Strategic analysis of Tesco

Table of Contents
Introduction:...............................................................................................................................................3
Overview of Tesco:......................................................................................................................................3
Task 1: Appraising contemporary theory of Tesco by relating three levels of strategy...............................4
Porter’s generic strategic theory:............................................................................................................4
Ansoff’s product market growth model:..................................................................................................6
Directional strategy model:.....................................................................................................................7
References:..................................................................................................................................................8
Task 2: Assessing specific extrinsic issues for the international organisation and internal organisational
responses to the environmental forces.......................................................................................................8
Extrinsic issues for the international organization:..................................................................................8
Internal organizational responses to environmental forces:...................................................................9
References:................................................................................................................................................10
Task 3: Reviewing the strategic solutions available to Tesco at the corporate, business and operational
level...........................................................................................................................................................10
References:................................................................................................................................................12
Task 4: Providing critical evaluation of Tesco’s strategy in terms of competitive advantage and fulfilment
of strategic purpose...................................................................................................................................12
Evaluation of Tesco’s strategy in terms of competitive advantage:.......................................................12
Evaluation of Tesco’s strategy in terms of fulfilment of strategic purpose:...........................................13
References:................................................................................................................................................14
Conclusion:................................................................................................................................................14
Introduction:
Strategy is the way of gaining desired goal or objectives of a company by designing a long-term
plan. The plan should be efficient and effective so that it can add value to the company. Strategy
would be strong if differentiation is brought by the company (Port et al., 2018). This study is
based on the strategic analysis and to conduct this, Tesco has been selected as a chosen company.
To evaluate the strategic capabilities of Tesco, several relevant theories will be applied here. This
study will help the reader to understand a clear difference between Tesco and other retailers as
well as some strategic direction for improvement in the future days.

Overview of Tesco:
Tesco Plc. is one of the biggest retailers and supermarket chain situated in Hertfordshire, United
Kingdom. In the year of 1919, Jack Cohen started this company as a group of market stalls but
later Tesco store was opened in 1929. Tesco operates 6,809 shops throughout the world with
460,000 employees (Port et al., 2018). This company has diversified product assortments and
varieties and provide greater customer services which gives the company a competitive
advantage for this reason it is the leading retailer in the UK. In the sense of profit, this is the
second largest company in the world after Walmart. So many local competitors are available but
the giant competitors of Tesco are Walmart and Carrefour. The strategy of Tesco Plc. is superb
than the rest of the competitors which we can understand from the following chart where we find
Tesco as the largest market share holder in the UK market.

Figure: market share of leading food retail chain in UK

Source: dailymail.co.uk
Task 1: Appraising contemporary theory of Tesco by relating three
levels of strategy
Porter’s generic strategic theory:
Porter’s generic strategy is used to determine in which way company can proceed to compete
with competitors in the market. Michael Porter have outlined three strategies by which company
accomplishes its business-level strategy which indicates whether company should adopt cost
leadership, differentiation or focus strategy. What strategy Tesco adopts for fulfilling its
business-level strategy are critically discussed in the following section:

Figure: Porter’s generic strategy model

Source: http://strategiccoffee.chriscfox.com

Cost leadership: Cost leadership is achieved by any company when it can provide products with
lower prices. for achieving cost leadership, company needs to maintain some things like,
purchasing materials with low prices, using own transportation and warehousing system for
delivering and keeping products, using short distribution channel (Tyagi, 2009). The above
things are maintained by Tesco in its operation for this reason it can offer its customers quality
products with very lower price. By adopting this strategy, Tesco has gained so much popularity
and significant market share as well. Walmart has been following this strategy from its inception.
“Everyday low price” is the widely used tagline of this company and by using this strategy,
Walmart has become a company of all. In maximum cases, cost leadership is pursued by the
retail and manufacturing companies but technology companies cannot do it because here
production cost and material cost is very high.
Differentiation: Differentiation is the way of bringing change in the design, packaging, taste and
other parts of a product for making it competitive in the market and thus for gaining competitive
advantage as well (Porter, 1998). High differentiation strategy is followed by Apple, Google, and
Microsoft. The condition for sustaining a company in the market for a long time is bringing
differentiation in the products and services but Tesco’s strategy is not focused on the
differentiation. After that, this company produces products and services with greater value.
According to YouGov BrandIndex, a chart of the differentiated brand is shown where Tesco and
other UK supermarket’s differentiation is demonstrated. From this, it can be seen that brand
differentiation is increasing at Tesco.

