Organization does not exist in null or void environment. Organization exist in a dynamic and everchanging environment of its own world. There are many variables that operate within an organisations environment that have a direct or indirect influence on their strategy. A successful organisation is one which understands and can anticipate and take advantage of changes within their environment.
An organisations operating environment can be analysed by looking at:
External forces (those factors that an organisation has no control over),
Internal forces (factors that an organisation has direct control over)
Organization when affected, it adversely affects the employees and the work itself along with working procedures. The external environment of an organisation can be analysed by conducting a P.E.S.T analysis. A PEST analysis is a business measurement tool. This is a simple analysis of an organisation Political, Economical, Social and Technological environment.
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Political relates to what is happening politically with regards to tax policies employment laws, trade restrictions, tariffs. Political includes ecological/environmental issues, current legislation home market, future legislation, international legislation, regulatory bodies and processes, government policies, government term and change, trading policies, funding, grants and initiatives, home market lobbying/pressure groups, international pressure groups, wars and conflicts.(http://www.businessballs.com/pestanalysisfreetemplate.htmhttp://nht-2.extreme-dm.com/n2.g?login=bballs&url=http%3A//www.businessballs.com/pestanalysisfreetemplate.htm&pv=&jv=y&j=y&srw=1366&srb=32&l=http%3A//uk.ask.com/web%3Fq%3DBusiness+Pest+Analysis%26qsrc%3D6%26o%3D312%26l%3Ddir%26siteid%3D, 9th dec. 2009, 11.57am)
Economic conditions affect how easy or how difficult it is to be successful and profitable at any time because they affect both capital availability and cost, and demand (Thompson, 2002). All businesses are affected by economical factors nationally and globally.
The sociocultural environment encapsulates demand and tastes, which vary with fashion and disposable income, and general changes can again provide both opportunities and threats for particular companies (Thompson, 2002; Pearce and Robinson, 2005).
Technology is widely recognised by various literature on strategic management (Capron and Glazer, 1987; Johnson and Scholes, 1993; Jan, 2002), as part of the organization and the industry part of the model as it is used for the creation of competitive advantage. Changes in technology is changing the way business operates.
All the factors mentioned above generate advantages as well as poses disadvantages. They also bring positive aspects where firm can excel and adversely brings risks as well. Kotler (1998) claims that PEST analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. The use of PEST analysis can be seen effective for business and strategic planning, marketing planning, business and product development and research reports.
Company Profile and Structure:
Tesco is known as one of the biggest food as well as largest non-food retailers in the world. Tesco is operating around 4,331 stores and has over 470,000 employees in 14 countries. To create new opportunities and convenience of the consumers Tesco is leading the way in both internet i.e. Tesco.com and in-store catalogues. Tesco has group sales of £59.4 billions in the world, among which £41.56 millions sales inside the UK. Tesco is going to operate in India very soon, as a cash and carry. Tesco has 2,86,394 staffs and 2306 stores in UK and 13,764 staffs and 116 stores in Ireland. Overall, Tesco is making 5.5% group profit before tax per year.
Discussion of Issue:
The report would focus on the analysis of the organization (TescoPLC) in detail using tools such as PEST analysis. A breif dicussion of Porters 5 forces and anlaysis of competiton within the industry will also be presented in the report.
Tesco being a global supermarket has its own success story. However, like every other organization it tackles with issues day in day out. Using the PEST analysis we can determine the underline issues within Tesco internally and externally. Issues such as how these forces shape Tescos strategies, products and its finances can be drawn.
The recent Tesco store open in China can be taken as political example. In contrast to UK, which is democratic politically stable with firm and well practiced trading policies, China which is communist, close doors to public and less interactions with other countries having far less trading policies which are yet to be well rehaired. Hence, Tesco would be operating in China would be different to UK or european countries. Therefore, it would also affect its profit revenue, product lines, promotion stratigies and alltogether functioning of Tesco.
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UK is the largest sales region for Tesco (£41.5bn), asof 2008/09, annual report 2008/09. Uk was hit by recession and affect of global recession hence hindering the economical growth globally. Uk has been still suffering from the recession asof trying to come off it. Tesco ever seems the recessions has launched numerous sales schemes, such as half prices, buy one get one free, subsidised deals, comparative competitor marketing. Supermarket chain Tesco reported pre tax profits of £31.3 billions which is 10% increase than that of previous year(www.news.bbc.co.uk/1/hi/business/8009513) asof April 2009. This was also recorded as highest profit for a UK retailor. Hence, economic affects can be seen in Tesco from the above example.
Alongside the grocery sales which on itself is a social factor, Tesco has dieversified into cash and electric, travel, money transfer, gas stations along with huge range of house hold and electronic goods in UK. Tesco club card can be taken as an example for social interactions between Tesco and its customers. The data pool generated from the club card schemes such as income bracked, age, sex, spending power gives Tesco an edge to how approach customers using the data. The launch of organic products as well as eco friendly products can be read as a social responsibility bags is another social change from Tesco to its customers.
