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Tesco Plc: Business Strategy Add in library

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Question:

Scenario

Planning is not just important for individuals but is also vital for the success of organisations. The strategic planning process (Johnson et al 2014) provides a guide to the complex series of actions which individuals and teams in organisations need to carry out over an extended period to achieve organisational goals. Planning makes it possible to evaluate the effectiveness of action against the business aims and objectives, and also helps to establish a sense of common purpose and corporate identity.  Organisations need to continuously monitor and evaluate the factors affecting their products, services and their customers, both in terms of what is happening in the general business environment and their own internal capability to cope with these changing factors.

Tesco PLC is the third largest retailer in the world by profit, and the fourth by sales revenue.  Estimates vary, but it is claimed that for every £7 spent in UK retail outlets £1 is spent in Tesco. In terms of the grocery market, Tesco has a market share of well over 30%. The company was founded by Jack Cohen, a Polish, Jewish  immigrant, in 1919, as a group of market stalls in the East End of London (Well Street Market, Hackney). The name Tesco was adopted in 1924. By the outbreak of the Second World War (1939) the company had one hundred stores around the UK. The first Tesco supermarket opened in 1956.

Since the 1990’s the company has increasingly diversified into areas  such as books, clothing, furniture, petrol, software, telecommunications, financial  services, internet services and music downloads.  As well as this organic growth Tesco has also acquired other business; buying competitive supermarket chains, such as Safeway, in order to increase their market coverage.  Tesco were one of the first supermarkets to introduce a loyalty card. They have a presence in eleven countries around the world internationally including Thailand and Malaysia. They were pioneers of internet shopping.

However, since 2012 the company has reported a dip in sales. New competitors, including Lidl, Netto and Aldi have entered the market, and their aggressive cut-price marketing efforts appear to be eroding Tesco’s market share.  Recently Tesco appointed a new Chief Executive Officer, David Lewis (“Drastic Dave”) who used to work for Unilever, and put Matt Davies (ex Halfords) in charge of UK operations, in a bid to reverse the downward sales trend and breathe new life into the company.

These are ‘interesting’ times for Tesco.  The new CEO and his directors face challenges from a variety of sources; from competitors, from changes in customer behaviour,  and from pressures in the economic and technological environment.

Your assignment will consider the strategic factors affecting the company, evaluate its current and future strategy and discuss the implementation of possible new strategic options.
 
Task 1: Process of Strategic Planning

AC1.1 Assess how the business mission, vision, objectives, goals and core competencies might inform the strategic planning in Tesco plc.

Your answer may consider the competitive pressures, ownership and management, and a general overview of organizational strengths and weaknesses.

AC1.2 Analyse the factors (barriers or facilitators) that have to be considered by Tesco when formulating strategic plans for the organization.  

These could include issues from environmental scanning, challenges related, but not limited, to resources required, targets, stakeholders to be involved, management roles and culture, etc.

AC1.3 Explain and evaluate the effectiveness of techniques used when developing strategic business plans for Tesco. Your answer may focus on strategic planning techniques such as BCG growth-share matrix, SPACE, PIMS, Scenario Planning.

Task 2: Formulating a New Strategy

AC2.1 Produce an organisational audit for Tesco.

You should use techniques and academic frameworks such as Capability matrix (analysis of resources & competences), Value Chain analysis, SWOT analysis (strengths and weaknesses) etc.

AC2.2 Carry out an environmental audit for Tesco.

You should use techniques or academic frameworks such as PESTEL analysis, Porter’s 5 forces, SWOT analysis (opportunities and threats) etc.

AC2.3 Assess the significance of stakeholder analysis when formulating new strategy.  

Your answer should identify the key stakeholders of Tesco and explain the significance of their analysis in the formulation of a new strategy for the organisation. A stakeholder diagram (mapping) can be used to present the stakeholders and their analysis can be carried out using a power/interest matrix.

AC2.4 Suggest and present a new possible strategy for Airbnb

Task 3: Approaches to Strategy Evaluation and Selection

AC3.1 Analyse the appropriateness of alternative strategies relating to market entry, substantive growth, limited growth or retrenchment or turnaround for Tesco
 
Your answer should focus on examples of alternative strategies relating to market entry, substantive growth strategies such as ‘horizontal and vertical integration; related and unrelated diversification’ as well as limited growth strategies such as ‘do nothing; market penetration; market development; product development; innovation’, and disinvestment strategies (e.g retrenchment, divestment, liquidation, turnaround strategies)

AC3.2 Justify the selection of a most appropriate strategy for Tesco using a criteria such as suitability, acceptability/desirability and feasibility.

