Strategic Analysis of Tesco PLC
Strategic Analysis of an Organisation (3,000±10% words) You need to complete a strategic analysis on Tesco (supermarket)
The following represents the different elements you will need to consider in this first component of the assignment:
a) Identify a key external factor impacting on Tesco’s strategic positioning
Conduct a critical analysis in which you clearly defend the identification of a specific issue relating to the strategic position of the organisation (considering macro-environmental and competitive factors). To highlight the strategic issue, your report should apply a number of the theories and concepts from the module, with justification for their use (35% of total marks).
b) Evaluate Tesco’s ability to sustain strategic advantage
In relation to a), use some of the models/theories from the module to critically assess Tesco’s ability to respond to the external factor. Here it is important that you consider any challenges and tensions the issue may cause within the organisation and industry. Examples of such impact may include: changing/emerging stakeholder relationships; implications for the value system; implications for resources and capabilities; implications for organisational culture; etc. (45% of total marks).
A further 10% is awarded on the basis of communication and presentation, and another 10% awarded based on appropriate use of evidence and referencing.
Note: We will discuss the most important considerations in choosing your organisation and in how to structure your reflection in the lectures and tutorials.
4.1 Assignment guidance for the assessment
4.1.1 Answer the question!
Think carefully about how you structure your work and ensure that it explicitly meets the criteria set out in the assignment brief. Pay attention to the themes and issues set out and check that you have included everything that you need to when you submit the work.
4.1.2 Written presentation
Your work should take the form of a written paper of 3,000 words (±10% = 2700-3300 words), any submission failing to adhere to the stated word count will have the final grade reduced by one grade point. You should include a word count at the front of your paper. Use headings, diagrams, and brief tables if appropriate to illustrate points and to support your arguments. Ensure that these are relevant, based on your reading, and their significance to your argument is made clear. The assessment focuses on the documentation of your analysis and discussion of strategic issues. An Executive Summary, Abstract or other formal additions to the paper are not required for this piece of work, however, a clear contents page may help you structure your work.
4.1.3 Citation
You should demonstrate your reading in the subject area through continuous reference to or occasional direct quotations from appropriate sources. Do not simply reproduce diagrams or extensive general information from the textbooks or articles! You should assume that the reader is familiar with any basic theoretical or analytical models you use. Marks are allocated for the way you apply them to the question, clearly supporting a line of argument that helps you to answer the question. Where you use direct quotations or show diagrams, try to keep them short and ensure that they make a direct and clear contribution to your argument. Remember: absolutely everything that is not your own idea must be cited appropriately.
4.1.4 Style and Content
Your work summarizes your findings and evidence that is relevant to the questions answered. You do not need to make a complete listing of all the analytical and interpretative processes you went through. You should expect, therefore, to carry out considerably more analysis in the process of exploring the question than you will show in your final work.
4.1.5 Combine practical information and organisational theory
We will give marks for a well-supported argument and discussion of the question that draws on evidence; applies the evidence intelligently; and shows some insight in drawing conclusions. The aim of the assignment is to evaluate the issues embedded in the question, not to descriptively reproduce factual information on a topic area. In order to do this, you will need to look far beyond the company accounts/websites and consider output from academic journals and books, industry texts, business media, and competitor information. Therefore, your evidence base should show that you have done a broad range of reading.
4.1.6 Sources of research and case development information
You will find information from a variety of sources, including academic and trade journals, press reports and company- or industry-produced information (along with description of your experiences for the personal reflection). Remember to consider the validity of the information and the writer's viewpoint in the sources that you use in your final text. You should minimize the general descriptive information you include. You should focus on
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analysis and interpretation of the significant issues you identify in order to address the assignment brief, rather than describing them in excessive detail. Remember to credit all sources of information that you use, in your text and in the reference list, following the university’s guidance on referencing and citation conventions.
