Strategic Management: Market dominance by Tesco
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Strategic Management is one of the important concerns now a day in the business world with using new ideas, and reaching the goals. Strategy is refers the simple way to analyze the current situation of organization predict the future situation with confidence and achieving the goals. Actually it is more than that which provides the systematic way for identifying and evaluating factors external to the firm and fixing them with the organization's abilities. Strategy is long ongoing process over a long period of time to get the customers' needs and to fulfil them in a appropriate manner which should be beneficial for both the customer and the company. Strategy can decide the destiny of the company and help the company to gain competitive advantage and continues innovation in product or service. (Johnson & Scholes, 1993)
Tesco - company overview
Tesco was opened in 1919 and first store was started in Edgware, London 1929. This research is based on supermarket TESCO PLC. Tesco ("the company") is one of UK's leading food and grocery retailers. They operate around 4,331 stores in 14 countries. Tesco operates in Europe, US and Asia. The headquartered of Tesco is in Hertfordshire, UK. Tesco is one of the biggest employers in the UK, around 472,000 employees working for the Tesco. 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 450 superstores trade 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.
The Design School - This school sees strategy as a process of conception
The Planning school - Refers to strategy as a formal process of planning
The Positioning school - Sees strategy as an analytical process.
The Entrepreneurial school - Considers strategy formulation as a visionary process
The Cognitive School- This school is known as mental process of strategy formation
The Learning School- This school is known as an emergent process of strategy formation
The Power School-This school is known as a process of negotiation
The Cultural School- This school distinguished as a collective process
The Environmental School -This school is known as a reactive process of strategy formation.
The Configuration School - This school is known as a process of transformation.
The Planning School
According to Mintzberg planning school is a formal process or systematic process, which refers to step by step process which accelerators the forward movement of the organization. The planning school is the part of prescriptive school. Budgeting is one of the most important factors of these schools. The focused is on what will happen in organization in the future prediction of the organization while it ignores that successful planning is possible in a stable environment which makes it difficult for organizations to obtain 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 research the market, the products and the needs of the customer and implemented it on the market which was the main agenda of its growth, for example in Japan people like to buy fresh food daily. So thus Tesco made globalization and they opened in many countries to sell their products and like this Tesco settle in the global market.
The planning school also follows the SWOT model which refers to weakness as well as external opportunities. SWOT model was applied which gave the details of their strength such as brand's name, national store network as well as their weakness like lake global scale to help them find the way to fix the problem and to have a good future. Tesco realized that the market of Asia and Europe will bring great opportunities for the company. And the threat of the Tesco market is one of the main reasons for entry of Wall mart into the market and the expansion of local Sainsbury.
In this way Tesco using the planning school to predict the future about the new product and new market. Tesco also using the planning school to reach their goal and objective by managing their budgeting and programme.
The Cultural School
The cultural school is the part of the descriptive schools which is distinguishes as collective process and cooperative process of strategy.
The Positioning School
In 1980's Michael porter introduce the positioning school. The position school is known as an analytical process of strategy formation. According 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 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, Sun Tzu the art for managers; 50 strategic rules)
Whittington's theories of strategy:
According to Richard Whittington, there are basically four types of 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 Porter's five forces model can be useful tool to analysing large industry and helpful to gain competitive advantage. By classical approach, good business planning is as well essential to control the internal factor and external environmental factor. Second approach is developed in 1970s which call processual (future oriented) approach. This approach is focus on internal politics and perception. In 1980s the third approach develop by Whittington is 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. Now a days Tesco using new promotion strategy which call 'price check' in store or online. Tesco is challenging to the customer that they are giving cheapest price than others and if u found any of competitor giving same product in cheaper price than Tesco so Tesco will give double amount of the difference. 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 gives 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 care about the customers and benefits the customers. Tesco lunched Double Points by which let the customers to earn £550 million in total in club card vouchers. Double Points has encouraged more customers to sign up for the Club card, which is now used with a higher proportion of transactions.
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 is 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 recession period, among the main four retailer in UK Tesco lost 0.2% to 30.9% share. In other hand Morrision 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 become the global market leader of the 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)
3 Porter's Five Forces Analysis of Tesco
According to porter, five 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 porter's five forces model which helps the company to gain competitive advantage in the competitive environment.
Threat of substitute products and services
The threat of substitutes is very high in the non food items especially in the electronic items and clothes. On the other hand, the threat of substitute is low in the food items. The substitutes for the Tesco in food retaining 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.
Threat of entry 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 it is very high barriers for the new companies to enter in the food retaining business. 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
Intensity of competitive rivalry
The rivalry between existing competitors is very high in the food retail industry. . 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.
Bargaining power of buyers
Generally bargaining power of the buyer is quite 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.
Bargaining power of suppliers
The bargaining power of supplier is quite lower. In the real market suppliers have a option 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.
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