanent
Club Card	Yes	Yes	No	Yes	Permanent
Unique Store Format	Yes	Yes	No	Yes	Permanent
Cost efficiency	Yes	Yes	Yes	Yes	Permanent

Tesco is one of the largest food retailers across the whole world and it is functioning smoothly with its 2318 stores across the globe. The company also provides the platform of online shopping to its customers with the help of its subsidiary, Tesco.com. Among all its stores in different countries of the world, UK is its largest market which has been operating under four banners since long time namely; Extra, Superstore, Metro and Express.

Apart from this, the company ensures that its activities do not harm any element of environment with the help of effective measures and environment sustainability. The business function of Tesco involves identifying, scanning, analysing, forecasting and then producing a product to suit the choices of customers. On the other hand, Tesco knows how to deal with major threats and take effective measures time to time in order to overcome them and to utilising the approaching opportunities for the betterment of the company. The overall analysis shows that the business function of Tesco is very fruitful for the customers as well as the employees of the company (Partridge and Sinclair-Hunt, 2008).

Bowman’s Strategy Clock explicates eight different strategies, such as no frills, low price, hybrid, differentiation, focussed differentiation, increased price/standard value, increased price/low value and standard price/low value, which companies can adopt for attaining competitive advantage on customers (Bowman and Faulkner 1996).

Source: (Bowman and Faulkner 1996)

From the eight strategies, Tesco has adopted hybrid strategy as it offer products at low price to consumer, but at a higher perceived value as compared to its competitors. Tesco has achieved a market reputation of charging highly fair prices for high superior quality goods. Tesco’s hybrid strategy is the basis of its competitive advantage as the prices of its products are low and customers are also assured of the quality and value. This combination in turn creates customer loyalty for the company. The company has attained this strategy by making its supply chain highly effective and efficient, i.e. free of wastes and timely delivery of products. The company also source high quality raw materials from developing economies at cheap prices so that it can offer equally low price goods to customers. Tesco has also pertinently used technology for sustaining its hybrid strategy by offering products direct to customers and eliminating any third party so that prices can be kept low (Baroto, Abdullah and Wan, 2012).

Internal Analysis Strategic Capabilities

Key Directions for Future Growth for the Company by using Ansoff’s Matrix

Figure: Ansoff Matrix

Market Penetration: For market penetration, Tesco has to extend its products and services to the UK market, which in turn will help it in improving its sales. It is notable that the sales of Tesco in the UK have declined in past few years. Thus, it is essential for Tesco to restore its competitiveness not just by using its products by also by reinvesting in its stores to offer a unique experience to customers (Thomson and Baden-Fuller, 2010).

New Product Development: Although, there are risks in introducing new product, however if a new product is introduced with utter care and research, it can bring huge returns. Tesco can rely on the expansion of non-food products. The company should focus on bringing new financial services to the market for regaining consumer interest. The retailing industry is currently going through overcapacity, and thus innovation is the major driver for growth and development (Wit and Meyer, 2010).

New Market Development: Tesco should consider expanding to new markets like India, China, Japan and so on. It is notable that entry to new markets will act a key growth driver in Tesco’s revenues. Although, Tesco has expanded to Asian markets, but a more aggressive expansion will benefit the company as Asian markets are demonstrating a rise in consumer spending and are also demographically highly prospective markets. Therefore, for new market development Tesco should consider starting new and unique stores in Asian countries like China, India, Japan, and Singapore and so on (Sumer, 2010).  

Diversification: Diversification is one of the riskiest growth options as it diversifies the company completely from its current product line. In this regard, Tesco can expand its diversification of coffee shops to Asian market. The company has already diversified to different new products and services, such as financial services, and hence, this new diversification will allow the company to gain large market share (Cuthbertson, 2012). 

In light of the above options, it is noteworthy that in terms of market penetration and market development, Tesco is already working enough. It is now time to come up with novel product, and as a result, diversification is the best suitable option for Tesco for future growth.

Diversification strategy is suitable because it is taking advantage of the external opportunities will minimise the threat of low sales and extensive competition. It is important to note that demand of coffee is increasing in Asian countries especially in China, and thus adopting this strategy will benefit the company. This strategy can also be built on the internal strengths of the company of an effective supply chain management and price efficiency.

Acceptability is related to whether the expected results of the proposed option will comply with stakeholders’ expectation or not (Jhonson et.al, 2011). The key stakeholders of Tesco are:

Employees: require job security, safe environment and future growth, which diversification will bring

Suppliers: want timely payment and demand. This can be done as diversification will enhance company’s revenues      

Shareholders: demand high returns on shares, which is possible with better revenues by using diversification strategy

Customers: want quality products and reasonable price and the company can offer this by utilising its competencies.

This factor is related to the capabilities and competencies of Tesco (Johnson, et al, 2011). On the basis of the internal analysis, it has been observed that Tesco has potent capabilities that will help the company (Johnson, et al, 2011). The company effectively used IT, its hybrid business strategy and differentiation of products and services will allow it to implement this strategy. Also, the club card scheme will enable the company to build a loyal customer base.

Conclusion and Recommendations

Conduct an overall summary of the strategic issues facing the selected company and evaluate how the selected company can, a) Make the most of their strengths b) Circumvent weaknesses c) Capitalize on opportunities d) Manage their threats.

References

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