Comprehensive Strategic Analysis of Tesco PLC

Table of Contents

1. Introduction – Organizational Description

1.1. Background

Tesco is the leading retail company in UK. Its headquarters is located in Hertfordshire, UK. The company operates in 14 countries of the world including of USA, some Asian countries and some European countries. The company has more than 530,000 employees and attracts millions of customers weekly. Tesco is also a highly profitable company recording billions of revenue and millions of profits annually. In FY 2012, the company recorded total revenue of £72 billion and £2,480 million trading profits. In 2013, the company recorded £72.4 billion revenue which reflects an increase of 1.3% from 2012 revenue. The company’s profits reduced by 14.5%; from £2,480 million in 2012 to £2,000 million in 2013. The retailer’s strategy is centered on its multiple formats: supermarkets, hypermarkets, convenience stores and superstores. By 2013, the company had a total of 3,146 stores in UK; 2,131 in Asia; and 1,507 in Europe excluding UK. The company also has 6.6 million customer accounts in its Tesco bank platform.

1.2. Mission and vision of the company

The current mission statement of Tesco is “we make what matters better, together” (Tesco, 2013). This mission statement determines what the company does and what it stands for. The company has realized that the culture of “more is better” has changed to a new culture of “making what matters better”. In this case, the company focuses on quality of its products rather than their quantity. Therefore, it changed its core values and purpose to be in line with how the society thinks and what it needs from the business. Although the company cannot solve all the problems of the world by itself, it always attempts to do things right, inspire, and earn trust and loyalty from customers. The values that enable Tesco to achieve its mission include: trying harder for customers, treating everyone how they like to be treated, and using the company’s scale for good.

The vision statement of Tesco sets out what the company wants to be. The company wants to be the most highly valued retail business by customers, communities, colleagues, and shareholders (Tesco, 2013). In order to achieve the above, Tesco has set up a vision that describes the business of the company using the following elements: to be wanted and needed around the world; to grow a business full of opportunities; to be modern, innovative and full of ideas; winning locally and applying ideas globally; and to inspire, and earn trust and loyalty from communities, customers, and colleagues.

1.3. Strategic objectives

Tesco’s seven-part unique strategy is made up of certain strategic objectives that are used to enhance growth. The objectives reflect the needs of the company’s customers and the global nature of the retail business. The first strategic objective of the business is to grow the UK core. This strategic objective is achievable through the building of a better Tesco through comprehensive improvements for customers (Tesco, 2013). Secondly, the company aims at becoming an outstanding international retailer in online and stores. This strategic objective enables the company to improve its performance in international business and attain higher profitability and international sales. The third strategic objective of the company is to become strong in all the products it sells just as it is in food. This is achieved by the retail company through addition of product varieties to its online and in-store business models in order to improve the company’s profits and enhance growth.

The fourth strategic objective of Tesco is to grow retail services in all the markets of the company. Some of the retail services that need to be enhanced in the company’s various markets include financial and telecoms services. The company also targets to put responsibilities to the communities it serves at the heart of what it does. In this regard, the company has changed its core values and purpose to include a wider social purpose. The sixth strategic objective if the company is to become a creator of highly valued brands (Tesco, 2013). This is intended to provide customers with confidence in value, quality, and reliability of the company’s products and services. The last strategic objective of the company is to build its team in order to create more value. In order to achieve this, the company invests in the development of more able leaders.

2. Assessment of Organizational Strategy

2.1. Strategic approach/plan and the generic strategy

Given Tesco’s strategic objectives, the main strategic approach of the company is customer focus. The strategies designed in this regard are in line with the company’s core value; to create value for customers and earn their lifetime loyalty. The company’s strategies are designed to improve the company’s customer satisfaction (Grundy, 2006). These strategies are mainly differentiation strategies including: giving customers the best shopping trip, enabling online transaction capabilities, growing the company’s international market, refreshing the stores for customers and staff, conquering new markets, providing best retail services for customers, and being dedicated to the community. These strategies play crucial roles in the achievement of the company’s strategic objectives of growth.

Tesco’s generic strategy is multi-domestic strategy which emphasizes decentralization of activities at local level to respond to local demand and match local taste (Porter, 2008). This has led the company to concentrate on UK market more than international markets. Through this generic strategy, the company focuses on its domestic customers by providing them with the quality of products they need and deliver the best products in a convenient manner to meet the needs of customers and earn their lifetime loyalty. This generic strategy is used by the company because it faces low pressure to reduce cost and high pressure to adapt to local markets.