Task 4: Implementing a Chosen Strategy

AC4.1 Assess the roles and responsibilities of personnel who should be involved in strategy implementation for Tesco

Your answer should consider examples such as top management, middle management,  teams, individuals, owners, investors, strategic partners etc.  

AC4.2 Analyse the resources required for implementing a new strategy for Tesco

Your answer should consider examples such as finance, human resources, time, materials, technology etc.

AC4.3 Discuss suitable targets and timescales to be considered by Tesco in the implementation of the new strategy using techniques such the SMART method of analysis.
 
 

Answers:

Introduction

Khojastehpour and Johns (2014) commented on the fact that marketing strategy can be referred to as the combination of marketing plans that are comprehensively created in order to fulfill the organizational goals. Marketing strategies are thereby flexible and are created for the long term basis that can only be changed if required with the changing competition. Moreover, Gamble (2010) strategically had an opinion that in order to increase the sales as well as to achieve a sustainable growth, strategies are formulated by the organization. For the successful accomplishment of the assignment, the researcher has chosen Tesco Plc. whose marketing strategies will be widely discussed. This assignment will be discussing about the procedure of strategic planning, formulation of innovative and new strategies and evaluation of these strategies followed by selection and implementation of the chosen strategy.

Tesco Plc. is one of the leading multinational retailers in the world thereby occupying fourth position with respect to sales and revenue collection. Tesco has a diversified product range such as electronics, grocery, books, clothing’s, internet services, furniture, telecoms along with financial services. It has expanded its business from UK to many parts of Asia as well as Europe having its market share over 30% (Barnes, 2011).

Discussion and Evaluation

Task 1: Process of Strategic Planning

AC 1.1 Assessing business mission, vision, goals, objectives and core competencies in Tesco Plc.

According to Dong (2014) Tesco Plc. is currently occupying the fourth position in the world and is also facing a cut-throat competition from new competitors such as Aldi, Lidl, Netto etc. have entered the market with a low price strategy. The mission of Tesco is creating value for its customers for earning their loyalty on a lifetime basis. The vision of this company is to serve the customer, communities who in return will be giving value to the company. Moreover, from the opinion of Kotler and Armstrong (2012) the company also aims in operating ethically with the shareholders, employees, suppliers for a sustainable growth strategy by applying the skills and knowledge globally. In addition to this, the entry of new competitors having low price strategy is a competitive pressure on the organization. The management of Tesco has been operating successfully and ethically throughout the world thereby fulfilling the customer satisfaction as well as increasing the revenue of the company.

Apart from this, Mattsson (2012) also commented that the strength of Tesco is its global prestigious position, maintenance of good quality products and servicing the customers as well as handling their grievances to the maximum. In addition to this, the ethical business, following the ETI rules and regulations, transparent business and good organizational culture are the strengths of Tesco. Along with this the introduction of innovative strategies such as loyalty cards and pioneers of e-commerce are the strengths of the company. Moreover, according to the opinion of Truong and Simmons (2010) Tesco cannot compete with the low price rates of the new competitors that turned to be its weakness. Moreover, Tesco has reached a market saturation that is affecting its sales and has turned to be it’s another major weakness.

 

AC 1.2 Analyzing factors that consider both barriers and facilitators while formulating strategic plans for Tesco Plc.

As commented by Piercy (2010) while operating globally, Tesco had to face several barriers as well as opportunities that need to be focused on while formulating strategic plans. Though Tesco is operating globally, it is still planning of expanding its business in other countries of the world by opening new offline stores. Moreover, according to the opinion of Temporal and Lee (2001) Tesco is also focused in creating new ecommerce strategies for reaching the potential customers all around the world. For that reason, Tesco needs to acknowledge the culture, customs and religious beliefs of the customers so that the sentiments of the customers are not hurt.

The other factors that also need to focused on while trading globally is the low price strategy. Customers generally are inclined towards those companies that provide quality products at low prices. In addition to this, Noy (2010) also had an opinion that while operating globally, the company needs to hire employees from those areas and trainings also need to be given for making them expertise as per their requirement. Moreover, the rise of cost of raw materials, fluctuations of taxes and tough competitions from giant retailers also affect the strategic plans for Tesco.