Source: www.marketingweek.com

Focus: Focus implies targeting a narrow segment for serving the customers. Focus strategy is
followed by the new company which want to capture the niche market. Focus strategy is
irrelevant for Tesco because it serves different segments simultaneously and in different
countries as well.

Ansoff’s product market growth model:

Ansoff’s product market growth model shows whether the company should go in a new or
existing market with new or existing products. This is related to the company’s market level
strategy. In the following section, what growth strategy should be followed by Tesco is
illustrated in the following section:

Figure: Ansoff’s product market expansion model

Source: http://businessessays.net

Market penetration: Market penetration implies staying in the existing market with existing
products by a company. But for remaining competitive in the market, the company needs to
adopt some changes in the products’ design, packaging and prices otherwise, it will be difficult
for the company to sustain in the market for a long time. For instance, Tesco increases its
grocery business share by providing quality products in the existing market. For penetrating in
the market, this company provides low priced quality products to the customers and thus increase
its market share.

Market development: selling existing products to the new market is considered as market
development. Market development is costly for small companies but big companies can do it
certainly and it is essential for them as well. Tesco follows this growth strategy by moving into
the convenience store market and forming new shops in the abroad. Market development helps
the company to expand the customer base and make the company global as well. Tesco has
achieved the trademark as a world-class retailer.

Product development: When a company develops new products by staying in the existing
market, we can call it as product development. Product development is needed when a company
wants to establish new brands for the market. Tesco has started insurance services which are the
example of product development. The product is developed under the existing brand name.

Diversification: When a company starts to sale completely new products to the new market, it is
called diversification. Diversification is risky because it takes time to introduce new products to
the customers (Denis et al., 2008). For instance, if Tesco engages with the totally new range of
activities by leaving the previous activities, it will be diversification. Tesco is known as a
grocery store when it started to produce mobile, it leaves its core place and embraces the
diversification strategy.

Directional strategy model:

Directional strategy model is intended for the corporate level strategy of a company and it gives
direction about which strategy a company can follow stability, growth, retrenchment or all. What
strategy is followed by Tesco is determined by this model in the following section:

Source: executivefinance.teachable.com

Stability: In this level, the company remains stable by continuing its regular activities. The
reason behind to remain in defensive mode is to guard the threats. This strategy is suitable for
small firms not for the biggest company like Walmart, Tesco, and Apple and so on. These
companies have high efficiency and resources to protect the threats. Stability strategy is no
strategy at all because it cannot add any value to the company.

Growth: Tesco’s preferable strategy is the growth strategy and it believes that growth is the only
element on which a company sustains. Growth strategy focuses on enhancing revenue, market
share and new market by offering satisfactory customer service and it is always done by Tesco
(Porter, 1998). Every company starting from small to large seeks growth because it works as
motivation to operate a business in the future. When company remains in this position, it always
is in an attacking mode.
Retrenchment: because of the company’s internal weaknesses and external severe threats, it
becomes tough for the company to conduct business. In this circumstances, company bounds to
shut down the operation completely or shrinking the size and scope of the business by reducing
product portfolio, manpower and resources. GM and Nokia have faced this situation and they
forced to cut the jobs to sustain in the market.

Combination: When two or three strategies use simultaneously in an organization, it is known

as combination strategy. For instance, when Tesco operates grocery stores only, it is the stability
and it turns into growth when Tesco jumps to financial sector or other sectors. When it faces
economic pressure, it can cut job and it will be the retrenchment.

