Strategic Management In Tesco Company Law Essay
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Strategic Management is one of the important concerns now days in the business world by adopting new concept to reach the goal. Strategy is refers as an approach to analyse the current position of the company to predict the potential position to reaching the goals. Strategy is extensive ongoing process to get the customers' needs and to fulfil them in an appropriate manner which should be beneficial for both the customer and the company. Strategy can decide the destiny of the organisation and help the organisation to get competitive advantage and continues innovation in product or service. (Johnson & Scholes, 1993)
This research includes Mintzbergs various schools of strategy, Whitttington School of strategy. It also includes various strategy models such as the SWOT analysis, Product lifecycle, porter's five forces and BCG Matrix.
Tesco - company overview
In 1929, Tesco was opened first store in Edgware, London. This study is based on UK's one of the biggest food and grocery retailers TESCO PLC. This company is operating more than 4000 stores in fourteen countries. Tesco is operating their major business in Europe, US and Asia. The headquartered of Tesco is in Hertfordshire. Tesco provides employment for around 472,000 employees within United Kingdom. According to a commercial survey of Tesco network, it was monitor that more than 960 express stores sell near around 7000 products including fresh foods and more than 400 superstores (Tesco extra) trading both food and non-food products as well as electronics and glossaries, 170 Tesco metro sell good quality of foods on high streets and town centres. Online retailing, broadband connection and financial service provided by Tesco.
Though there is no single universal definition for strategy, according to James Brian Quinn, "the pattern or plan that integrates an organizations major goals, policies, and action sequences into a cohesive whole. A well formulated strategy helps to marshal and allocate an organization's resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment, and contingent moves by intelligent opponents" (Mintzberg, Henry and James, 1992)
Mainly Strategies are shaped and designed for the whole organization by senior managers; therefore administrating strategy should start from the top to bottom. Effective strategies involve discussion and communication. Strategic management focuses on integrating managerial abilities and techniques such as; marketing, financial/accounting, human resource management, production management, research development to achieve organizational success (David 1995). Organizations should be able to sustain competitive advantage in a discrete and identifiable market, It is the way a company creates value through the configuration and co ordination of its multimarket activities. When all these are carefully managed then the organization is able to achieve its competitive or corporate advantage. Corporate strategy involves the following; vision which is the ambitious aspiration of a company, Goals and Objectives; short and medium-term quantitative targets, resource; these are skills assets and capabilities of the firm, business; this is the industry by which the firm operates, Structure; the way the corporation is divided into discrete units Systems; set of formal policies and routine and Processes; informal elements of the organizational activities. (Bower, 1970) Corporate Advantage results from a harmonious combination of the above elements which work together to create value of the company.
School of Strategy:
There are so many different ways to study Strategic Management; one of the methods of study strategic management is distinguish into School of thought which is resourceful method of teaching and learning strategic management. Mintzberg et al (1998) introduce ten schools of thoughts and he classifies two types of schools: first of all in 1970s - 80s Mintzberg introduce prescriptive school and secondly, Descriptive school, which has been adopted by companies over the last two decades.
Design School: Refers to strategy as a conception process
Planning school: this school distinguish as a formal process of planning
Positioning school: Sees strategy formation as an Analytical process.
Entrepreneurial school: Considers strategy as a Visionary process.
Cognitive School: refers a as Mental process of strategy formation
Learning School: This school is known as an Emergent process of strategy formation
Power School: refers as a Negotiation process.
Cultural School: This school distinguished as a Collective process.
Environmental School: This school is known as a Reactive process.
Configuration School: This school is known as a Transformation process.
From among all schools, Tesco has adopted three major schools viz. the Planning School, the Cultural School and the Positioning School.
The Planning School
Mintzberg argues that planning school is a Formal process or Systematic process, which refers to step by step process which accelerators the forward movement of the organization. This school is the division of prescriptive school. The one of the essential factor of this school is Budgeting. The emphasis is on about future organisational predictions and planning in stable environment to formalise qualitative information. (Mintzberg, 1998)
So the question is how Tesco became so much successful in these years and what was the planning school methodology of this company? Tesco has researched market, products and been able to understand consumer buying behaviour and implemented it on to the market which was the main agenda of its growth, for example Japan countries leverage their electronic products to the world market and gain the advantage to be known globally.
This school also follows the SWOT analysis model that distinguished opportunities and weakness. SWOT model was applied which gave the details of their strength like brand's image, domestic network as well as their weakness like lake global scale to help them to find solution of the problem and to have a good future. Tesco realized that the market of Asia and Europe will bring great opportunities for the company. Currently, threats for Tesco are; entry of Wall mart into the market and the expansion of local Sainsbury.
In this way Tesco uses the planning school to predict the future about new products and new markets. Tesco also using the planning school to reach their goal and objective by managing their budgeting and programme.
