Strategic management report writing on: Tesco company
Executive summary
Intend of this report is to analyze Tesco company as a whole and generate three possible strategic options for the company. In this order, each option has to be evaluated on the basis of market options matrix, expansion methods matrix, and suitability, acceptability and feasibility criteria. Afterward, one best option would be recommended for the company in this regard. According to the mentioned matrix, each segment will be discussed in detail in order to make one of the best suggestions for Tesco. Next section of the report would involve some issues that may arise due to implementation of selected strategic option. The issue may be in relation to management of resources, corporate social responsibility, structures & systems, and managing strategic change of the company. This would provide a full description of the issue covered in the report. Overall discussion of the report would place emphasize on suitable and strategic option for company’s development.
Content:
- Introduction………………………………………………………………………….4
- Strategic options……………………………………………………………………..4
- Market options matrix……………………………………………………………….5
- Expansion method matrix……………………………………………………………7
- Three strategies created…………………………………………………………….10
5.1 Market development ………………………………………………………………………….10
5.2 Product development …………………………………………………………..11
5.3 Diversification: Joint venture or strategic alliances…………………………….12
- Suitability, acceptability and feasibility……………………………………………13
- Success criteria based on suitability, acceptability & feasibility…………………..17
- Recommended strategy……………………………………………………………18
- Issues in relation to managing strategic change……………………………………19
- Cultural web………………………………………………………………………..20
- Recommendations………………………………………………………………….22
- Conclusion………………………………………………………………………….23
- References………………………………………………………………………….24
Terms of reference[K1] :
It describes the structure and purpose of the report and demonstrates the scope that would be identified, developed, and verified. The study would take peer reviewed journal articles, newsletters, magazines, research papers in to consideration for describing theories and models related to strategic management. These researches explore strategic management as a wider perspective to the people working in a company and they can better recognize how their job fits into the complete company’s plan and how it is associated with other member of the organization. This report serves the purpose of identifying business level strategy for a particular company which has been taken for the description. Theories have been picked up from Hailey, Johnson, Lynch, etc illustrating corporate and business level strategies. A few videos linked to success factors in business have also been included in the paper for further discussion.
Introduction:
Tesco is one of the leading food retailers of Britain and has third largest position in the world in terms of revenue and second largest by profits. It contains its own stores in more than around 13 countries across North America, Asia and Europe and is considered grocery market leader in the United Kingdom. Tesco owns more than 900 stores and employs approximately 240,000 employees. Moreover, innovation and creativity at Tesco is viewed as main point for its customers as well as to its business. As such Tesco mainly concentrates on both product and process innovation. Core to innovation success of Tesco has been emphasizing on managing margins (Innovation leaders 2013).
Furthermore, Tesco successfully managed around 1.8% devaluation in 2007 across its product lines. It now produces the total sales of approximately 700 million Euros and profit of more than 32 million euro for the business. In the United Kingdom, Tesco’s service reaches more than around 95% of country’s total population and deal with around 168,000 orders a week. A main component to company’s growth and development is the effective utilization of well-targeted own-label brands encompassing the up market finest and low price value labels. Another significant impact has been a logical strategy for global international expansion as well as enlarging into rising markets like in Eastern Europe and South East Asia (Tesco plc 2013).
Strategic options:
Strategic options are selected on the basis of strategic management of the company. Decisions related to strategic options include various matrixes. There could be a good number of different strategic options for different types of companies. In this regard, strategic management provides a wider perspective to the people working in a company and they can better recognize how their job fits into the complete company’s plan and how it is associated with other member of the organization. Therefore, for a business to achieve success in this global world, it is important that appropriate strategic choices are made. A precise strategy refers to providing the business a lucid direction and reason. While making choice for strategic options, it is required to keep these following terms in mind:
Plan: Company should have some sort of planned course of action
Ploy: It delineates a maneuver to outsmart the competitors of the company
Pattern: It is considered with putting the plan into action and acknowledging the behaviors and attitudes that result. In contrast, company should be aware that not all end results are planned and that there is an evolving feature of strategy.
Position: It generally locates the business in a specific environment at a particular point of time and focused externally.
Perspective: It is all about involving person’s viewpoints those running the business. It is derived internally and demonstrates the business’ personality and status quo (Balogun & Hope Hailey 2008).
