Understanding Of The Business Operating Environment Commerce Essay

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A report to asses Tesco position in the market and to analyse and make recommendations so they can maintain the 'competitive edge'. It will outline Tesco's business operations and success to date and will help to promote the reputation and brand.

Procedures used to gather information for this report include:

Tesco website with information regarding them

Websites for theory

Books for theory.

3.0 Findings

Tesco Plc

In 1919 Mr Jack Cohen founded Tesco when he began to sell groceries from a stall in London. From then the company began to grow and in 1929 the first Tesco's store was opened in North London. The company boomed and in the early 60's took over a chain of 212 stores in the North of England alone. In 1974 Tesco opened it first petrol station and by 1979 annual sales reached £1 billion. As it grew through out the 80's and 90's it introduced many new things, including becoming a public limited company in 1983. "A public limited company (PLC) is a company that is able to offer its shares to the public. However they do not have to offer there shares to the public and are often used to perhaps show greater status." www.mn-group.com Other things they introduced include computerised checkouts, new stores, organic ranges, Tesco express, Tesco club card, 24 hour trading and even broke into markets overseas and opened stores there. In 2000 Tesco.com was launched leading them into a completely new area. Throughout the decade Tesco continues to cut prices and develop overseas including the United States where it has opened stores know as Fresh and Easy.

3.2 Objectives

A strategy was developed at Tesco which lead to objectives been set. This was in 1997 and shows to be working as "in fact we are now market leader in many of our markets outside the UK"www.teco.com. The objectives of the strategy include:

To be a successful international retailer.

To grow the core UK business.

To be as strong in non-food as in food.

To develop retailing services- such as Tesco personal finance, Telecoms and Tesco.com

To put community at the heart of what we do.

3.3Porters Five Forces

In competitive strategy (1980) Michael Porter outlined five major strategic forces facing an organisation. The ability of a company to make profits is determined by the way in which it deals with these factors.

Above is an example of Porters Five Forces Model. It deals with factors outside the industry that influence the nature of competition within it. "Understanding the nature of each of the forces gives organisations the necessary insight to enable them to formulate the appropriate strategies to be successful in there market." Thurlby B 1998.

Supplier power: Here you see how easy it is for suppliers to put up prices. This is by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are. Tesco could use this to there advantage as suppliers will want business due to the current recession so could get more offers which would allow them to offer cheaper to the customer.

Buyer power: This point deals with how easy it would be for buyers to drive down prices. It would include the number of buyers, the importance of the individual buyers to your company, the cost of them switching from your product to someone else's. For smaller companies with few but powerful buyers this would defiantly be cause for concern as they would have the buyer power. In terms of Tesco they should be watching buyer spending as they will be less likely to buy luxury items and more essentials so it will be important to keep prices low but competitive on essential items.

Competitive rivalry: What is important here is the number and capability of your competitors - if you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation. If suppliers and buyers don't get a good deal from you, they'll go elsewhere. On the other hand, if no-one else can do what you do, then you can often have tremendous strength. This will be important during the recession so Tesco need to watch what competitors are doing as so not to be under cut. Who are Tesco's rivals and how much power do they have in the market?

Threat of substitution: This is affected by the ability of your customers to find a different way of doing what you do - for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power. This is an unlikely scenario in the current climate effecting Tesco's.

Threat of new entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favourable position and take fair advantage of it. This would not affect Tesco at this point as new competitors would only be small and run a risk of failing in the current climate. It would cost a lot of money for new people to the market to develop like Tesco. Good


SWOT analysis looks at the internal issues that could affect Tesco.

Here is a SWOT analysis for Tesco:


Strong reputation in market.

Customer base

Store variety


Large capital expenditure

Negative media

Too much diversity


New markets

Strategic alliances

Growth due to competitiveness


Weakening economy


Raw material costs

You need to talk about some of these in relation to Tesco? So perhaps pick one from each box?

PESTLE deals with external issues affecting an organisation. It deals with things such as Political, Economical, Social, Technological, Legal, and Environmental.

Political issues contain the current 'credit crunch' which leads to higher rates of unemployment but will Tesco being such a large chain it will mean there are jobs available therefore it will help reduce unemployment. Also with Tesco being in markets abroad it may have to deal with many governments from there. The benefit of having a PESTLE analysis would be that Tesco will be kept up to date on issues for example with the environmental situation they would have seen in advance that we were heading for recession therefore could have planned ahead.

Economical factors can have large impacts especially on big companies. There could be fluctuations in the stock market or tax increases.

Social issues could include a change in fashions. "Sociological factors can vary from the impact of immigration to changes in fashions. New technologies have a great impact. For instance, online shopping has become a major factor in Tesco's recent success.

The changes caused by all the external impacts lead to many legal problems"


Any large organisation has an environmental impact therefore leading to issues. Tesco uses fossil fuel in its transport network and reducing this demand would be a major if not nearly impossible challenge.

Can you provide examples of when some of these PEST factors have had made it imperative for Tesco to change?

Business Models

The hard model of change deals with a practical approach to change dealing with processes and information systems only. It is used to deal with short term problems.

The soft model of change deals with more complex issues and changes the way people think and behave. It is usually used at the top level with managers.

The differences between hard and soft models of change:

Hard model

Soft model

Clear goals and objectives

Quantifiable data

Aims to solve problems

Analyst detached from situation

Control mechanisms are clear

Power is clear, known to work

Unitary view of organisation

Organisations as social entities

Goals need negotiation

Different perspectives

Power diffuse and frequently unknown

Analyst part of the situation

Aims to appreciate and improve problems

Consensus view/conflict view of organisation

The hard model will be useful to Tesco as it can fix them way things are done and are more easy to deal with as they are less complicated. In the current recession this could be an advantage as it would be of a lower cost to implement and can fix things in the short term while a long term plan is undertaken.

Lewin's model of change has three stages: "Unfreezing- awareness for change, disconfirmation of old ways of doing things.

Moving- making the actual change, includes the new development of strategies, structures and systems and shedding old ones.

Refreezing- stabilising the new changes, reinforce changes such as logos, dress, structure, making sure the organisation does not go backwards." www.bola.biz

This type of model could have been used for Tesco when they brought in the use of the self checkouts. As there was a need for change and development, the changes where made and the organisation moved forward with the developing technology. This is also linked to the hard model as is has deal with the system and process not the person and was a practical approach.

You need to use examples of when Tesco implemented change and how it relates to some of these theories? For example, due to recession and cheap interest rates Tesco have borrowed money cheaply to buy land and open express's everywhere, this can be considered a 'soft' change because they are completely changing their strategies and philosophy of Tesco.

4.0 Recommendations

The external environmental factors that are currently impacting Tesco could be over come by ensuring that all aspects of Porters five forces model are covered. Such as the buying behaviours of customers. With the current recession customers are less likely to buy luxury items and more likely to buy essentials. These are the items that Tesco should make sure are at a good price. It is important for Tesco to keep looking at buying behaviours and assessing what products are selling more than others. This should help to keep buying up and try to get the economy back to normal.

You need to recommend some changes that Tesco might be able to explore and relate how these changes might deal with some of the external factors