Tesco is a British multinational company that trades in general merchandise and grocery. Currently, the international business has its headquarters in Garden City, London. Tesco has a history that dates back to early 1919 when Jack Cohen, the founder, officially registered it under the United Kingdom Companies Act. Initially, the organisation had specialised in the food and drink industry, but it has expanded its operations to other sectors of the economy. In this regard, Tesco’s diversification business strategies have seen the company venture into health products, telecoms, financial services, and electronics. Based on profitability, Tesco Company is currently ranked as the second largest retail business across the globe. It is also the most significant British retailer in the European countries based on the domestic market share and sales volume. Over the last five years, the organisation’s annual profits have exceeded £3 billion.
Tesco’s Business Strategies
Tesco has significantly focused on implementing business strategies that give it a competitive advantage over its rivals in the industry. The organisation’s objective, in this regard, is to shape a positive brand reputation besides gaining the stakeholder trust. The business strategies implemented in Tesco Company are associated with the motto “Every Little Helps.” Firstly, Tesco has implemented cost leadership business strategy to benefit from the economies of scale. The primary factors that drive this aspect are the size of the organisation, the level of production, and efficiency of operations. These elements enable the organisation to sale the maximum quantity of products through economies of scale. As such, a vast range of activities is beneficial to a company since it lowers the operating costs, and, consequently, the profitability (Palmer, 2005, pp. 27).
Secondly, experimentation has remained Tesco’s critical business strategy for decades. The business entity, in this case, experiments various business models to ascertain its viability in the market. This business approach has dramatically changed the landscape of operations in the organisation, especially about diversification and internationalisation. For instance, the retailer experimented and implemented a 24-hour shopping experience. Eventually, Tesco emerged as the first organisation to achieve the above business strategy in the United Kingdom. The company currently has thousands of clicks and collect points in its European markets (Tesco, 2019). This aspect is successful, and, therefore, it is a source of competitive advantage for the organisation. The management has also implemented strategies and initiatives that enable the organisation to achieve its strategic goals and objectives. One of these aspects is the restructuring of corporate programs and financial disciplines. The management has also been focusing on the availability of products alongside their pricing mechanism.
The third business strategy is diversification of operations as an approach to distributing risks. This aspect explains why Tesco Company is currently operating under its initial two-tier expansion strategies. On one side, the organisation has ventured into the non-food sector, especially in the United Kingdom market. The principal products under this segment are telecommunications, pharmacy, and financial services. Targeted marketing and competitive pricing mechanism have remained Tesco’s strategy to maintain the home market. It has also enabled the organisation to exploit business opportunities in other market shares outside the UK. On the other side, Tesco has maintained its grocery market through collaboration and strategic alliances with other organisations in the European markets. For instance, Tesco has partnered with Royal Bank of Scotland. The approach has shaped expansion strategies considering that the partner provides Tesco with financial services in its general stores.
Analysis of the Organizations Competitive Environment
Several aspects in the industry directly impact on the operations and competitiveness of Tesco Company. These factors are both within the internal and external environments. Porter’s Five Forces is a business analysis tool that gives insights into the competitive environment of an organisation. The critical aspects of Porter’s Five Forces model are “the threats of substitution and that of the new entry, competitive rivalry, bargaining power of the suppliers, and that of the suppliers” (Poole, Clarke, and Clarke, 2016, pp.644). The competitive environment, in this regard, determines the capability of the organisation to establish itself in the industry besides shaping its competitive advantage.
Threats of Substitute Products: Tesco Company can potentially establish a competitive advantage considering that there is a low threat of substitute products. In this case, the grocery retail in the United Kingdom is deemed to be stable. This aspect implies that the already established organisations can significantly benefit from trading in quality products. The threat of substitute products and services for non-food products is medium to high and low for the food items. A small chain of convenience stores provides major substitute products in the food and retail market. The other sources of food substitutes are organic shops and off-licensed stores across the UK. These groups are not a threat to the Tesco owing to its high-quality products.
Tesco also trades in large scale products and services. Therefore, this aspect implies that the company uses lower pricing mechanism than small chain retailers in the industry. However, clothing and the non-food segment is facing high threats of substitute products. Tesco, in this regard, can potentially overcome the threat from speciality shops. The company offers discounted products that attract more customers, especially the fact that brink of recession prevails in the European economies. As such, customers are easily attracted to affordable commodities in Tesco.
Threats of New Entrants: Tesco enjoys a low risk of new competitors to food retail and merchandise industry. Huge capital investment is the primary barrier that prevents new companies from investing in the industry. It requires substantial investment for new competitors to establish their brand name since already-established companies have significant control in the market. These organisations are Sainsbury’s, Morrison’s ASDA, and Lidl, to mention a few. The brands have captured a substantial proportion of the market share through competitive business strategies that attract customers. These organisations, according to Poole, Clarke, and Clarke (2016, pp.644) accounts for up to 80% of the market share. Accordingly, new entrants have to offer their products at a meagre price while considering the quality. These aspects are essential since they enable an entrant to establish market values.
