STRATEGIC

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TESCO UK PLC
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Table of Contents
1.INTRODUCTION:
1.1Company Profile (Tesco Plc.):
2. Strategic Analysis:
2.1 PESTEL framework:
2.2 Porter’s Generic strategy:
2.3 Porter’s Five forces framework:
2.4 SWOT Analysis:
2.6 Value Chain Analysis:
3.Strategy Formulation:
3.1 Ansoff Matrix:
3.1BCG Matrix:
4.Strategy Implementation:
5.Conclusion:
References

1.INTRODUCTION:
Strategy is the organization policy by which it achieves long term benefit
irrespective of any changes in its resources or external forces. In other
words we can define strategy as the scope or direction of company by
which it can fulfil stakeholders’ aim in long term through configuration of
resources and competences.
Smith (2009) stated that strategic decision has a number of levels in
organizations: corporate level strategy, business level strategy and
operational strategy. Strategic management differs from operation
management by its complexity in decision making, impact of policy
implication in long term and different organization has different influence.
Strategic management has three elements: strategic position, strategic
choice and implement the strategy or strategy in action. Strategic position
is dependent on internal expectation, external environment and influence
of shareholders (Smith and Tushman, 2010). Strategic choice includes the
methods of development. Implementation of strategy develops with
infrastructure, efficient workforce and managerial position. Strategic
management is also deal with understanding the strategy which is likely
to succeed or fail. Strategy is not only the responsibility of managers but
also the responsibility of the whole organization that are also responsible
to properly implement it (Robinson and Pearce, 2010). Strategic issues
are observed under four strategy lenses: design lens, experience lens,
ideas lens and discourse lens.

1.1Company Profile (Tesco Plc.):

Tesco Plc. is a British originated multinational grocery and merchandise
retailer. It operates over 12 countries across Asia and Europe and has
2,500 stores all over the world with employees round about 350,000.
They operate under four banner of Extra, Superstore, Metro and Express.
They have gas stations, personal finance, mobile etc. As on 22 nd April,
2015 they have market capitalization over £18 billion. This study will
include its strategic analysis which will reflect its external and internal
analysis of resources. 

2. Strategic Analysis:
2.1 PESTEL framework:

PESTEL framework is a strategically framework which plays an important

role for possibilities of success or failures of particular strategies. PESTEL
framed as political, economic, social, technological, environmental and
legal. It is important for the managers to analyse these factors and their
impact on present condition as well as their impact on change in future
business policy (Ethiraj and Zhu, 2011). These factors are linked to each
other. Managers generally identified the key factors for change which
effects significantly on the success or failure of the strategy.
Tesco operates globally and its performance is highly affected by political
influence of the particular country. The govt. generally influenced retailers
to provide large number of jobs for different kind of employees. Tesco
also realizes that their retail business has an impact of jobs and people’s
life. New store opening in certain places sometimes lead to
unemployment of people, because old businesses were forced to cut their
costs or shut down their stores due to competency. Tesco followed the
strategy to employ large number of employees from different age group
even disabled person and offered them lower rate. Retail industry has
high rate of staff turnover, so these workers were eager to show their
loyalty and Tesco get desirable employment (Shrader et al. 2009).

Economic factors are really a concerned factor of Tesco. They are present
in different countries means different economic conditions which
influences there price, cost, demand and profits. The one of the main
factor of economy is unemployment which affects the demand of goods,
which leads to the production and profit of the company. These factors
actually out of control for Tesco but they affected by this factor. Tesco is
still highly dependent on UK’s market, so any changes in UK market will
lead to an effect on Tesco’s business.

Elango et al. (2010) addressed that different kind of social changes

pushes the British customers towards bulk shopping but in one-stop.
Tesco therefore concentrated on continuous evolving change and
increased the non-food item in its stores. Demographic changes leads on
value added services which increases cost of business. Nowadays
consumers are well aware of their health and their behaviour to consume
food is changing. So, Tesco changes its product mix and adapting the
demand of organic foods as more customers are turning health conscious
and are ready to pay a price for it. They are the first to allow their
customers to pay either in cheques or cash at the checkout.