AC 1.3 Explaining and evaluating effectiveness of the techniques that are used while development of strategic business plans for Tesco Plc.

Miles et al. (2014) commented on the essential fact that BCG growth matrix, PIMS, SPACE and Scenario Planning are used for evaluating the effectiveness of the business plans formulated for Tesco. Through BCG matrix, the company understands the Stars that which sectors Tesco have high market share and market growth. It also helps in understanding the Question Mark sectors of Tesco that have high growth and low market shares. Moreover, Bruhn and Georgi (2006) also had a view that Cash Cows sectors of Tesco have low growth but high prices of share. The Dog section of Tesco denotes the low market share and growth. These sectors need to be analyzed and then strategies need to be made for strengthening the strengths more and rectifying the weakness and turning the treats positively so that it becomes opportunities for the company.

Moreover, PIMS which is also known as Profit Impact of Marketing Strategy helps Tesco in understanding the business environment, allocation of budget, competitive position of Tesco and the structure of the process of production. According to Eastham et al. (2001) this helps in understanding the total market scenario including the market growth, expansion and image for successfully evaluating the strategic planning techniques. Moreover, SPACE matrix also helps in analyzing the status and position of the company. In the verdict of Crick and Crick (2015) this helps in determination of the kind of strategy the company needs to undertake for a successful and sustainable business. The SPACE matrix also helps in analyzing the financial factors that includes liquidity, turnover, and cash flow along with the competitive advantages the company has over others. In addition to this, Leitner (2014) had an opinion that Scenario Planning also helps Tesco in making long term as well as flexible plans. This takes into account the time as well as scope of the analysis including the identification of important stakeholders for which the strategies will be made.

 

Task 2: Formulation of new strategy

AC 2.1 Organizational audit for Tesco

Value Chain Analysis- According to Mattsson (2010) Tesco has adopted value chain that includes the analysis of Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales and Sales. Review is essential for the cost of inventory, raw materials etc. that are essential for organizational audit for Tesco. The operations also need to be concerned as it takes into account the inputs and output process. Moreover, from the opinion of Patnaik (2014) the outbound logistics is the process that is related to the storage of final products that need to be moved from one place to another. The marketing and sales department also needs to analyze for seeing the market revenues and sales.

SWOT Analysis- Lunt et al. (2014) commented that the strength of Tesco is its global position, innovation of ecommerce and introduction of loyalty cards. Moreover the quality and global customer loyalty are the strengths. In addition to this, the weakness of the organization is the saturated market and falling behind the low price strategy.

AC 2.2 Environmental audit for Tesco

PESTEL Analysis- Tollin et al. (2014) had a view that Political factors are important to consider since the organization is operating globally and different countries have different political issues. The Economic factor includes the inflation rates, FDI rates, economic growth and interest rates that need to be analyzed before making the strategies. In addition to this, Crick and Crick (2015) also commented that Social factor include the population, demographics and culture of the place where it is trading or is thinking of expanding. The Technological factors include the usage of modern technology in formulation of strategies and trading. Moreover, from the view point of Wright (2012) the Environmental factor also includes the global environment, climate and geographical areas based on which fair trading will be done by the company. The Legal factors also include the labor laws, consumer laws, and employment laws etc that need to be analyzed while formulating the strategies.

Porter’s 5 Force Analysis- Mamula (2012) opined that the threat of new entrants affect largely the strategies of Tesco. The low price strategy of entrants is affecting the sales of Tesco to a considerable extent. Moreover, the threat of substitute products also needs to be analyzed as because, if the substitute products at low prices become available to the market, Tesco will be suffering loss. Moreover, Khojastehpour and Johns (2014) also had a view that the bargaining power of suppliers includes the presence of substitute inputs, strength of distribution channel and switching cost of the suppliers. Again, the bargaining power of buyers is also be concentrated due to presence of substitute products etc and low price products. Moreover, the intensity of competitive rivalry that depends on the transparency and expenses incurred due to advertisement.

SWOT Analysis- Gamble (2010) commented that the opportunities of Tesco are its expanding global market as well as greater flexibility to the customers. The introduction of ecommerce sites has given more opportunity to the organization for reaching their potential customers to the great extent. According to Dawson et al. (2006) the threats of Tesco are the introduction of rivalries with low price strategy. Moreover, the presence of the competitor’s adaptation of low price strategy is also another threat.