The intensity of Competitive Rivalry: There is an extremely high competition in the food and grocery retail industry. At the moment, Tesco is experiencing aggressive competition from its direct competitors that offer high-end products that are priced at relatively low prices. The competitors such as Waitrose, Morrison’s, ASDA, and Sainsbury’s are threats to Tesco Company. These organisations are competing with each other to control the market through promotions, pricing mechanism, and the quality of products. ASDA gives Tesco an intense competition in the grocery and retail segment. However, the recent trends show that Lidl and Morrison’s are gradually taking control of a significant market share. This aspect is a threat since it is menacing the leadership position of Tesco in the industry.
Diagram 1: The market share of Tesco Company
Bargaining Power of Buyers: This aspect of Porter’s Five Forces Model is relatively high in the grocery and merchandise industry for Tesco Company. Buyers tend to switch from one brand to another where products have a slight differentiation. It also applies to the products that are more standardised since buyers have low switching costs. In this regard, it is argued that customers tend to go for products that have low prices. Tesco and its competitors have implemented effective information technologies that enable their customers to compare the costs of their selected commodities.
Bargaining Power of Suppliers: This aspect is relatively low for the company and the entire industry. Suppliers, in this context, are attracted and inclined towards organisations that have a significant market share in the industry. The threat is losing underlying business contracts with prominent organisations such as Tesco and ASDA. As such, the position of Tesco and other significant retailers give them an advantage considering that they can negotiate with their suppliers. This aspect suggests that Tesco has positive negotiations with its suppliers as a strategy to acquire grocery and merchandise products at the lowest possible price.
Porters’ Values Chain; Primary and Support Activities
Porter’s model has value chains that Porter, the founder, categorised as support or secondary and primary activities. The latter consist of outbound and inbound logistics, operations, service, sales, and marketing. On the other hand, the supporting activities consist of infrastructure, procurement, technological development, and human resource management (Porter, 2001, pp.53). Inbound logistics and operations are the key primary activities in Tesco’s value chain. These aspects shape the efficiency of operations and competitiveness of the firm.
Diagram 2: Illustration of Porters’ Value Chain
Inbound Logistics: Tesco Company has agile and lean inbound logistics functions that give the organisation competitive advantages. These elements have dramatically shaped the organisation’s strategic management and cost leadership that underpins everyday operations in the company. According to Hannah (2013, pp. 7), organisations use economies of scale and market positions as their bargaining powers. The aspect is beneficial since it enables a business enterprise to achieve low costs from suppliers. Tesco Company has implemented effective inbound logistic operations to enhance its value chain besides creating opportunities.
The organisation has installed information technology features that track all inventories entering its stores; which are distributed globally. These activities form the primary distributions of the company. As such, information technology has dramatically shaped inbound logistics in Tesco considering that it has automated critical operations in the supply chain like receipt of inventories from different suppliers and management of supplies in the warehouse. The other activities are placing goods on displays, distribution of commodities to the stores, and internal handling, to mention a few.
Information technology has played critical roles in Tesco’s inbound logistics. It is an essential tool in the organisation’s quality control procedures. In this regard, quality control procedures ensure that customers get value for their money. The organisation achieves this objective by implementing technologies that aid in the elimination of unnecessary costs. Some of these costs are directly associated with the handling of inventories at every point of inbound logistics processes. In this regard, the operations that underpin Tesco’s inbound logistics are complex functions that aid in stocking more than 7817 retail stores.
Operations: All operational functions in Tesco can be categorised under three primary segments: retail, manufacturing, and banking. Retail operations form the most extensive section of the company. They consist of stores where customers can order or directly purchase products of their choice. As such, managers have grouped the organisation’s stores into metro, express, extra, and superstores. Tesco Express has stores that handle fresh foodstuff, whereas Tesco Metro is the stores for the general items. Tesco Extra, on the other hand, offers a wide choice of products that include electrical equipment, beauty services, and clothing, to mention a few. Superstores are made up of food in particular besides fresh food counters and bakery.
The banking segment involves critical activities that form part of Tesco PLC operations. Initially, Tesco and the Royal Bank of Scotland jointly owned the venture, but it is currently wholly under Tesco. The manufacturing operations, on the other hand, consist of grocery retail chain businesses. This segment trades in manufactured products. The activities of this segment are essential since they expand the organisation’s market share. However, Tesco’s competitors such as Aldi and Lidl control a substantial proportion of the manufacturing segment of grocery and merchandise business.
Human Resource Management: Tesco Company has well-established recruitment and selection procedures. The purpose of these practices is to ensure that the organisation can potentially have the right pool of employees. In this regard, Tesco requires skilled, qualified, and competent workers, both in the non-store and store-based jobs. In-store workers consist of pharmacists, bakers, supervisors, checkout staff, and many other specialists. The critical considerations for employees working in the distribution depots are the skills in logistics and stock management. Tesco attracts suitably-qualified applicants whenever it has vacancies.