By using this model company might face some challenges like planner should focus more effectively while generating new strategy or new strategic concept. According to Sadler (2003) it is very risky for the planner to implement the concept or generate new strategies, which might be failing in the market of real world.
The Cultural School
This school is the division of the descriptive schools which is distinguishes as collective process and cooperative process of strategy. The cultural school approach socially interrelate the employees within the company. The purpose of using this approach is during the strategy formation and in the decision making, it plays crucial roles.
The Positioning School
In 1980's Michael porter has introduced the positioning school. The position school is known as an analytical process of strategy formation. According to Sun Tzu, one has to be there to know what happening there. For example, Army cannot fight the war from sitting at home; the solders have to be in battle field to fight and know what to do next and how to win in the war. Same as in business point of view, company has to be in the market to assess current situation, which helps to build strategy. The positioning school focuses on porter's 5 forces and value chain analysis. This models helps the organization to analysis the current situation of the market and based on these analysis build the appropriate strategy. (Gerlad. A, 2001)
Micheal porter (1985) argues that company only can gain competitive advantage in the market by their strengths. Porter was also distinguishing three generic strategies which are cost leadership, differentiation, and focus. Among these strategies Tesco used cost leadership strategy to compete their core competitor ASDA. Cost leadership means that in specific industry the company giving the lowest price in the market.
Richard Whittington's theories of strategy:
Richard Whittington states that, basically 4 main strategies which are Classical, Processual, Evolutionary and Systemic. The classical approach is developed in 1960s which is very reasonable approach and in this approach planning plays vital role. In classical approach Michael Porter's five forces model can be useful tool to analyse large industry and helpful to gain competitive advantage. By classical approach, good business planning is also essential to control the internal factor and external environmental factor. Second approach was developed in 1970s which call processual (future oriented) approach. This approach was focussed on internal politics and perception. In 1980s the third approach developed by Whittington Evolutionary which is rational and future oriented approach. This strategy is mainly focus on the external environment. This approach is letting the company to keep the cost as low as possible and keep open all available options. And the systemic approach is developed in 1980s. Systemic approach is social process which focuses on external (society) factors. There is not a specific way of strategy, its play by the social rules.
By Whittington's strategy theory, it is very straightforward that Tesco using Evolutionary strategy. Tesco always keep their cost low, giving open option to the customer and high promotion which increase the company's sales. Tesco always try to give lower price to the customer as compare to their competitor Asda, Sainsbury and Morrison. Recently, Tesco has announced a new promotion strategy which is called 'price check' in store or online. Tesco is challenging to the customer that they are giving cheapest price than others and if a customer finds same product's price lower than Tesco; then Tesco would pay double amount of the marked price. In this way, by using this strategy there is big opportunity for Tesco to get success not only in Europe but also in Asian countries.
One of the most challenges for the management of the global business today is to take right decision on the right time. This part helps to build global strategy for Tesco PLC. This part will give the information about SWOT analysis of Tesco, PEST analysis of Tesco and five force analysis of Tesco. This research assists the management to make right decision and lead the company to the global success.
6.1 SWOT Analysis of Tesco:
Diversified and value orientated business model
obtaining growth in non-food categories
Integrated retail services offer unique competitive advantage
High capital demanding model in the central Europe
High retail sales growth in Asian countries gives long term opportunity
Growth of small companies can affect retail sales of Tesco.
Diversified and value orientated business model
Tesco comes in one of the top retailer in this world and its aim is to make a business model icon in the coming years. Along with the vast diversity of new geographies, new products and services Tesco is building good business strategy for the future. According to Datamonitor survey which was held in 2000, implies that the global GDP was 8% which is now increased to 53%. The company is trying to be a value oriented company which will look after customers and their benefits. Tesco lunched Double Points system in club card by using this promotional tool customers earn more than £500m in club card voucher around the nationwide. By using this double point's promotional tool, Tesco inspired high number of customer to sign up Tesco club card which increase the sales.
Obtaining growth in non-food categories:
Tesco was able to achieve success on attacking new products into market competitively. It's presence was strongly established in the market and it has been expanding the market share effectively throughout all the categories. The company satisfied a wide range of customers helping them to choose the electrical products in the presence of more than 1000 Tesco tech supporters.
Integrated retail services offer unique competitive advantage
More emphasis was given on retailing services to increment the sales. Online retailing, banking, market research, telecom services are given by Tesco. Each of these services deals with core retail operation. By retailing services the company changes its patterns according to the customer's needs which are a big advantage for the company to get the opportunity for cross sell. The company's service fulfils the integrated expectations of the customers.
High capital demanding model is operated by Tesco in Central Europe which is one of its main disadvanges as compared to the other competitors like Biedronka in Poland, Lidl and Kaufland in several markets or BIM in Turkey. A decline of return on investment capital for the any concern is affecting the company. Some other competitors of Tesco like Biedronka, BIM are capable to gain high return on investment capital even in recession period.