Technology is one of the major factors for retailer Tesco which has
brought about revolution in its customers service, operations (Dess and
Lumpkin, 2009). Using of new technology increases customer satisfaction
because it is easy to shop than before and services are more convenient
and personalized. In Tesco stores there are many technologies like:
wireless service, intelligent scale, electronic self labelling, self-check-out
machine ,RFID, EPOS and EFTS which improved their efficiency in
distribution and business operation.

Collis (2010) added the environmental issue is a major concern in today’s

business operation. Being a food retailer, Tesco faces environmental
issues and being act as a corporate responsible organization. New
environmental act deals with product waste, minimum consumption of
sustainable resources and high tax charges on advertising. It directly
affected Tesco’s production and equation of their relationship both with
customers and suppliers. 

Government legislation and policies directly affected Tesco’s policy. Many

established brands threat Tesco high competition, competitive price and
product differentiation. Govt. set legislation against monopoly in this
sector through licensing and limitation of using raw materials (Mintel
report, 2014). Another instance is FRC forces to change current practices,
like demanding payment from suppliers or changing existing price without
prior notice (Mintel report, 2014). In order to follow pricing policy Tesco
offers its customer on deduction of petrol prices based on the purchase at
retail outlets.

2.2 Porter’s Generic strategy:

The retail space is crowded and hence to attract the customer segments
of all types Tesco is following the low cost leadership strategy. This is
happening by buying in volumes and redistributing it in the retail stores
which gives Tesco economies of scale in operations. It is also following the
differentiation strategy to stand out in terms of quality in product
offerings. So the Tesco own label range and organic range is a value add
for customers who have varied needs, and cherishes value. 
 

The aim of TESCO to be the number one retailer is in line with Walmart
agenda. Therefore it had identified the countries, and has gone ahead
with the globalisation approach. The domestic strategies were facing flak
as the profits were flat for the intense retail competition forced Tesco to
do diversification and cross sell the customer base. It also expanded
transnationally to demonstrate the global supply chain management
capabilities that it had helped to become a lean retailer in UK. This retail
supply chain innovation helped to differentiate and occupy the number
one slot for sales. 
Other than two strategies it can be revealed that the generic strategies in
Tesco’s business strategy which responses to the industry’s structure.
Tesco has a sustainable competitive advantage and they follow Porter’s
generic strategy of differentiation as the organic offering was one of the
first’s in UK, while to open TescoExpress is in keeping in line with the
customer convenience factor.
Cost leadership strategy is one by which Tesco can lower its cost and
operated in broader market with the lowest cost of their product and
service (Szymanski et al. 2009). Tesco has the ability to control their
operating cost and competitive pricing technology which helps them to
generate profit margins and significant competitive advantage. They have
also leverged it though the CRM where the Tesco clubcard is helping to
keep the loyalty factor to generate more profits and returning footfalls in
their stores. 
Tesco also offers service and products with unique features  which thrives
them to follow strategy of differentiation. Their approach to online
business TescoDirect helped to spell the convenience factor for doorstep
delivery which differentiated them from the other retailers. This was a
first mover advantage that helped the brand Tesco to reap the faith of the
brand loyalty and price inelasticity on buyers. Product offerings, new
technology, special features are popular approaches in this context.
The strategy of focus is either strategy of cost leadership or differentiation
targeted in focus market. In pursuing cost leadership Tesco aimed on
internal efficiency which helps them to manage external pressure. It is
reasonable for Tesco to interact frequently with govt. regulators and
suppliers of the environment. In accordance to this Tesco may choose
both of the strategies in wide market. They may offer specific product for
specific market or thin product line for overall market, thus pursuing
strategy of focus (Porter, 1980). In other words we may say that Tesco
follows strategy of cost leadership or differentiation either in a specific
market or with specific products. Other retailer may have  tried to follow
all three but is stuck in middle like the rivals (ASDA-Walmart, Sainsbury’s,
Morrisons, Safeway). Tesco have clear business strategy and clear market
segment which is helping them to grow phenomenally in the last two
decades.