Additionally, there are some matrixes that are considered as another marketing planning device for the company which help selecting the best strategic option. These matrixes include:
- Market options matrix
- Expansion methods matrix
- Suitability, acceptability and feasibility criteria matrix
Market options matrix:
It is also known as Ansoff growth matrix. This particular matrix suggests that an attempt of a business in order to grow mainly depends on whether it markets both existing and new products or in existing and new markets. Output at the end from the matrix is a series of recommended growth strategies which establish the direction for the business strategy. Ansoff’s matrix is as follows;
(Source: Yousaytoo 2013)
Successful business people spend their major time imagining about how best they can augment the profit. They define hundreds of concepts about the things that can continue or develop to do so. Looking at Ansoff matrix from business perspective, the option of low risk is to remain with the existing product in company’s existing market. Company knows very well that how a product works for them and in this context market holds good surprises for the company. Market penetration includes boosting sales of an existing product and breaking through the market further by fostering the product greatly or diminishing prices to augment sales. This strategy contains the lowest risk strategy as the company already knows the market and the product.
Next, market development options involve search of geographical region or additional market segment. The new market development for the product may be an effective strategy if the company’ core competencies are linked more to the particular product than to its experience with a precise market segment. Because the company is growing into a new market, a market or business development strategy normally has more risk than a market penetration strategy. Furthermore, a product development strategy may be suitable if the strengths of the company are connected to its particular customer rather than to the specific product itself. In this situation, it can influence its strong points by growing a new product targeted to its existing consumers. Similar to the new market development case, new product development carts more risk than simply trying to enhance market share.
Lastly, diversification is the most risky out of the all growth strategies mentioned in Ansoff matrix as it needs both market and product development and may be outside the company’s key competencies. Nevertheless, diversification may be a considerable option of the high risk is compensated by the possibility of high rate of return. Other benefits of diversification encompass the latent to obtain a foothold in an attractive industry or business and the decline of potential risk associated to the overall business.
Clear plans for action, involving efficient planning required to be urbanized by Tesco as the strategic option. Taking market expansion matrix into consideration, there can be two main strategic options for the Company Tesco (Johnson, Scholes & Whittington 2011).
Expansion methods matrix:
(Source: Lynch 2012)
[K5] –
There are several different motives for these options of expansion. Internal development suggests building up and developing company’s resources and competencies. That may be related to company’s strengths, weaknesses, opportunities and threats that have to be considered by the company for effective internal development. Next, merger and acquisition refer to take over the ownership of some other companies in the same industry. However, this is not used by Tesco as its strategic option.
Johnson and Scholes again discussed about mergers and acquisition and as effective strategic option for a company. They basically described three key motives behind this strategic alternative.
- Strategic
- Financial
- Managerial
Strategic motives tend to be the simplest to validate and the transactions’ majority they are most vital and influential. According to them, mergers and acquisitions can help reducing level of competition from the rivals and save costs from economies of scale (Warrier & Saravanan 2007).
Furthermore, all takeovers and acquisitions carry financial motives of different kinds. Each motive is designed to attain an acceptable rate of return for both the investment and risk been taken. In simple words, it is the financial returns that are most vital and hence drive the deal.
Afterward, when any merger or acquisition fails, managers can often map out it back to what is called “managerial motives”. In other words, these became the bad news for business’ shareholder that is following the takeover; it mainly results in a transaction that obliterates major amounts of shareholder value (Mintzberg 1980).
Three key strategies created:
Market development:
By making an entry to new markets such as Japan and China, Tesco can serve as a main escalation driver of expansion and revenue strategy of the company. In sum, one of the best recommended strategic option for Tesco is international alliance with the confined retailers in markets of Asia. It will also be concerned as a tool of growth and may be constructed to make use of current competence and resources of the company. By entering into joint ventures or partnerships, Tesco will draw on widespread partner’s operating expertise and local knowledge at the same time as adding its own supply chain, store operations proficiency, and product development to deliver an effective shopping experience to the customers. This would also help the company gaining a larger market share and economy of scale (Lynch 2012).
Tesco International
Nevertheless, provided the enormous scale, difficulties and potential of these markets, Tesco may feel that being the primary shipper is not essentially an advantage for the company. The partner’s success will also be linked to three key success criteria including sustainability, acceptability and feasibility.
- Product development:
Johnson and Scholes (2011) have articulated that business environmental change may frame up new products demand at the cost of set provision. In this regard, Ansoff’s matrix recommends that if new services and products are being introduced in already existing markets, then apparently, a product development strategy has to be taken into account by the company’s management (Johnson & Scholes 2011). In growing and diversifying product mix of Tesco, it is also important to formulate internal growth when new products are initiated in the market. The level and nature of the expansion has also to be considered in relation to the corporate strategy’s underlying principle, and the portfolio’s diversity. By going after the changing requirement of the consumers, company can develop new product lines. This may further need more attention to research & development, leading to extra expenditures (Lynch 2006).