After analyzing the directional strategy model, it can be said that Tesco follow the growth
strategy and it should be in this position as it is the largest retail grocery stores in the world.

References:
I. Denis, D., Denis, D. and Yost, K. (2008). Global Diversification, Industrial
Diversification, and Firm Value. SSRN Electronic Journal.
II. Port, M., Erickson, P., Osterwalder, A., Pigneur, Y., Nesbitt, C., Hale, R., Williams, T.
and Iqbal, A. (2018). Strategic Analysis of Tesco | Tesco | Strategic Management.
[online] Scribd. Available at: https://www.scribd.com/document/88088268/Strategic-
Analysis-of-Tesco [Accessed 23 Apr. 2018].
III. Porter, M. (1998). Competitive strategy. New York: Free Press.
IV. Tyagi, R. (2009). Cost leadership and pricing. Economics Letters, 72(2), pp.189-193.

Task 2: Assessing specific extrinsic issues for the international

organisation and internal organisational responses to the
environmental forces
Extrinsic issues for the international organization:
The international organization seeks the opportunity to enter in the new market and if all things
remain favourable, the company can enter in the new market very easily (Dennis, 2009). For
gaining insight about the outside market, the company evaluates some extrinsic factors which
influence the company and its operations. In the following section, some extrinsic issues are
assessed in details:

Flexible rules and regulation: International organization find the country where government
rules and regulations are not so strict. If government impose strict rules and regulations, it is
quite difficult for the company to conduct business in that nation. For instance, the international
organization conducts in the china faced a large number of barriers from the government.
Though it is largely populated country, but the company can resist itself from entering in Chinese
market because of these rules and regulations.

Untapped market: Untapped market means a market where a touch of competition has not
reached. International organization find untapped markets in the foreign country so that it can
gain the first mover advantage (Dennis, 2009). A big giant like Walmart, Tesco, P&G and all the
companies find an untapped market for conducting an operation in those areas.

Low labour cost: International organization shifts to other countries for gaining some advantage
and low labour cost is one of them. By shifting from one place to another, company try to reduce
production cost so that high revenue can earn from the operations. Most of the multinational
companies shift to the Asian and African countries for production because their labour cost is
very low.

Internal organizational responses to environmental forces:

With the change of the environmental forces, the company responds to these for protecting it
from any kind of loss (Baum and Singh, 2008). Responses should be too prompt otherwise
company may fall in a great danger. Internal organizational responses to the environmental
forces are assessed in the following discussion:

Budgetary issues: companies’ budget may need to increase or decrease on the basis of the
economic and political condition. Political condition is taken here because of stability and
instability of a country’s politics impact on the company. Company increases its budget when
both economic and political forces remain good. On the other hand, decreases the budget amount
when economic and political condition remains unstable. At the time of economic recession,
inflation and deflation make a change in its budget.
Policy: Legal environmental forces make the company bound to bring change in policy. For
instance, McDonald’s faced challenges from PATA for slaughtering the animals and sued
against this company then the court announced that McDonald must change this system because
it was unfair. By facing this challenge, this company brought changes in its policy. From this
perspective, it can be seen that changes in legal environmental forces have made a company
change in policy.

Management direction: Management direction changes on the basis of the difference of socio-
cultural environment. Management should not provide the same direction again and again rather
a different direction can be provided on the basis of the situation (Baum and Singh, 2008). For
instance, the UK or US-based Company’s management cannot apply its direction to China
because culture is different and other environmental forces are also different. Management
direction is highly changeable in case of the multinational and global company.

Business strategy: Business strategy is a company’s pillar on which a company stands and helps
the company to achieve competitive advantage. The company immediately changes in its
strategy when forces of the environment are changed in greater extent to cope with the changing
environment. If it does not do it, the company cannot be competitive in the market and remains
far away from achieving its goal.

References:
I. Dennis, K. (2009). International Organization and Industrial Change. Journal of
Economic Issues, 29(4), pp.1250-1252.
II. Baum, J. and Singh, J. (2008). Dynamics of Organizational Responses to
Competition. Social Forces, 74(4), p.1261.