2.2. Strategic actions that have provided value for Tesco

Through Tesco’s objectives of growth, the company has taken various strategic actions that have led to increased competitive advantage and value of the retail company. One of the most successful strategic actions of the company is to buy, move and sell products and services for customers in a consistent, better, simple and efficient manner (Tesco, 2013). In order to make these actions successful in enhancing value for customers and increase competitive advantage of the company; operational effectiveness has been the core of Tesco’s business model. The company has convenient well-investment stores and distribution networks. The company also utilizes modern systems, and a skilled and experienced team to improve the operational effectiveness of the company.

The company wins customers by doing things differently and innovating for customers. Innovation ensures that the offers of the company do not remain stagnant; but change with respect to the changing customer needs. Therefore, the company tries to work out what matters to customers by communicating with them regularly. Conversation between the company and customers goes on from time to time, in all businesses, in stores and online. There are various mechanisms through which Tesco talks to customers in order to innovate for them. They include regular customer question time sessions and social media feedback. Through such strategic actions, customers tell the company what is important for them, when they are doing well, and when they are not doing well. The company acts on the feedbacks of customers to meet their needs and to enhance customer satisfaction and loyalty. As a result, the company adds value to customers and improves its competitive advantage.

Another strategic action used by Tesco to increase its competitive advantage is a combination of scale and growth. The scale of the company and how it uses it are very essential to how it creates value. Tesco buys well and sells efficiently in order to become competitive for customers. When the company sells more, it is more able to work with its suppliers to attain mutually beneficial economies of scale. In turn, this enables the company to invest more for customers. Furthermore, the company has improved customers’ shopping trip and moved the business towards a stronger growth (Tesco, 2013).

Tesco also practices six enablers that boost its operations: innovating its offer, operating responsibly, creating valuable property, building Tesco brand, leveraging group skill and scale, and developing its people. The company transfers new systems, know-how and processes based on the principle of “invent once, deploy everywhere”. The retailer’s leadership also gains more experience in multiple markets; hence developing new technologies and approaches quickly and cost effectively. Tesco leverages its group skills through such strategic actions as: loyalty and own-label programmes, online trading platforms, and format expertise. Tesco’s staff also spends a lot of time applying new technology in-store in order to improve the shopping experience of customers. For instance, Scan-as-you-shop innovative technology is applied in over hundred Tesco stores in UK. It allows customers to scan products as they put them inside the trolleys and establish how much they spend as they shop. This also reduces customers’ waiting time at the checkouts.

2.3. Strategic actions that have negatively impacted the value/competitive advantage for Tesco

Tesco’s underlying profit before tax which shows the underlying trend and performance of the business decreased in 2013 by 14.5%. This indicates that the company’s business performed poorly in 2013. This can be attributed to some of the company’s strategic actions. One of the strategic actions that led to the reduced value and competitive advantage of the company is the company’s investment in its offer for customers. This increased investment in the UK led to increased costs and revenue, and reduced profitability. The company’s planned investment into the UK has increased the costs of production and expenses of the company due to increased capital and administrative requirements (Worthington and Britton, 2003). As a result, the company’s performance decreased and its value also declined.

Another strategic action of the company that has reduced the company’s competitive advantage in the international market is the exit of some markets in which it does not enjoy a leadership position. The countries which the company exited are the USA and Japan. The company has already exited Japan and is now under a strategic review of USA in order to completely exit that market as well. The company is also measuring a new approach of improvement and growth in China as it embarks fully on getting UK business back on track (Tesco, 2013). In this case, the company seems to be focusing on UK market more than other international markets. As a result, the company’s performance and competitive advantage in the international market has reduced significantly. While the company pursues disciplined international growth and continued investment in UK, it causes higher trading expenses and financial costs; hence causing reduced profitability. As a result, the company’s growth reduces and its competitive advantage and value for customers decline.

3. Strategic Analysis and Discussion

The strategic actions of Tesco ensure that the company improves its competitiveness and overall competitive advantage in UK and the international retail market. The company utilizes several strategies, and there are even more strategies available in the future. Worthington and Britton (2003) suggest that the strategy chosen by a company should be in line with its core values. The core value of Tesco is to create value for customers and to earn their lifetime loyalty. Therefore, the company’s chosen strategies are mainly intended to add value for customers and increase their loyalty. The strategic actions of Tesco are mainly targeted on customers and the community, and as a result, the company has been successful in value addition for customers. These competitive activities have both positive and negative competitive value for the company. This can be viewed in terms of global competition, diversification strategies, corporate governance and organizational ethics, CSR, managing internal operations, organization structure and design, and organizational Culture and corporate leadership.