It is being noticed that the retailing industry is experiencing over competence and creative products and services are being the major driver for product development of Tesco. For an instance, it can introduce a new portfolio of distinct store formats in the United Kingdom, each planned to give a different shopping experience. Consequently, Tesco can also grow different store types in Eastern European markets as well. This value added by the individuality will ultimately lead the company to control a premium price. The technological innovation management is progressively included in choosing strategic options and decision-making. Tesco would have to make best use of its internal strengths and minimize internal weaknesses in order to attain sustained competitive advantage.
- Diversification: Joint venture or strategic alliances
Strategic alliance and joint venture entails a company to partner with an already existing business to share both the opportunities and risks in a new market. Strategic alliance refers to a form of collaboration between two or more organizations, which can take up many shapes like:
- Technology transfer
- Joint product development
- Purchasing and distribution conformity
- Marketing and promotional collaboration (Fea 2010). On the other hand, a joint venture includes funds’ long term investment, abilities and resources by two or more enterprises to a joint venture, which benefits all enterprises. There may be some mutual motives to take both of these as strategic option for global entry. Motives may be as follows:
- Foreign market entry
- Increased market share
- Diminishing risk
- Economies of scale and synergy
- Access to trademarks, technology and patents
- Acquirement of information
- Eliminating competitors
- Government influence
- Improve speed to market
- Diversification of business (New Zealand Trade and Enterprise 2013)
Suitability, acceptability and feasibility[K6] :
Suitability has been regarded to whether a strategy or strategic option deals with the conditions in which the company is running its business. It is about the underlying principle of this expansion-market development strategy. Similarly, the acceptability connects to the anticipated returns from the chosen strategic option, the extent of the risk and stakeholders’ probable reactions. Furthermore, feasibility will be concerned with whether Tesco has that much resources and capability to deliver the strategy. The international retail market development would be the best and most attractive option for Tesco because:
- It is the sole option which will give long-term growth to the company. The other options mentioned for Tesco can be concerned as short-term solutions to the issues because
- This particular option of market development is also reflected in the objective of Tesco that globalization is a good opportunity for company’s growth and development. In sum, company may also take advantage of resources, local knowledge and henceforth it expects to make a successful approach in international market. For an example, Tesco may obtain the local retail chain to construct its distribution stores so that it could save cost. Hence, international retail market development is the recommended strategic option, which Tesco should take into consideration for implementation. Group skills and innovation in Tesco defines it evolution to becoming a global business.
Suitability: Tesco’s strategy is put into action through its business models. Its core purpose is to value the customers in order to earn their lifetime loyalty. Business model of Tesco is quite simple, according to which, products are bought, moved and sold out to the customers and hence customer insight is also used by the company to do the business better each time.
Acceptability: Discussing about the acceptability of market development as a strategic option for Tesco, it is currently operating its business in six nations in Europe and more than this in Asia. Almost seven years ago, total international sale of Tesco was 770 million Euros. But, currently, company is ten times larger. In accordance with this strategic option, Tesco hopes to add around 2.5 million square feet to its sales area and enter other major prospect markets. In this regard, it also expects to move on with 30% increase in overall profits from international markets.
Furthermore, describing its resources and capabilities for delivering this strategic option for the company, it has unique physical, intangible and financial resources that take up the responsibilities and provide the desired results (Heschmeyer 2012).
Expected financial ratio
| Financial highlights | Profits |
| Group Sales | $72.0 billion |
| Group profit before tax | $3.8 bn |
| Underlying profit before tax | +1.6% |
| Underlying diluted earnings per share | +2.1% |
| Full year dividend per share | 14.76p |
Feasibility:
Physical resources:
- Various different format of store outlets in different countries
- Stores of Tesco on a global scale are like as warehouses.
- Tesco has ownership of around 74% stake in Hungary, 96% in Savia SA in Poland and 75% in Lotus in Thailand.
Intangible resources:
- Outstanding geographical location of several outlet formats
- More than around 740,000 online registered consumers
- Effective relationship with suppliers including almost 1250 suppliers (Tesco plc 2013).
Core competencies:
Core competency of Tesco is to provide value to its customers. For doing so, it offer lower price than that of its competitors. Other than this, one of the key competencies of the company is competitive differentiation. Company has capability to frame the close relationship with the suppliers. It provides the suppliers with required information and they are considered as the partners of the company. Apart from it, Tesco implements efficient IT frameworks to pick and deliver the products and services to the customers from on-line service. It increases the productivity and dampens the delivery cost. With such competencies, market development can be taken as the best strategic option by Tesco (Tesco Plc 2012).