The use of catalog Tesco direct and Tesco website can be taken as a example of technological change. As per Tesco.com.Growth and returns, Laura wade-Gery, CEO Tesco.com, 19-20 November 2009. Tesco.com was the top 5 most visited retail website having 3.4 millions weekly visitors. Catalog distribution of 6 millions copies twice a year generate 475,000 orders a week. Again using Tesco club card as an example, technologically its use not only probides vitgal information of customers, it shows the sales flow. Tesco from being a physical store has changed to the ever growing online business. The online technological change not only boots its sales but minimizes stores space, employees and cost. Hence, the online technological advancement can be seen as a boom for Tesco.
One of the major issues with Tescos in UK recently was about the chicken and eggs being sold by it. According to GMcColl who produced a report on this issue maintioned that Tescos had to cut approximetly 27% of its own brands due to eggs produced from caged chicken. Hence, Tesco Uk declaired that it had applied for the planning permission to create 30 rent allotment spaces on land in Lancashire, England. This issue shows how the social forces shape the company strategies. The immense pressure from the customers trying to buy better quality of chicken and eggs, introduced the organic range which would cost slightly more than such caged products.
The Fairtrade bananas at Tesco is an example of political force affecting the business. The use of fairtrade products suppose the government policy to entertain such products which have been produced and traded in a fair means but giving the labour as a fair wage and treatment.
Hence, such examples does suggest the political, economical, social and technological factors plays a major role in shaping the organization's strategy performance, products and services and its finances.
Companies recognize competition both internally and externally. The competition between employees or internal competition benefits the company. The internal competiton between employees includes commissions, bonuses, sales contests and other systems which give reward for a few top performers. Competition occurs when two or more organizations vie for a common objectives or a common set of limited resources.
Porters 5 Forces of Competition
In 1980, Michael E. Porter has defined about five competition forces in his book ''Competitive Strategy: Techniques for Analyzing Industries and Competitors". According to this model, in the external environment corporate strategy should meet opportunities as well as threates. The main intensity of these forces of competition deternines profitibility and attrativeness of an industry. The management of an industry could make decision of how to influence the particular characteristics of their industry.
When putting Tesco under the microscope of this theory it shows on interesting outcome. In the light of threat of new intrance Tesco would not possibly be affected by this factor. With regards to bargaining power of the suppliers, Tesco ranges endless products from across the globe. The products classified as basic and Tesco's finest alongwith other brands, the suppliers would not have as much of a bargaining power. The subsitute to such products and suppliers as being abandont would make Tesco stronger outlet. However, on the customers side Tesco values its customers highly. The club card schemes is used also to determine customer loyalty. Hence, Tesco can afford to spend more time and money on such loyal customrs. Tesco advert tagline; 'Every little helps' suggest the value it offers the customer alosngside puts a frame in the customer's mind as Tesco being a customer based retailer. The threats of subsitutes can possibely be regarded as local green grasses, bakers, butchers, dairy, pubs, electical stores, corner shops, news agents. Howerver Tesco has be acused of pushing over such local shops into further non-existance by providing for more cheaper products than them and also providing it under the same roof. Tesco has also being able to transform such local produces into its suppliers.
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Finally, the competition within the retail industry perhaps is the greatest threat to Tescos. The riavals of Tesco's are supermarkets: sainsburys', ASDA, Morrissons, willkinsons, M&S, Waitrose, Iceland, Summerfield pose a grater therat.
Tesco is possitively achieving competitive adantages by differentiating its products and services and through low cost. Tesco is applying strength of cost leadership strategy by producing different home products or Tesco products such as: Tesco noodles, Tesco-cola, chips and many more to take opportunities to attract customers. Tesco charges low price for its home products. Tesco is trying to reduce its weaknesses and doing different and unique to attract customers and to compete with the competitiors such as advertisements, new schemes of clubcard through new technologies to remove threats. While Tesco need to open new branches it focuses in those market areas where there is the least amount of competitors in order to be on safe side.
In conclusion, PEST analysis is useful strategic tool for understanding risk associated with market growth or decline, business position, potential and directions for individual business or organization. By applying PEST and SWOT analysis Tesco is getting excellent results among its competitors. Eventhough Tesco charge low to its home product, they are earning higher profits in compete to its commetitiors. Tesco was only biggest food retailor before but it is now non-food retailor too. Tesco has developed different new schemes to attract the customers and to run with its competitors through various technologies and Porers 5 forces of competition. Infact, it is true that Tesco is known as one of the topper retailor inside the UK and very well konwn in many countries in the world.
- Capron and Glazer, 1987; Johnson and Scholes, 1993; Jan, 2002