2.3 Porter’s Five forces framework:

Threat of new entrants: [Very low] Threat of new entry depends on
the degree of competition. Sometimes we consider it as barriers to entry.
High barrier is good for the existing industry where new entrants need to
overcome it to exist in competition. In UK, grocery market is dominated
by some companies one of them is Tesco. Last 30 years grocery market
has been changed into supermarket business (Robinson et al. 2010).
Tesco is adopting this change because of its operation efficiency, one-stop
shopping and expenditure. It becomes difficult to compete with Tesco for
the newcomers. They need huge investment, advance technology and
huge competition from the existing brands. Other barrier is economies of
scale and differentiation in aggressive product and market operation.
Threat of substitutes: [High] Substitutes are those products which
offer same product or service in competitive prices. Substitute’s decreases
the present customer base of a particular company and managers often
keep their eye opened for the new competitors in industry. In grocery
industry threat of substitute is high and the threat is in the form of
product to product or competitive pricing technology. Tesco own label
product thus faces substitutes from  Asda-Walmart and Sainsbury’s which
is trying to be in the same business and also be present in the same retail
store format like Tesco Metro and Express stores in local cities (Caves,
2011).
Bargaining power of buyers: [High] Buyers or customers are the
essential part of any business. But sometimes companies face such a
huge bargaining power of the customer that it is difficult to fulfil their
needs and make profits from them. There are some kinds of buyers like:
concentrated buyer, low switching buyer and buyer competition threat
(Bukszar, 2009). Tesco’s famous ‘Club card’ strategy is the most
successful strategy to retain their customer. Tesco retains their customer
base by meeting the changing customer needs, through  low pricing, NPD,
good range of products, experiential customer service and promotion of
Tesco own label brands effectively.

Threats of suppliers: [Average] Suppliers supplies necessary things to

the organization to operate its business. It includes raw materials,
equipment, labor and finance. These factors increased their power to
bargain with the company. There are some situations arise where supplier
power is high: concentrated supplier, high switching cost, supplier
competition threat. Tesco and Asda offer better price to their supplier to
prevent the entry of new venture in this industry (Bradley, 2010). In
return the suppliers are also threatened for the new entry of supplier
because of the growing power of Tesco, who has the ability of creating
new supplier even outside the country. These affect the profit margins of
both, Tesco and its suppliers. The quality is an issue after Tesco
Horsemeat Scandal in 2013, was a indication of how outsourced food
items from EU turned out to be spurious, giving a bad name to the
retailer. 
Rivalry: [High] Competitive rivalry is the rivalry between the
organization of same industry and their targeting customer group is also
same. But they are not substitute of each other. Degree of rivalry
depending on these factors: competitor balance, industry growth rate,
high fixed cost, high exit barriers and low differentiation (Biggadike,
2010). These rivalry accelerated Tesco to increase the level of service and
new product invention to retain the market share. They also focused on
low price and also deliver value those who want it at attractive price
points by reinforcing added facilities of their services.

2.4 SWOT Analysis:

SWOT analysis summarizes key issue of business and capability of an

organization to impact on strategy development. SWOT analysis focuses
on future choices by which an organization is capable to follow strategies.
There are two main drawbacks in SWOT: long list of strength, weakness,
opportunity and threats, second one is danger of overgeneralization. In
case of Tesco their strengths are: increasing market share, Tesco online,
strong brand value. Weaknesses are: reliability on UK market, debt
reduction, and serial acquisition. Opportunities are: non-food retail, health
and beauty, international growth. Threats are: structural changes in UK
could lead a price war, overseas return may fall, Wall-Mart/Asda challenge
and international expansion (Barney, 2009). 

2.6 Value Chain Analysis:

The value chain analysis is what Tesco resorts to while executing a
particular strategy laid out. So the key to achieve the intended strategy is
through functions.

The TESCO infrastructure is segmented into different retail format types, its

warehousing and distribution centres that holds the key to an efficient retail

supply chain process. It has been able to reduce the order to delivery, that can

be described as the lean management, reducing wait times at every stage.

Employees are the biggest assets as they execute a strategy through activities
which comprises of interlinked

tasks.                                                                                                                                
 
 
 
 

Technology forms a large part of the Tesco inward looking strategy which
seeks to minimise waste, communicate faster, enable more visibility
within and stakeholders thereby helping to take surer decisions for
procurement of the goods. The inbound logistics is optimised with sorties,
tare used, fuel burnt which is a cost for Tesco as it wants to reduce it. The
operations of retail supply chain in Tesco is seeking efficiency and
replacing warehouses with DC ‘distribution centres’ has reduced the time
taken for order to delivery cycle. The marketing and sales for brand Tesco
is robust along with CRM which is helping customer bases to swell, to be
cross sold across verticals of Tesco, enabling customers more
opportunities to enjoy. The service is the single most important strategy
that is creating ripples in other internal functions. So to increase the
customer experiential index, reduced shopping time, home delivery
through TescoDirect requires the need to install self swiping machines,
 collect own online order from nearest Tesco store are strategies to
eliminate wait time in billing queues. Convenience for customer is the
word that is helping to align its internal functions to be streamlined using
the value chain mapping at each stage of the retail supply chain. 