Success criteria based on suitability, acceptability & feasibility
|
Criteria |
Market development (Out of 10) |
Product development (Out of 10) |
Diversification (Out of 10) |
| Suitability |
- Strategy exploits strengths and opportunities
7
6
5
- Strategic option fit in with Tesco’s purpose
8
6
7
- Strategy appropriateness for long-term growth
8
7
7
- Level of risk strategy involves
6
4
6
Acceptability
- Strategy performance in terms of profitability and return on investment
7
6
6
- Change in expected financial ratios
7
5
4
- Relationship with stakeholders after strategic change
8
6
5
- Cost-effectiveness of the strategy
8
6
8
- Marketing margins and financial analysis
7
4
6
Feasibility
- Strategy is worth funding
7
6
6
- Strategy competency for carrying effective and qualitative performance
6
6
7
- Resource availability for particular strategy
8
8
7
Total
87
70
74
Recommended strategy[K8] :
According to the success criteria implemented, market development is one of the best recommended strategies for Tesco for its business. It scores high among all three strategies described.
Issues in relation to managing strategic change:
Implementation of market development strategic option in Tesco may give birth to some issues in relation to managing strategic change. Strategic change can be of any time according to the nature of business.
Adaption: It refers to the change within current business model and also known as common form of change.
Reconstruction: It is concerned with quick and major structural change and thus major cost-cutting may be turnaround situation.
Evolution: It is known as change in strategy that needs little change in business model. Tesco has gone through this change after implementation of market development option.
Revolution: It required quick and major strategic change in company’s business model.
Further issue relates with cultural web of the company. According to it, culture majorly becomes the centre of attention during strategic change when companies go for joint ventures, strategic alliances or mergers and their culture clash with each other. Therefore, Tesco may have problem while building up strategic alliances with international countries for market development. For all of its imprecision, corporate culture may have larger impact on the work environment and desired output of the company (Lynch 2012).
Cultural web:
Main culture of Tesco is power culture. Some are the following factors which may affect the business of Tesco after implementing the change.
Stories: Terry Leahy was selected as CEO of Tesco Company. However it seems to make a victory for marketing staff of a particular country in Tesco, but it may be a negative aspect or type of competition for other countries hosting Tesco.
Routines and rituals: Where Tesco put its main emphasize on the value and price for money. It may not be accepted in some countries where people are price sensitive and research a lot before making a purchase.
Power structures: Decision making is in hand of authority people of Tesco. When they make decision, those are communicated to the employees by the local managers with the growth of Tesco’s globalization. This may again not a sufficient power structure form in countries like China, Japan or any other Asian country where every level of employee is involved in decision-making process (Kavanagh & Ashkanasy 2006).
Afterward, force-field analysis model would also assist to determine issues in relation to strategic management change.
According to Lewin’s model, there are two types of forces that either drive or restrain the change in an organization. And, if there is a balance condition between these two forces, there would not be any change. Forces for change in Tesco include (Prevor 2006):
| Internal forces for change | External forces for change |
|
The leadership change process can be meant to make all the transactions for the people taking place.
Recommendation:
Kurt Lewin’s change model best defines the strategic change management in an effective way. It demonstrates three key stages in its change process model.
Unfreezing: It is all about weighing up the pros and cons of change and deciding if the pros are more than the cons, before company take any decision regarding the strategic moves and changes. It is also known as the basis of force-field analysis proposed Lewis. Thus, this stage involves moving the employees, department or the entire business towards the change motivation.
Change or transition: It is the stage where changes decided upon are made ultimately. This phase also encompasses communicating the clear picture of change and advantages to the people involved.
Freezing or refreezing: This phase is about setting stability once the changes are implemented within the company. The changes are accepted and people create new relationships and become convenient with their routines after change implementation (Carroll 2004).
Conclusion:
On the basis of overall discussion, it can be concluded that three strategic options generated for Tesco are market development, product development and joint venture or strategic alliance. Best recommended option among these three on the basis f evaluation is market development. It the most suitable and attractive option for Tesco as it is suitable, acceptable and feasible according to its current position and future expectation. Apart from this, the issue Tesco may face in relation to strategic change management relates to culture differences that have been discussed through cultural web of the company and force-field analysis model. This model also describes both internal and external factors that affect company’s business after change implementation.
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