Task 3: Reviewing the strategic solutions available to Tesco at the

corporate, business and operational level
Strategic solution is the plan for achieving the desired organizational goal by solving the
problems. In every organisational level, the company follows a strategy to attain the particular
level’s goal. Thus when every organisational level enables to achieve their own goal by solving
the problems, overall company’s goal will be achieved. In the following discussion, strategic
solutions are reviewed whether they are fit with the corporate, business and operational level of
Tesco:

Corporate level: Corporate level strategy is the overall direction of company’s activities given
by the top management to attain the organizational goal. At the corporate level, management can
take any of the three strategies like stability, growth and retrenchment (Beard and Dess, 2003). In
case of Tesco, management’s first and foremost preferences are a growth strategy. On the basis
of growth strategy or achieving growth in the company, management prepares a strong strategic
plan. For achieving growth strategy, Tesco provides quality products at low price than the other
competitors. By following this strategy, this company is achieving huge customer loyalty and
revenue as well. The strategy Tesco follows is not sustainable and it can be copied at any time by
the competitors. To gain a sustainable competitive advantage, top management should
concentrate on the huge innovation process.

Business level: Business level strategy is the plan to attain a competitive advantage by using
resources and competencies. In Business level strategy, management has three available options
which are cost leadership, differentiation and focus. In Tesco, management highly focused on the
cost leadership strategy. This is risky in this competitive market because customers taste is
changing rapidly with the change of time and company should concentrate on the customer’s
demand otherwise, the company needs to go out from the market. Tesco may face this problem
in the future so it is a crying need for this company to follow cost leadership and differentiation
policy simultaneously. Already the hot competitors of Tesco like Asda, Sainsbury’s, Aldi,
Morrisons are growing rapidly and these companies may exceed the Tesco at any time.

Operational level: Operational level strategy defines preparing a plan for every single operation
a company runs to implement the corporate and business level strategy (Beard and Dess, 2003).
Tesco is basically a retail shop and sales food items but for understanding the degree of fierce
completion in the market, it starts to produce non-food items as well. Gradually it is expanding
its product portfolio to retain the customers in the market. Tesco’s operation is conducted with
the help of three managers like food, non-food and personnel. As this company is the world’s 2nd
largest retail company and expanding its operations vastly. Now it can change its traditional
operational strategy and create some particular departments like marketing, Human resources,
Finance for executing the tasks.
References:
I. Beard, D. and Dess, G. (2003). Corporate-Level Strategy, Business-Level Strategy, and
Firm Performance. Academy of Management Journal, 24(4), pp.663-688.

Task 4: Providing critical evaluation of Tesco’s strategy in terms of

competitive advantage and fulfilment of strategic purpose
Evaluation of Tesco’s strategy in terms of competitive advantage:
Competitive advantage is the way of gaining superiority in product design, quality and packaging
than the other competitors (Huang et al., 2015). Achieving competitive advantage is not an easy
task. For gaining it, the company needs to set highly efficient strategy which should be stronger
than the competitors. In the following discussion, a critical evaluation of Tesco’s strategy is
provided in terms of competitive advantage:

Low price: Tesco follows cost leadership strategy for reaching to the customers. By using this
strategy, it gains remarkable percentage market share in the UK’s market because customers
from all level are buying from Tesco. In this case, Walmart is the pioneer of following cost
leadership in the world. This company has started to use its prevalent tagline “everyday low
price” and for this reason, it is the world’s first largest retail shop. Ensuring low price is not an
easy task for a company. For doing this company needs to design a well strategic plan for
collecting raw materials at lower prices, using own transportation system, keeping raw materials
in the company’s warehouse and applying economies of scale. If these things can be ensured,
then the company will be able to provide products at low prices and exactly it is done by both
Walmart and Tesco.