4.1.7 Structure and development
Try to ensure that the structure of your work follows a clear pattern and that the themes develop in a way that is appropriate to your line of argument. Ensure that what you write makes a direct and clear contribution to all parts of the question and try to avoid including general or irrelevant information in your answers. We will not allocate marks to any particular format for the written work (i.e. report style/essay style). However, please include appropriate headings, sub-headings and other 'sign-posts' so that we can see the direction of your thinking and analysis. It is advisable for your to generally follow the way that the assignment brief has been structured.
4.1.8 Appendices
You may wish to include some additional, contextual information or analysis that you have carried out in appendices. Appendices will not be included in the word-count. They should not act as a 'dumping ground' for information you don’t know what to do with. You cannot use appendices to get round the word count limit e.g. saying ‘See Appendix 1 for the strategic analysis’! Remember that appendices work well for additional supportive information which shows the work you have undertaken but should not include anything that is essential to your arguments or main answers to the questions. You should be able to write a sound strategic analysis and personal reflection within the word count advised
Strategic Analysis of Tesco PLC
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Word Count: 3305
Table of Content
TOC \o "1-3" \h \z \u 1. Introduction PAGEREF _Toc77449606 \h 32. Tesco PLC Company Overview PAGEREF _Toc77449607 \h 33. Part A: Key External Factor Impact on Tesco's Strategic Positioning (External Perspective) PAGEREF _Toc77449608 \h 43.1. Reflection on Tesco Strategic Position PAGEREF _Toc77449609 \h 43.2. PESTLE Analysis PAGEREF _Toc77449610 \h 43.2.1. Economic PAGEREF _Toc77449611 \h 43.2.2. Social PAGEREF _Toc77449612 \h 53.2.3. Technological PAGEREF _Toc77449613 \h 63.3. Porter's Five Forces Model PAGEREF _Toc77449614 \h 73.3.1. Competitive Rivalry PAGEREF _Toc77449615 \h 73.3.2. Bargaining Power of Buyers PAGEREF _Toc77449616 \h 73.3.3. Bargaining Power of Suppliers PAGEREF _Toc77449617 \h 83.3.4. Threats of Substitutes PAGEREF _Toc77449618 \h 83.3.5. Threats of New Entrants PAGEREF _Toc77449619 \h 83.4. Key Strategic Issue and Its Significance, and Environmental Challenges PAGEREF _Toc77449620 \h 83.5. Competitive Profile Matrix (CPM) PAGEREF _Toc77449621 \h 94. Part B: Tesco's Ability to Sustain Strategic Advantage (Internal Perspective) PAGEREF _Toc77449622 \h 104.1. Impact of Strategic Issue on Organizational Capabilities PAGEREF _Toc77449623 \h 104.2. Stakeholders Analysis PAGEREF _Toc77449624 \h 114.3. Strategic Change PAGEREF _Toc77449625 \h 114.4. SWOT Analysis PAGEREF _Toc77449626 \h 114.4.1. Strengths PAGEREF _Toc77449627 \h 114.4.2. Weaknesses PAGEREF _Toc77449628 \h 124.4.3. Opportunities PAGEREF _Toc77449629 \h 124.4.4. Threats PAGEREF _Toc77449630 \h 124.5. IFE (Internal Factors Evaluation) Matrix PAGEREF _Toc77449631 \h 134.6. EFE (External Factors Evaluation) Matrix PAGEREF _Toc77449632 \h 134.7. TOWS Analysis or Bivariate Strategy Matrix PAGEREF _Toc77449633 \h 155. Conclusions PAGEREF _Toc77449634 \h 17References PAGEREF _Toc77449635 \h 18Appendixes PAGEREF _Toc77449636 \h 23Appendix A: Tesco PLC Cash Flow Statements from 2016 to 2021 PAGEREF _Toc77449637 \h 23
Strategic Analysis of Tesco PLC
1. Introduction
Organizations need innovative strategies to accomplish sustainable competitive advantage in the current and new developing markets. For example, the current pandemic negatively impacts organizations' profits and revenues, and it became difficult to attract new customers and achieve desirable results in any market conditions. In addition, the environment has become more competitive because of the different external environment factors. However, the company's internal strengths and capabilities can play an essential role in overcoming external environment challenges and help an organization maintain or achieve a market leader position in an industry. The report presents a detailed strategic analysis of Tesco PLC. It identifies a strategic issue or key external factor that impacts its strategic positioning and how internal capabilities can help overcome the external factor challenge and accomplish sustainable financial performance.