3.Strategy Formulation:
The strategy formulation for the grocery major TESCO which diversified
into many diverse fields however is led by their 7 part strategy that is
guiding the brand. 

·         The aim is to grow and develop the core Tesco grocery business
·         To be equally strong in selling everything just like grocery
·         To be one of the most prominent international retailers
·         To be a highly esteemed brands
·         To develop retail services in all market segments
·         To create and add more value for customers
·         To contribute to society and industry for sustainability

These are some of the guiding principles which is helping TESCO to

consolidate and drive its business level strategies. The foray into the
digital platform like TESCO direct and the smaller format of Tesco Express
is an extension of the strategy to excel in the same business. Though
most of them are emergent strategy that is in sync with the customer
requirements over time, Tesco has timed them well to gain acceptance of
its brand. 
Mission of Tesco:
Tesco’s main mission is to make what matters better, together.

Vision of Tesco:
·         Rising business that speaks of prospects
·         Sought after and be undisputed in world
·         Inspirational in gaining the customer loyalty factor
·         Innovate, be modern
·         Winner in local market and global market as well. 
This permeates through the organisational culture, as the deliverables
speaks of customer value in everything Tesco does. 

3.1 Ansoff Matrix:

The Ansoff matrix provides four business alternatives in strategic
formulation. Here the author is describing the matrix:
                                                Products
                             Existing                          New
A B                    Existing
Product development
Market penetration
consolidation.

C D
Tesco was following
Market development Diversification Ansoff matrix aptly, with
their existing market and
product range they
penetrate their market.
They have a huge product
range and their market share is also good, so penetration was not at all a
problem for Tesco. If we consider box B, Tesco also follows this properly.
Whenever Tesco finds opportunity requires it develops new product to
capture its market. For example or organic food it develops due to the
change of habit of customer view for food products and they prefer one-
stop solution. Tesco also develop their market from outside UK and it has
tapped the emerging markets, and penetrate with  its grocery business in
selected countries in the world. New market development in TESCO
therefore helps them to make more competitive in business
(Szymanski et al. 2009). In case of diversification Tesco not only consider
it’s as a retail giant, but they also have diversified business wings, like,
petrol, gas, mobile to firm their footsteps in the UK market.

3.1BCG Matrix:
                   
Market share of Tesco helps them to evaluate if there are still a star which
is their aspirational goal. The grocery business is a cashcow based on
which it forayed into other segments to build its brand name.

Question mark                             

High                      Low
Market growth
High

Low
 
Tarplett et al. (2009) added
Tesco’s product range and
Star
diversified business policy
Cash cow Dogs
helps to nurture BCG matrix in different way, it actually presents in every
box of this matrix except the last one. As a retailer Tesco is star, but
whenever there is threat in its business it act as a cash cow to retain their
position. Developing business in new countries is the position of question
mark where chance of market growth is very high but market share is low
for the new entrant TESCO. For that they can invest huge, decide mode of
entry (JV, Franchisee, subsidiary) which is required in the question mark
position.