During the financial instability period, among the main four retailers in UK; Tesco loose 0.2% to 30.9% share. In other hand Morrison gain the share from 12.6% to 14.5%. Then Tesco was unable to gain the lost share which was not good for the company.
Asians countries like India and china have very high growth rate. If Tesco jump in Asian retail market, the company have big opportunity to become global market leader. According to Datamonitor survey, china increase retail sales 17.9%. In the first quarter of the 2010 retail sales of china is CNY 2.5 trillion ($366.9 billion). In other hand Indian retail industry as well growing rapidly. In 2010, according retail industry survey, the first quarter of the year retail sales was INR 16.3 trillion ($353 billion). And it is INR 25 trillion ($543.2 billion) by 2014. By this research represent that, Tesco has a big opportunity to expand their business in Asian county and the company can grow to be the global market leader of retail industry. (Datamonitor, 2010)
It is expected that the UK retail market will go through low growth rate in coming terms. It is estimated that the company will have a marginal growth of 1.3% in 2011. A contraction of 1.8% may occur in non food retailing in the first quarter of 2011 and towards the last quarter of the same year it will return the positive growth. There will be a growth up to 3% and this prediction may continue till 2013. It is not only concern that the company will go through low growth, shrink revenues but also different small companies will come to the playground to compete Tesco and there might be a market growth for these small companies which can have an impact on the sales market of Tesco. (Datamonitor, 2010)
6.2 Product Life Cycle
All the products and services have certain life cycle which start from the product introduced into the market until the product taking out from the market. The main goal of the company to introduce new product is increase the profits. The considerate of Product's life cycle, organization can know which one is the best time to launch new product and take out from the market. PLC is very essential tool to identify the current position of product compare to others. Product life cycle is also helps to identify the product's success or fail into the market.
The expansion of the Tesco is very high in the global market that increases very strong competition in the global market. Tesco is investing high amount of money to develop new products and services to fulfil the needs of the customers. Tesco is one of the biggest grocery retailers in the UK, which also sales non food items online and in store. In this way, Tesco is launching the new products, services and selling non food categories includes clothing, electronics and household goods to their existing customer to enter into the new market. Tesco was jump in the banking sector by introducing the Tesco Finance and Tesco insurance. Tesco also doing catalogue shopping service which call Tesco direct to compete the Argos. In this way Tesco keep finding the new areas of business and getting entry into the new market on the right time.
The main challenge for PLC concept is that it is not appropriate tool to forecasting the sales of the products. Daniels (2007) argues that fast innovative products have very short life cycle, so companies facing problem to reducing cost in global market. The retail giant Tesco as well planning to enter into the Asian market, in this case Tesco challenges their competitors by reducing cost.
6.3 Porter's 5 Forces Analysis of Tesco:
Michael porter states that, 5 forces analysis is very important tool to find out the comparative advantage in the industry. This model describes the external environmental factor and determined structure of the industry. Therefore the following research on Tesco is based on Michael Porter's 5 forces model which helps the company to get competitive advantage in the competitive environment.
Potential Threats of substitute
The threats of substitutes are very high in the electronic items and clothes. On the other hand, the threats of substitute are low in the food items. The substitutes for the Tesco in food retailing are smaller grocery stores and smaller corner shops on the streets. But according to Financial times (2009), it is not threat for the big supermarket like Tesco because Tesco can sale good quality products in cheaper price. In contrast, Tesco clothing retailing has high threat of substitutes.
Threats of new entrance:
According to the Mintel survey (2009), 80% of population in the UK are buying their grocery stuff from the Tesco, Asda, Sainsbury's, and Morrisions. Therefore there are high barriers for the new companies to get entry in the food retaining business. The companies like Tesco and other supermarket have strong brand image and they can buy high volume of stuff from the supplier and can sale in the competitive price. In this case, new company needs big amount of investments to build brand image and become competitive with other supermarket. Tesco has a strong competition with the Asda, Sainsbury's and Morrisions.
Pressure of Rivalry:
The food retail industry has got extreme competition. Tesco is always giving high promotion on online and in store to compete with other supermarkets. Now a days this competition not only nationwide it became a global competition. Major players like wall mart trying so hard to capture big market share. According to Keynote survey, during the recession period Aldi and Lidl took over the 25% market share in the rural area.
Potential Bargaining power of buyers
Generally potential bargaining power of the buyer is fairly higher. It means buyer power force the company to keep their price down. Tesco and other retailers have some disciplined approach to decide the price of product. This approach helps the supermarkets in price war. Therefore Tesco giving online grocery shopping option with the free home delivery where customer can easily compare the price and more attract to shop in Tesco.
Possible Bargaining power of suppliers
The potential bargaining power of supplier is quite lower. However, suppliers have an option to sale their product between other supermarket chains. It means supplier have high bargaining power but Tesco handling this situation very intelligently. Tesco never depend upon only one supplier, in this way Tesco negotiate with the number of suppliers and paying the lowest price to chosen supplier.
6.4 BCG Matrix
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