3.1. Global Competition

In terms of global competition, Tesco has experienced both negative and positive impact on its competitive value. The company’s exit in some of its major international markets such as Japan and USA makes the company to lose potential benefits that could have been realized from international expansion. Some of the benefits that organisations get from international expansion include economies of scale attained by increasing market size, exploitation of arbitrage opportunities, extended life cycle of products, and optimization of physical location for activity in the company’s value chain. International expansion enhances performance if the company, and reduces costs and risks. Tesco loses such benefits by exiting international markets; hence its global competitive value declines.

Tesco’s exit strategy in the international market and the investment strategy in UK illustrate how the company focuses on multi-domestic strategy rather than global strategy. As a result, the company loses its competitive value in the international market and gains competitive advantage in the local market. Global competition is so intense that once a company exits a given international market, current players in that market intensify their global strategies there; hence causing the global competitive advantage and value of the exiting company to decline (Worthington and Britton, 2003). Global strategy is applicable in situations whereby there is high pressure to reduce costs and low pressure to adapt to local conditions. Tesco already enjoys a leading position in UK; hence it has low pressure to local conditions of the UK. On the contrary, increased global competition in global retail industry causes high pressure for retail firms to reduce cost. Therefore, Tesco failed to attain global competitive advantage due to its concentration in the local UK market.

3.2. Diversification Strategies

Diversification strategies have also been applied by Tesco Company to create value for customers and shareholders. The company uses different diversification strategies in domestic and international markets. The main diversification strategies used by Tesco are: leveraging core competencies and internal development. These strategies create synergy within the organization, hence creating value for customers and shareholders. Leveraging core competencies is a diversification strategy that binds the business together (Dess et al., 2010).  The main core competencies of the company include skilled employees, business networks, many stores and multiple formats, innovation and technology, brand image, reputation, and financial resources. Leveraging these core competencies has led to improved business growth and enhanced learning in the firm to increase employees’ skills. Improved employees’ skills leads to better customer service, customer value and increased loyalty. Leveraging core competencies has also enabled the company to coordinate diverse production skills that have led to quality products and innovative technologies. These have also led to addition of value for customers. Leveraging core competencies has also enhanced integration of multiple types of technologies which led to value creation for customers through production of quality products and effective customer services.

3.3. Corporate Governance and Organizational Ethics

Corporate governance and organizational ethics are part of Tesco’s strategic implementation. Tesco’s corporate governance ensures that the company puts in place the right organizational values through which the company can operate by. The corporate governance team also identifies commercial and operational risks. Most importantly, corporate governance of the organization sets strategies and plans to optimize shareholder value and implements such strategies (Held, 2004). Through the strategic implementation process, corporate governance of Tesco develops proper system of checks and balances within the company. Tesco’s approach to governance recognizes the fact that strategic and organizational rules are not the key aspects of corporate governance; but the framework supporting the core values which defines what is acceptable and what is not. Whether there is a rule for a given situation or not, Tesco’s governance expresses how the company conducts itself and informs the actions and decisions of the company.

The company’s Board of Governors comprises ten directors; of whom seven are non-executives excluding the chairman. This size and balance of the company’s governance supports the board to put a substantial focus on strategic issues. There is a Board development and succession planning within the company which determines the changes in size and balance of the board in future. Tesco Plc is considered to have complied with the UK Corporate Governance Code which sets out specific provisions and principles which provide guidelines on how companies should be controlled and directed to achieve good corporate governance. The board of governors considers that Tesco Plc has complied with all material aspects of the Code. Compliance with the Code is one of the crucial aspects of strategic implementations within organizations. Compliance with the requirements of corporate governance ensures that the company’s management takes the interests of all stakeholders into consideration during its strategic implementation process (Nag, Hambrick & Chen, 2000).