High quality: Tesco not only provides products with low price but also provides products with
high quality and it increases the inclination of customers to buy products from this company.
Tesco has achieved customer loyalty by offering low priced high-quality products in the UK
market. As other competitors cannot provide quality products with low price, it has become a
competitive advantage for Tesco. When customers see that company is providing quality
products with low prices, they will certainly buy something from this shop. Apple, Rolex, BMW
believe in quality and for this reason, they produce products with high quality and these have
significant importance to the customers.
Experienced customers’ service: Customers are considered as the driving force of a company.
For today’s world customers’ satisfaction is the prime thinking of every firm and on the basis of
this, the company designs its strategy how to satisfy the customers (Huang et al., 2015). By
offering customer services, the company can do it easily. Tesco’s customers’ service is popular
in the whole world. The way it provides services to its customers is completely amazing. It
provides CLUBCARD to all of its loyal customers and other customers may get pleasant
behaviour from the personnel. In case of online selling, Tesco provides products to the
customers’ house. The way personnel talks with the customers are so good and for this reason,
customers want to come in Tesco’s shop again. How much customer friendly Tesco is known for
its website review and Tweet.

From the above evaluation, one thing is clear that strategy followed by Tesco leads this company
to achieve competitive advantage and the vast amount of market share as well.

Evaluation of Tesco’s strategy in terms of fulfilment of strategic purpose:

Strategic purpose is the combination of the energy of organisation’s functional areas into one
concentrated effort to attain superior performance. Strategic purpose is intended to governance
structure, social responsibility and ethics and stakeholder expectations (Ward and Peppard,
2013). Strategic purpose is fulfilled when governance structure, social responsibility and ethics
and stakeholder expectations are executed perfectly by the company. Tesco has a separate
strategy for accomplishing the governance structure, social responsibility and stakeholder
expectations.

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Governance structure indicates a company’s hierarchy of power or operations. The governance
structure is related with operational level strategy and it should be well furnished but in Tesco,
we can see that the governance structure of this company is not so strong and effective (Ward
and Peppard, 2013). With the pace of expanding its business area, change is not coming in the
structure which may lead the company to the out of the competition. But Walmart has strong
divisional governance structure. So governance structure should be rectified for achieving the
strategic purpose.

Tesco is a socially responsible company which we see from its activities. It has minimized the
energy consumption in its operations and emissions of greenhouse gases as well to ensure a safe
place for living. Waste minimization and recycling are done by Tesco to keep pure the
environment. This company has depicted about the business code of conduct and values to the
society in its strategy which helps this company to perform social responsibility and conducts
any tasks ethically. Tesco should redefine its strategies by adding different things which are
followed by other competitors to fulfil the strategic purpose.

Stakeholder’s expectations refer what is expected of the related parties from the company. Tesco
gives priority to all stakeholders in case of operating this company. For instance, customers may
expect quality food products from Tesco or investors may expect to get a high return on their
investment, as well as government, may expect to obey the rules and regulation by Tesco. The
above things are nicely done by this company and it is clearly written in the company’s policy.
When stakeholder’s expectation fulfils, strategic purpose of Tesco will be materialized then.

References:
I. Huang, K., Dyerson, R., Wu, L. and Harindranath, G. (2015). From Temporary
Competitive Advantage to Sustainable Competitive Advantage. British Journal of
Management, 26(4), pp.617-636.
II. Ward, J. and Peppard, J. (2013). Strategic planning for information systems. Chichester,
West Sussex, England: J. Wiley.
Conclusion:
After analyzing the strategic condition of Tesco, I have found a large number of crucial
information. This study is based on the retail trade and Tesco has been selected as a chosen
organization. Here I have tried to relate the company with some contemporary theories which are
related to company’s three-level strategy. specific extrinsic issues for the international
organization and internal organisational responses to environmental forces have critically
analysed. What strategic solutions are available for Tesco at corporate, business and operational
level are also reviewed. In terms of competitive advantage and fulfilment of strategic purpose,
organisation’s strategy has been evaluated. Finally, it can be said that Tesco follows cost
leadership strategy for delivering superior value products with low price.