 

AC 2.3 Assess the importance of stakeholder analysis while formulating new strategy

Kotler and Armstrong (2012) had an opinion that stakeholders are the important part of the organization and their interest levels also need to be concerned while making strategies. This is because; the customers who are the stakeholders of the organization, based on their interests and needs the strategies of Tesco are formulated. Barnes (2011) had a view that the employees being an integral part of Tesco and important stakeholders, their interest also need to be considered. Organizational cultures along with good salary package and compensation are also considered while making the strategies. The directors and higher managers who are the important stakeholders also formulate the strategies based on the interest of the company, increasing the sales and revenues of the organization. In addition to this, Noy (2010) also had a view that the organization can operate well and run successfully globally. This is done only if the new strategies that are formulated cover the interest of all the stakeholders and are made concerning them.

Figure 1: Stakeholder Mapping

(Source: Mattsson, 2010, pp. 138)

AC 2.4 Suggestion of new strategy for Tesco

In order to compete with the changing and competitive environment, Tesco need to implement new strategies. The prices can be made low thereby keeping the profit margin low as much as possible. This will help the organization in giving a tough competition to new entries as well as old competitors. Moreover, Tollin et al. (2014) has also opined that with the improvement of technology and usage of Smartphone, Tesco App also need to be introduced in the market for the easy access of the customers. This will also lead to increase in customer database and reaching out the global world.

Task 3: Approaches towards evaluation of strategy and selection

AC 3.1 Analyzing appropriateness of alternative strategies for market entry, substantive growth, limited growth for Tesco

According to Dawson et al. (2006) Tesco is a global organization and is trading globally and successfully. With the entry to the new market, the prices of the products need to be lowered and the products that are traded need to be traditional based on that geographical areas This will automatically attract the customers to a great extent and hence the revenue and sales of the company will increase. In addition to this, Bruhn and Georgi (2006) also commented that for a sustainable and firm growth the prices need to penetrated and innovative so that the company captures the untouched market initially before the competitors and new entrants. The areas where is limited growth, the organization need to flourish more by both development of market and product.

 

AC 3.2 Justification of the appropriateness of the adopted strategy

Leitner (2014) had a view that the adopted strategy that is low price strategy is appropriate in this competitive market. This is because, it is the mentality of the customers to buy products that are of low price and are of good quality. The new entrants and old competitors are keeping their profit margin low as much as possible and are focusing on increasing the customer database. Lunt et al. (2014) commented on the fact that Tesco also need to operate by keeping low pricing strategy that will help the organization in reaching a better position than its competitors. So, the strategy of Tesco needs to focus on the traditional items while trading globally since this will make the customers happy and they will be inclined towards the company.

Task 4: Implementation of chosen strategy

AC 4.1 Assessing roles and responsibilities of personnel those are involved in implementation of strategy for Tesco

According to Mattsson (2010) the top management is highly involved in formulating the strategies and implementing it for Tesco. The top management needs to be conscious and responsible enough to understand the current market scenario and the market trend along with future market scenario for the better implementation of the strategy. The top management considers the pros, cons along with the environment both external and internal along with the demand and supply of the products and raw materials before formulating the strategies. In addition to this, Patnaik (2014) also strategically commented that the middle management helps the top management with the updates of the organizational performance both internally and externally that also help in effective strategy implementation.

According to the opinion of Noy (2010) the team members are also equally responsible for better performance within the organization that motivates the top management and managers in taking reliable and strong steps to enter the new market or old market with modification. In addition to this, Miles et al. (2014) had a view that the strategic partners play an important role while implementing the strategies for Tesco. They collect the data from the market and analyze it and depending on the analysis, strategies are formulated and later implemented.

AC 4.2 Analyzing resources required for implementation of new strategies for Tesco

Dawson et al. (2006) had a view that Tesco requires enough resources such as finance, time, raw materials, upgraded technology and effective human resources for successful implementation of the new strategy. The organization need to be financially stable and sound and also need to have sufficient working capital for the execution of the low pricing strategy and expanding the store to other geographical areas. In addition to this, Bruhn and Georgi (2006) also commented that time bound is also necessary since the organization need to operate within a certain time period. The raw materials also need to be easily available and at reasonable prices and also need to be of good quality. This will also help in implementation of the new strategy. Along with the usage of modern technology Eastham et al. (2001) had commented that discounts need to be given to those customers sing the Tesco apps. This will make the customers use the app to a high extent and the customer database will also increase.