4.Strategy Implementation:
Implementation of strategy aims to organizing success through its
structure. There are three factors which lead to organization success:
structure, process and relationship (Elango et al. 2010). Successful
organization responds properly with key challenges. They manage stress,
adopted change, gain knowledge and move them towards
internationalisation. There are many structural types, viz. functional,
divisional, matrix and each type has its weakness and strengths (Cool and
Schendel, 2010). 
Tesco organizational culture has helped to implement strategy. Their
flexible environment helps to adopt change. Tesco employees can share
their culture and belief and it increases their loyalty and the performance
for Tesco and increased their ability to understand customer.
Decentralization of power increased employees’ participation and
flexibility in work. Tesco have a wider span of command which reduces
misunderstanding of employer employee relation and misrepresentation
of command (Barney, 2009).
Success of Tesco proves that decentralize, flexible and flat organisational
structure was important in retailing success where the levels were less
and communication was faster that was commensurate with the urgency
factor of customer centric retail supply chain management. It also helps
their long term strategy and grows stronger in future. The democratic
style management has helped Tesco to become a leader in retail market.
This shows that strategy linked changes were rolled out in Tesco that
helped to accept newer changes and easier method to link the operations
to each functionality. 
The board and the senior members review the market situation and
stakeholder analysis gives Tesco a clear picture of expectation of their
shareholders. It is also important in strategy implementation because
company is responsible to answer stakeholders about the implication of
strategy. Thus the corporate governance is responsible for Tesco
adherence to the capital expenditure for a cause and seek a ROI (return
on investment) which would be viable. 
Strategy framework or structuring is used to assess the business
situation. Tradeoff between risk and value proposes to add value and
reduce risks. Explicit strategic plan was required for Tesco to operate it
business in different countries.  Tesco took the generic strategies to
develop new market by creating new partners and diversified through
product development. Demographically high market opportunities like
Asian countries, China and Japan Tesco tried to enter there to generate
high revenue and market expansion. In its market expansion plan, Tesco
also joints hand with local retailers to operate in new market. By entering
into joint venture Tesco also acquire knowledge and expertise of its
partner and added its experience in supply chain, product development
and store operations. The above strategies thus show how the
organisational structure is changing as per the different Tesco strategic
initiatives in geographical segmentation of the world market. 

Bukszar (2009) argued that the success of partnership depends on

sustainability, acceptability and feasibility. New product development
(NPD) is also part of implementing of strategy for Tesco. The key
decisions that are taken at the corporate and board level are indicators
that strategic moves are centralised while the middle management is
entrusted to roll it out. The issue of the changing the systems, culture,
roles, and delivery systems is devised in order to meet the Tesco’s goals.
This is driven through the middle management order in Tesco down to the
last element in detailing, tested in dry run to check the efficacy of the
strategy implemented. 
Diversity of portfolio is also rationale in corporate strategy. This require
more engagement of R&D. In retailing industry innovative services and
products are consider major advantage in competition. Tesco winning
moves was to develope different portfolio, formats of stores for different
customer segments  in UK. While in Eastern Europe they develop different
store types for hypermarkets. The diverse stakeholders are important for
Tesco, but after the 2013 Horse meat scandal, it is been wary of all the
international imports in food and frozen segment. It rates the suppliers
and vendors for food and non food items on parameters that are a part of
the SLA (service level agreement). This helps to contain the risks that are
involved in procuring goods from outside that has the fear of quality and
quantity (packed) that is critical for the adherence to the weights and
standards of food quality. Thus the suppliers are important and do not
have much bargaining power as Tesco is increasingly focussing on the
British produce to reduce the order to delivery time, promote British
sustainability into the retail supply chain (agro). 
 Tesco also charges premium prices for its uniqueness of its strategy but
positions it as a customer value strategy through effective brand
communication. Technological invention also increased the market sharing
and profit earning as well. Competitive advantage is what the innovator
wants to achieve and how they manage the innovation. It does not imply
that they have all the capabilities but they have the capability to organize
and use capabilities of others to gain from business. Thus the business
level strategy is being regularly reviewed by senior and middle level
managers that are visible in the Tesco dashboard of KPI and KRA. It helps
the managers to contain the risk elements and take a firm decision that
spells success going forward.

5.Conclusion:
The strategic plan which Tesco applied in its business strategy operation
to expand from grocery to multiple lines of business is a remarkable
journey for growth. Tesco can evaluate its strategy by following goal
based evaluation which is a beneficial way to monitor the strategic
planning. The many strategies in place, Tesco show it is the king in
achieving what it dreams which makes the manner in which resources and
teams work in unison to reach the goals each day and each year. The
strategies are in place and interlinked that leads to the viability in terms
of the financial profits and the sustainability of business. In high
competitive retailing UK market, Tesco has timed its strategies at the
right time to adopt diversification to sustain in the market. The biggest
contributor is the human resource who adjusts to the different situations
and challenges, moulds to move ahead in Tesco. The strategy to lead the
market hence is a mix of structures and passion that is fuelling relentless
growth in Tesco leading position in retail market. Tesco always analyze its
strategy and focuses on its resources to convert them into distinctive
competence to get advantage in competition. It follows the more effective
strategy plans than its rivals.