Tesco is a leading retail business with chains of stores throughout the UK, Europe, the United States, and Asia and has more than 260,000 employees. Tesco’s business strategy first employed cost-minimisation, but as time went on, it gradually applied differentiation strategies when it noticed that UK customers were buying products according to their taste and not because of the price. The retail business has a dynamic environment, and Tesco has adopted to change.
Regarded as the world’s number one retailer, Tesco’s main business is particularly in the UK. It started its first store in 1929 and then grew by acquiring stores and supermarkets.
Tesco’s purpose and values
Tesco now offers quality. Management has shifted focus on satisfying customers by developing a more memorable shopping experience and drawing customer opinion to enhance customer and firm relationships. Tesco did not have clear positioning in the competitive grocery market whose customers were asking for quality products, new and innovative ideas and responsive customer service.
This firm learned customer profiling. To address price discount from competitors, Tesco started the ‘Tesco Value’ programme covering 70 main products. Their blue and white packaging generally denied cross-shopping at other stores. Next was offering lower prices of major branded products. In 1993, Tesco embarked on ‘600 new own-label products’ (Payne & Frow 2013, p. 252). Customers became enthusiastic.
Tesco launched the Clubcard concept and employed a ‘Customer-Insights’ team to guide the loyalty card. This enriched the company’s database on customer information, which allowed the company to address customer needs. Again, the customers were very enthusiastic of the Clubcard membership and benefits. Because of this, more than 5 million customers had signed up, and Tesco’s sales grew by 7 per cent. Through the Clubcard, Tesco acquired a great amount of customer information and data.
Mission and vision
Tesco’s vision and mission are to fulfil the customers’ needs and wants via low-priced and quality products.
Tesco’s values, mission and vision to include the organisation’s objectives, are formulated in such a way that each one is replicated in the other. Put it in another way; organisational values help form the company’s vision and mission. However, all these have been fulfilled, taking into consideration the internal resources and the external environment affecting Tesco. There is a clear assessment of the firm’s resources and potential.
Peter Drucker (1995 as cited in Dransfield, 2001) asks firms to fully understand what business they are in (what will be and what should be the firm’s business), with clear knowledge and understanding of the customers. When the manager asks himself about what the firm’s business is, that manager is addressing the vision and mission of his/her organisation and answering the question about who the customer is and the meaning of value to the customer. In reference to the question about what the business will be, the manager or the employee should consider the present business practices to be the same in the future.
Goals and objectives
The founder Jack Cohen was used to saying to his employees to ‘pile high and sell’ at a very low price. In the long years of its existence, Tesco has learned the value of quality and a focus on customers. It is clear that Tesco wants to deliver branded but low-cost products to its growing local customers.
Satisfying and pleasing customers is one of the core competencies of Tesco. This leading retail company now operates in four different formats to cope with customer demands: Tesco Direct (to respond to internet orders); Tesco Express (to provide local convenience stores); Tesco Metro (for city-centre convenience stores); and Tesco Superstores (for weekly shopping).
The new trend in business today is to satisfy the needs and wants of customers. The strategy to increase profit is to satisfy customers. To be good at customer service, managers have to think as if they are the customers and look at every part of the business at the customer’s perspectives. After every decision making, the manager should pause and think of the repercussions of that decision, whether there are more negative than positive sides (Griffiths 2002, p. 2). Positive outcomes should be for the satisfaction of the customer.
Customers expect performance. They want to be pleased. If managers should put themselves in the shoes of the customers, pleasing the customers is a continuous and endless activity. Successful firms should develop a culture that focuses on the customers, and is responsive to their needs in a ‘fast and right’ process.
Factors to be considered in formulating the strategic plans
Strategic planning and strategic management are important in selecting a business strategy for a firm. Strategic planning refers to the process of creating strategic choices. Managing, on the other hand, refers to creating outcomes from the choices made. The strategic plan points to the direction of the organisation. In other words, planning and management are two very important aspects of attaining competitive advantage.
Business strategy refers to the preparations, selections and decisions of management to direct the firm to attain more profits and achieve its goals and objectives. Well-motivated and clear business strategy provide the momentum for company success, but a fragile or unclear strategy may lead the firm to bankruptcy or ruin (Kourdi 2009, p. 3).
The strategy emphasises how to multiply profits by way of developing new products, or product extensions, innovations on the product mix, and fixing product prices. Strategy can also allow management of how to streamline and abandon products that do not sell.
The firm’s internal structure is another way of emphasising strategy that can help management attain its objectives. Strategy and structure need to link heavily since objectives come from the firm’s overall strategy, or structure must follow strategy. If management changes its strategy, the structure has to follow to give way for the change (Robbins 2014, p. 430). Since change is continuous, structure and strategy must continually change too.