AC 4.3 Discussion of suitable targets and timescales considered by Tesco

SMART Method- Lunt et al. (2014) had strategically commented that Tesco use SMART method that help the organization in fulfilling its targets at given time. Specific in SMART method help Tesco in targeting a specific area that needs improvement. The targets need to be Measurable as per the method so that it indicates the progress of the strategy that is implemented. According to Piercy (2009) the strategy fulfillment needs to be Assignable that denotes the group or team r employees who will be doing it. The new strategy that needs to be implemented also should be Realistic on the basis of resource availability that should be practically implemented. Moreover, Temporal and Lee (2001) had an opinion that the strategy should be Time related that will signify the time when the results of the implementation of new strategy will be seen.

Conclusion

This assignment has discussed broadly about the strategies that Tesco has adopted and is successfully trading in the global world. The low price strategy that Tesco can implement will help the company in competing with the new entrants as well as existing competitors. In addition to this, the implementation of the strategies is also discussed along with its requirements and methods for measuring it.

 

References

Barnes, R. (2011). The great Tesco beauty gamble (the Tesco supermarket chainÂ’s marketing strategy for breaking into the UK beauty services market). Strategic Direction, 27(7).

Bruhn, M. and Georgi, D. (2006). Services marketing. Harlow: Financial Times Prentice Hall.

Crick, D. and Crick, J. (2015). The first export order: a marketing innovation revisited. Journal of Strategic Marketing, pp.1-13.

Dawson, J., Larke, R. and Mukoyama, M. (2006). Strategic issues in international retailing. London: Routledge.

Dong, F. (2014). The Power Plant Bidding Strategy in Contract Market. AMM, 598, pp.656-660.

Eastham, J., Sharples, L. and Ball, S. (2001). Food supply chain management. Oxford: Butterworth-Heinemann.

Gamble, P. (2010). Marketing Revolution. Strategic Direction, 26(4).

Khojastehpour, M. and Johns, R. (2014). From pre-internationalization to post-internationalization: relationship marketing perspective. Journal of Strategic Marketing, pp.1-18.

Kotler, P. and Armstrong, G. (2012). Principles of marketing. Boston: Pearson Prentice Hall.

Leitner, K. (2014). Strategy formation in the innovation and market domain: emergent or deliberate?. Journal of Strategy and Mgt, 7(4), pp.354-375.

Lunt, N., Horsfall, D., Smith, R., Exworthy, M., Hanefeld, J. and Mannion, R. (2014). Market size, market share and market strategy: three myths of medical tourism. Policy & Politics, 42(4), pp.597-614.

Mamula, T. (2012). Role of marketing metrics in strategic brand management. Marketing, 43(1), pp.49-61.

Mattsson, J. (2010). Developing a strategic abstraction tool for service innovation. Journal of Strategic Marketing, 18(2), pp.133-144.

Mattsson, J. (2012). Strategic insights from mystery shopping in B2B relationships. Journal of Strategic Marketing, 20(4), pp.313-322.

Miles, M., Gilmore, A., Harrigan, P., Lewis, G. and Sethna, Z. (2014). Exploring entrepreneurial marketing. Journal of Strategic Marketing, pp.1-18.

Noy, E. (2010). Niche strategy: merging economic and marketing theories with population ecology arguments. Journal of Strategic Marketing, 18(1), pp.77-86.

Patnaik, S. (2014). Essays on International Non-Market Strategy and the Political Economy of Environmental Regulation. Business & Society.

Piercy, N. (2009). Market-led strategic change. Amsterdam: Butterworth-Heinemann.

Piercy, N. (2010). Improving marketing–operations cross-functional relationships. Journal of Strategic Marketing, 18(4), pp.337-356.

Temporal, P. and Lee, K. (2001). Hi-tech hi-touch branding. Singapore: Wiley.

Tollin, K., Christensen, L. and Wilke, R. (2014). Sustainability in business from a marketing perspective. Journal of Strategic Marketing, pp.1-26.

Truong, Y. and Simmons, G. (2010). Perceived intrusiveness in digital advertising: strategic marketing implications. Journal of Strategic Marketing, 18(3), pp.239-256.

Wright, S. (2012). Addressing the intelligence, analysis, strategy connection: symbiosis, osmosis or segregation?. Journal of Strategic Marketing, 20(1), pp.1-4.

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