The Board of Governors of Tesco is the custodian of the company’s values and long term vision. Furthermore, the Board provides a strategic direction and guideline for the organization. In this case, the company’s Board is responsible for the implementation of the company’s strategies. In order to ensure that the company’s Board is in line with the best practice regarding corporate governance, some schedule of matters have been reserved to the board. The company’s strategic management is made more effective through pre-planned templates prepared for the board in order to ensure that all relevant issues are reviewed by the board at regular intervals (Tesco, 2013). In 2013, Tesco’s governance team played key responsibilities including implementation of the group’s strategy and key priorities, strategy and performance of key business and functions of the group, preparation and implementation of budgets and long term plans of the group, and opportunities for business development.

Examples of strategic decisions implemented by Tesco’s Board of Governors include: dispose of the company’s business in Japan in 2012, to exit US, to acquire Mobcast and a stake in WE7 as an online media strategy, and to implement an IPO of a property fund in Thailand (Tesco, 2013). These decisions determine the strategic direction of the company. The Board’s CEO delegates day-to-day operations management of the company with respect to appropriate risk parameters. The Board also monitors the retailer’s compliance with achievements and policies against pre-determined organizational objectives. In this case, the management team is held responsible for its actions through regular updates. Each business unit or function is also required to update the Board regularly. This enables the Board to explore and understand issues of business operations in depth. Therefore, the company’s corporate governance creates an integrative system of management which enhances participation of all members of the company in strategic decision making implementation within the company (Mulcaster, 2009).

Tesco’s corporate governance is also evolving and adapts to the changing and evolving business environment. This adaptation of the corporate governance of the company ensures that the company remains in line with the changing environment, and fit for the purpose. For the purpose of future strategic position of the company, the Board of Governors also reviews the processes and structures across the group to ensure that they are constantly effective. The Board also ensures that timely changes are made when needed in order to enhance the group’s operations even in the future.

3.4. Corporate Social Responsibility and Citizenship

Corporate social Responsibility and Citizenship is part of the roles of Tesco’s corporate governance. It is an essential element in the implementation of the company’s strategies, especially to the company’s stakeholders and the community at large. Corporate Responsibility Committee is one of the departments of the company’s organizational structure. It is responsible for the Corporate Social Responsibility policy formulations and implementation. As outlined in the Tesco and Society Report 2013, Tesco has various thinking and ambitions relating to its responsibility in society and how it discharges that responsibility. Established in 2012, Corporate Responsibility Committee ensures that the company’s Board maintains sufficient focus on corporate responsibility in its widest sense. The committee defines the corporate and social obligations of the group as a corporate citizen. The Corporate Responsibility Committee also oversees policy implementation and conduct of the company regarding Corporate Social Responsibility in the context of the set corporate and social obligations.

In terms of strategic implementations, the Corporate Responsibility Committee approves strategies that discharge the company’s corporate and social responsibilities in such a way that it can command confidence and respect in the community (Tesco, 2013). The team also monitors the company’s strategic and external developments that are likely to impact on the company’s reputation or its ability to conduct its business appropriately as a good corporate citizen. The Corporate Responsibility committee also monitors there retailer’s engagement with its stakeholders and other interested parties. Corporate Social Responsibility is also used to ensure that the group’s strategies are communicated appropriately and effectively in order to build and protect the reputation of the company both externally and internally.

As a responsible corporate citizen, Tesco has realized that what matters for the customers and the community is for the company to make the little things better, providing thousand varieties of valuable products safely and conveniently everyday (Tesco, 2013). Some of the Corporate Social Responsibility activities carried out by Tesco are based on three ambitions: creating new opportunities young people across the world; helping and encouraging employees and customers to live healthier lives and be able to tackle the obesity crisis in the world; and leading communities to reduce food waste globally. The Company’s CSR also involves the promotion of a green environment through implementation of environmentally friendly strategies. This will lead to reduction of carbon footprint and gas emissions, and conservation of the environment and energy.

3.5. Managing Internal Operations

In terms of managing internal operations, Tesco follows the right direction strategically, and strategy is effectively implemented and communicated in order to enhance business success and increased competitive advantage and value of the company. Diversification through internal development has been implemented effectively by the company; hence increasing the company’s success in terms of internal operations. Management of internal operations is also based on effective risk management and internal controls. The Board of Governors ensures that the company has developed and implemented risk management and internal controls. The internal operations management also ensures that the team works effectively through integrity of the company’s financial information, financial controls, and risk management systems and approaches. The internal management team of the company also realizes that risk is an inherent part of strategic management and implementation.