The organisation advertises its job vacancies in various ways. The strategy is as an approach to arrive out to a large pool of potential applicants. Tesco recruits from within its organisation by considering the competence and qualifications of its internal staff for specific vacancies. It also recruits from outside the organisation through advertisements placed on their website. The organisation has regular training programs that aim to equip its employees with requisite skills and expertise. The other human resource management practices are mentoring, coaching, shadowing, and job rotation. These aspects are essential since they enable employees to explore their potentials by utilising their talents.
Technological Development: Technology plays critical roles in the accomplishment of Tesco’s everyday operations. The company has gradually enhanced its information technology as an approach to revolutionising its operations. The primary objective is to automate a significant proportion of paperwork activities. The issue of digital receipts to suppliers is a recent technological development in the logistics department. The management of inventory, on the other hand, has dramatically improved considering the implementation of technologies in the warehouses and stores. A substantial proportion of Tesco’s sales is through the customers that place orders online. This aspect implies that technological development has digitised critical operations in the company. The SWOT table below shows the strengths, weaknesses, threats, and opportunities in Tesco.
|· The company has a broad and diversified customer base.||· Concentrated operations; its operations are primarily in the UK, Northern America, and Mexico. 900296|
|· Tesco has a strong product portfolio in all its segments.||· Infringement controversies; the company incurs significant legal costs to defend its infringement claims.|
|· Tesco has patents and patent agreements that protect its technologies.||· Tesco is dependent on European markets, price wars with competitors, the high cost of inventory management, and low-profit margins in the foreign subsidiaries.|
|· Tesco has chances to invest in research and development to sustain innovation and maintain a competitive market||· Uncertainties in the global economic environment; volatility of oil and gas prices and political conflicts.|
|· Continue with strategic acquisitions to expand the market base.||· Have seasonal variations in demand and supply; affect the execution of projects and plans.|
|· Shape the brand image to give a company a definite look in the global market.||· There is a rising cost of raw materials and labour, an increase in global food prices, and regulations that pressurise Tesco to comply with the rules.|
Figure 1: SWOT Table
Information Technology and Innovative Ideas in Tesco Company
Technology is an essential macro-environmental variable that directly impacts on the products and operations of Tesco Company. The implementation of technological approaches is beneficial both to the company and its customers. Arguably, buyers are potentially satisfied when the company has sophisticated information technology that offers a wide array of online services. The system provides stakeholders with readily available and timely information about different aspects of the organisation. Tesco, in this case, has launched and implemented Efficient Customer Response (ECR) system that managers use to monitor the food supply chain. The system is essential in the management of inventories and supplies. The other forms of technologies that Tesco has implemented in its stores and warehouses are Radio Frequency Identification (RFID), Self-out machine, and Electronic Shelf labelling. The other forms of information technology are wireless devices and intelligence scale systems.
Tesco has innovative information technologies that have dramatically reduced the manual work, and, thus, saving a lot of time. The use of management information systems has given the company a competitive advantage, and, therefore, improving its performance. According to Bourlakis and Bourlakis (2006, pp. 392), organisations ought to optimise their information systems with logistics as an approach to align technology with business strategies and objectives. However, Tesco outlines in its website that it has a plan to launch an integrated management information system. The technique will revolutionise both internal and external operations since it will improve access to the organisation’s services and products. Traditionally, information systems enhance the efficiency of all activities and processes that involve gathering, processing, and storing data and information. It also consists of the distribution of information to facilitate operations and decision-making on critical aspects of the organisation.
Tesco Company ought to establish comprehensive information technologies that improve the landscape of operations in the organisation. This level of information systems should incorporate Transaction Processing Systems, Management Information Systems, Executive Information Systems, and Knowledge-Based Systems. These systems ought to use innovative ideas that improve shopping and operations convenience in the organisation. The implementation of creative ideas and information technology shapes the organisation’s competitive advantage.
According to Altamony et al., (2012, pp. 583), there is a need for organisations to align their IT with business strategies that seek to improve the value of the business. This aspect is a source of competitive advantage since it creates economic benefits for the company. Through innovation and integration of information technology, a company can provide its customers with improved products and services. By doing so, the organisation would also be offering customers with products that have more value than those of competitors (Moody, 2003, pp. 31).
Tesco Company should continue investing in information technology. This aspect improves shoppers’ experience besides the efficiency of operations in the organisation. It implies that the implementation of information technology will attract more customers to the company. The primary driver, in this regard, is better convenience and improved efficiency of operations. It enhances the competitiveness of the company by lowering the costs of services and improving the quality of the output. Ultimately, information technology will place Tesco Company at a favourable and superior position over other competitors in the industry.
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