Applying Ansoff’s matrix on Tesco
Tesco’s aim for increased growth can be analysed through Ansoff’s matrix, which exhibits four major categories, as shown in figure 1.
Tesco’s market penetration
Ansoff’s emphasis is on tangible products, for example, the brand. Tesco did not emphasise its brand when it penetrated the U.S. market, i.e. it made use of its products.
In addition to promoting and repositioning existing products, Tesco introduced new products in the market. Introducing new products is a vehicle of competitive business strategy to provide a competitive advantage, add value to the firm’s resources, and develop new opportunities for the firm (Thomas 1995, p. 17). New opportunities, which might be unexpected but positive for the firm, is a part of the strategic plan. Tesco opened its new brand, the ‘Fresh & Easy’ stores for the U.S. marketplace.
This involved branching out and looking for new segments. Tesco opened stores at various urban centres in the UK, Central and Eastern Europe, the United States and other Far Eastern countries. Tesco does not only sell products in its street stores but also to internet users. Guardian (2006, as cited in Pringle 2008, p. 39) reported that approximately a quarter of Tesco’s total revenues come from these countries in Europe and cities outside the UK. Tesco opened about a hundred stores in Southern California and twenty in Las Vegas.
Tesco is innovative in product development. It has a well-developed supply chain, which allows centralised restock of products and nonstop deliveries and replenishments every day and for all of its outlets. Replenishment functions through POS electronic data. Relationship with suppliers is intact (Hofstetter, 2005, p. 201).
To grow means to diversify is another Tesco strategy. Tesco acquired firms, like the T&S Stores, and diversified by moving into non-food items from insurance to finance and banking services, to DVDs and shampoos. Diversification also means moving to other cities of the world, for example, Asia and China.
Effectiveness of strategic planning techniques
Strategic planning occurs when the manager thinks about the future of the business, bearing in mind the changes in response to the demands of the markets with appropriate products and services. The firm should be able to coordinate the behaviour and activities made by the staff. Most firms devise a culture to create a ‘strategic direction’ for the managers and employees to follow. This so-called direction is part of the firm’s vision, mission and objectives (Zimmerman & Blythe 2013, p. 37).
Organisational audit for Tesco
Porter’s five forces
Porter’s five forces model looks at the organisation’s strengths and weaknesses in its strategy implementation, and analyses relationships between firms and industries.
Tesco has the technology and OPS digital data that protect itself from new entrants. Its differentiation strategy will affect new entrants. However, Wal-Mart, which has recently acquired Asda, is a threat because it cuts prices and its average size is much larger than Tesco’s: 160,000 square feet to Tesco’s mere 60,000 to 80,000 square feet. Tesco, on the other hand, acquired 1,200 T&S stores.
Major suppliers are the key players of the supply chain, and they can have enormous power because of their large operation and of the power of the brand.
Tesco has used the Internet in finding new segments, but one reason for its use of the Internet is to fight the threat of substitute products, among others. ‘Made in China’ products are another threat to Tesco, but its introduction of quality products can deal with this threat. The differentiation strategy (also known as innovation strategy) aims at the ‘broad mass-market’ wherein the firm creates unique products by way of different designs that captivate the customers’ imagination. Focus strategy (or imitation strategy) is capitalising on the best of the two strategies. This strategy aims to minimise risk and maximise the opportunity for profit and growth.
Power of customers
Satisfying customers through their bargaining power is a threat itself. But how can this be dealt with if the new trend in business is satisfying customers? Tesco has introduced quality products and has programmes to allow customers to have a memorable shopping experience. This company has not considered this a threat but an opportunity to know its customers.
Sainsbury’s, Aldi, Wal-Mart and Morrison’s are major ‘high-profile’ competitors, which like Tesco, have larger programmes to entice customers to be loyal to them. Programmes of competitors include the price wars, discounts, and Clubcard memberships that continue to threaten customer loyalty. Tesco provided the ‘Tesco Value,’ which includes 70 core products, and was devised to give ‘value for money’ (Payne & Frow 2013).
Significance of stakeholders’ analysis while formulating a new strategy
In the 1990s, the competition was stiff in the grocery market. Tesco’s customers became dissatisfied, and many shifted their attention to other retailers and supermarkets. Tesco’s strategic positioning was severely bleeding when its initial strategy of offering low cost products was no match to discount grocery chains. Tesco lost many of its loyal customers.