Tesco’s new structure of Executive sub-committees is composed of Group Commercial, Compliance, Technology, Digital Retailing, Social Responsibility, Property Strategy, and People Matters Group Committees. Tesco has committed significant resources to the company’s internal operations in order to communicate strategy effectively within the company. Consistent operational plans are also provided for the internal operations management through various sub-committees in order to ensure delivery. The steering Wheel balanced Scorecard System is also implemented as a strategy for the management of internal operations. This helps in monitoring delivery so that internal operations within the company run smoothly. Operations plans are also aligned with budgets in order to ensure that the company’s internal operations are undertaken economically and within budget. In order to enhance competitive advantage, the company’s management team also implements strategy to have a broad appeal on price, store formats and range. This allows the company to compete in different markets.

In terms of internal controls, the company also seeks to determine whether the business has operated in compliance with applicable governance and requirements for compliance. The company’s employees confirm annually that they have complied effectively with the Code of Business Conduct which provides responsibilities and obligations of various employees within the company. Auditing and preparation of Group Financial Statements is also done in an appropriate manner and implemented appropriately by the internal control department.

3.6. Organizational Structure and Design

Tesco’s organizational structure is represented by a functional structure whereby the chief executive Officer is in touch with all operations. This gives the CEO an opportunity to monitor the strategic implementation of internal operations. This structure also simplifies control mechanisms within the company, hence minimizing complexities and costs of strategic management within the organization. There is also a clear definition of responsibilities in the company’s management. Furthermore, ensures that the company enjoys the services of specialists at senior and middle management level. However, the coordination between functions in this organizational structure is a bit difficult, and senior managers are overburdened with routine matters.

As indicated by exhibit 1 in the appendix section of this paper, the company’s organizational structure is composed of Executive committee, commercial committee, compliance committee, people matters group, social responsibility committee, digital retailing committee, and technology committee.

3.7. Organizational culture and corporate leadership

Organizational culture refers to the underlying values, beliefs, customs, and ways of living which define an organization. It is mainly related to how the management and employees relate to each other in various aspects of the organization, especially at the workplace. The organizational culture of Tesco plc is one in which its people (employees) can advance, while having time to be good partners, parents and active members of their local communities. In this case, employees are considered as important members of the company with important contribution, not only to the company, but also to themselves, their families and their local communities. The company’s culture also entails the development of a diverse workforce and increment of women leaders. The company also has a culture of internal talent development through training and development. Most importantly, the company’s organizational culture is employees’ commitment to understand and deliver what customers need, in the way they want it, and at the time and place they want it.

Such an organizational culture directly affects the performance of the organization. It determines the motivation and subsequent productivity of the company’s employees (Vince, 2011). A healthy organizational culture like that of Tesco leads to reduced employees turnover rate, minimizes absenteeism, and improves corporate image for being a good employer. In this case, the company attracts the most skilled and experienced employees to boost the company’s performance and reduce its operational costs.

4. Recommendations

Tesco has not been able to implement global strategies effectively. On the contrary, the company has concentrated in increasing its investments in UK. Instead of devising strategies that can enable it to expand in the international market, Tesco decided to exit certain international markets such as Japan and USA. This paper recommends that the company should develop a global strategy that will enable it remain competitive in the global market. One of the global strategies that can be used by the company is standardization of products and concentration of activities to achieve coordination and integration across activities.

5. Conclusion

Tesco has been seen to be one of the most successful companies in terms of strategic management and implementation, especially in UK domestic retail market. The company’s mission, vision and strategic objectives are committed to meeting the needs and requirements of customers. Therefore, most of the company’s strategies have been in respect to customer focus. Tesco also offers quality products and uses innovation and technology to enhance customer satisfaction and earn customers’ lifetime loyalty. In terms of corporate governance and organizational structure, the company has several committees which ensure that all operations of the company run effectively.

These strategic implementation committees have been seen to be effective in implementation of strategies within the company. As a result, the company has been able to improve its competitive value in the domestic and international market. However, the company has increased its investments in UK, leading to reduced productivity in UK. It also exited US and Japan markets. This shows that the company still needs to improve its balance between domestic and global strategies so that it succeeds in both international and domestic markets. If this is done, Tesco is expected to perform even better in future and achieve better value and competitive advantage for customers.

References List

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Worthington, C. and Britton, C. (2003). The Business Environment, 4th Edition, Harlow, FiT: Prentice Hall.

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