Tesco launched more customer-focus programmes, aimed at providing a unique shopping experience. Customers want a more wholesome shopping experience, rather than just buying cheap products. Programmes included inviting shoppers to sit down for few-minute sessions and ask them what they want for their new products and what Tesco can do to please them. Online surveys are also useful to get more customer information and data. Management improved signage and store appearances. Tesco spent millions for advertising, promotion and customer satisfaction activities.
When Tesco aimed for growth by entering the U.S. marketplace, things went sour. Tesco penetrated the U.S. marketplace with the ‘Fresh & Easy’ brand. Employees of the U.S. stores were expecting good employee relations and that Tesco will implement corporate social responsibility (CSR), but the opposite happened. The United Food and Commercial Workers’ Union (UFCW) has charged that Tesco is not doing its obligations to its employees. In fact, the UFCW published a paper titled, ‘The Two Faces of Tesco,’ alleging among others that Tesco is a different organisation when it is outside the UK. Tesco has declined to meet with community leaders and other stakeholders and refused to have partnership with trade unions. Trade unions are concerned that Tesco do not want to have close partnership with employees in the U.S. The UFCW also reported that Tesco avoided union partnership in Thailand and Turkey (Wilton 2011, p. 150). The UFCW is an organisation that represents disadvantaged workers in the retail industry, in particular women who have outnumbered men. It has been asking dialogues with Tesco, to no avail. Tesco has launched its stores as non-union stores (UFCW: UFCW launches campaign in Britain against 2008).
A new strategy for Tesco based on organisational audit and stakeholders’ analysis
A new strategy for Tesco should improve organisational performance management and develop partnership with community leaders and trade unions from the U.S. and other branches in Asia and major cities worldwide. Organisational performance management is in line with organisational goals and objectives; thus, this should be a primary target of Tesco.
Improving employee relations must be emphasised as poor employee relations mean low organisational performance. The new strategy should include monthly dialogue with employees so that they can air their comments, suggestions and complaints. Tesco must follow the UK model of recognising trade unions and implementing corporate social responsibility. Community leaders, politicians, and non-governmental organisations (NGOs) must be given time to present their suggestions for the welfare of the whole stakeholders, particularly on the question of environmental sustainability.
Evaluate the appropriateness of alternative strategies relating to market entry, substantive growth, limited growth or retrenchment for Tesco
Alternative strategies will be favourable for Tesco in the long term. Its entry into U. S. market has been criticised by the UFCW because it does not conform to common corporate social responsibility practices wherein the firm should have a wholesome relationship with the stakeholders, in particular the community leaders and NGOs. Tesco will enhance growth with the application of these practices.
Increasing business growth involves planning which capitalises on the firm’s resources and how to use these resources to gain competitive advantage. Michael Porter proposed the theory on generic competitive strategies applicable to business. The model is termed generic because it includes a wide range of business, to include not-for-profit organisations. The strategies include ‘cost leadership, differentiation, and focus’ (Kossowski 2003, p. 5).
The cost leadership strategy focuses on the wider market in which cost can be at its minimum, in particular R&D services, advertising and other marketing activities. Product prices can be minimised but the firm can still acquire profit. Robbins (2014) calls this ‘cost-minimisation strategy,’ wherein the organisation ‘tightly controls costs, refrains from incurring unnecessary innovation or marketing expenses, and cuts prices in selling a basic product’ (p. 430).
The appropriate future strategy for Tesco
The appropriate future strategy for Tesco is the application of corporate social responsibility in branches outside the UK and enhancement of employer-employee relationship in stores outside the UK.
Plan for the implementation of the strategy in the roles and responsibilities for strategy implementation for Tesco
The HR Manager and the staff are responsible for implementing CSR practices, specifically environmental sustainability and waste management system. Tesco promotes environmental management in the UK but there are doubts as to its implementation outside the UK, in particular the U.S. and Asia. Environmental management is a part of the UK steering wheel, which is ‘responsible and safe’ (Tesco: measuring our performance n.d.).
Resource requirement for the implementation of the new strategy
Implementation of CSR practices needs funding. Environmental management will require millions in dollars in environmental preservation and waste management. Continuous dialogue with employees will require political will on the part of top management to implement.
Contribution of SMART targets to the achievement of the strategy implementation for Tesco
- Specific – The program of environmental management is specific as Tesco products will create environmental problems if not properly managed. They have done this in the UK, but environmental implementation outside the UK is still questionable.
- Measurable – This is indeed measurable and quantifiable since the results of environmental management are obvious. We see it in Tesco stores and surroundings. Employee performance is positive if there is a perfect employer-employee relationship.
- Achievable – It can be achievable if Tesco has the political will, or is willing to implement environmental management outside the UK.
- Realistic – This is realistic as it is what the people and the environment need.
- Time scaled – The required time is now. They have done it in the UK and it did not take them long.
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