2. Tesco PLC Company Overview
Tesco PLC is a multinational company with retailing, retail banking, and insurance services (Reuters, 2021). The company operates more than 4008 stores in the UK and Ireland in 2021 – a reflection of Tesco's operational capabilities (Coppola, 2021). The success of Tesco is observable from the fact that sales growth has risen by 13% in 13 weeks ended in the fourth quarter of 2020; however, the most significant achievement is in the category of online sales that has risen 80%, generating additional revenue of £1 billion for the period (S&P Global, 2021). Tesco faces immense competition from competitors; however, it successfully increases its market share for the first time in the last four years (Whiterow, 2021).
3. Part A: Key External Factor Impact on Tesco's Strategic Positioning (External Perspective)
The external environment of Tesco PLC is examined with the tools of PESTLE and Porter's Five Forces.
3.1. Reflection on Tesco Strategic Position
Tesco operates in the global retail industry with the largest number of stores in the European region. Important drivers for company's strategic decision making and for creating new value for stakeholders are; continuous product differentiation to stand out in the competitive retail market, implementation of new policies for the reduction in the operating costs, mixing products to accomplish business sustainability, maximizing the value from the property, and investment to improve innovation capabilities (Tesco PLC, 2017).
3.2. PESTLE Analysis
PESTLE framework is one of the most effective tools to examine the external environment of an organization with the use of macro-environmental factors like political, economic, social, technology, legal, and environment. Therefore, the external environment of TESCO is examined with the aspects of economic, social, and technology.
3.2.1. Economic
Tesco's large numbers of stores are in the Europe region. Generally, the GDP (Gross Domestic Product) of countries in the European Union (EU) is stable. However, the pandemic negatively impacts countries' economic growth rates, leading to lower low consumers' disposal income across the region. Disposal personal income in the UK has fallen from £370,173 million in Q4 in 2020 to £366,704 million in Q1 in 2021 (Tradingeconomics, 2021). The interest rate remains at 0.1% – providing an opportunity to new and current businesses to utilize the debt finance for expansion purposes. However, the inflation rises to 2.5% in 12 months to June 2021 – leading to unstable products prices in the short-term period (Evans, 2021). The inflation rate is the highest compared to previous quarters, as the figure below reflects.
Figure 1: UK's Inflation Rates from 2020 to 2021
Source: (Tradingeconomics, 2021a)
The UK's GDP growth rates show some positive aspects: it grew by 0.8% in the fifth month of 2021, a continuous improvement from February to May (Office for National Statistics, 2021). Therefore, Tesco and other companies in the retail industry can expect an improvement in consumers' income, which eventually leads to higher profitability and revenues.
3.2.2. Social
The trend of e-commerce and online grocery shopping has risen in recent years, especially in the COVID-19 era. As per an estimate, 32% of individuals between the age group of 35 to 44 years at least do one online shopping per week (BBC News, 2020). In May and June of 2020, the online grocery shopping trend has risen by 91%. This rapid increase is because of the pandemic and lockdown situation (McKevitt, 2020). In addition, millennial generation customers are tech-savvy. Therefore, in comparison to other customers, millennials prefer more to do online shopping.
According to another research, 33% of consumers in the UK increased their online shopping in 2020, and the total market value of online grocery buying has risen to £16.8 billion (Skeldon, 2020). Furthermore, a report identifies that one in every four customers in the UK prefers to purchase food online (NCR, 2021). One thing is crystal clear, the future of grocery shopping depends on e-commerce trends; otherwise, only dependence on physical stores cannot generate sustainable results for companies. For example, Tesco's market share in online grocery shopping was 30.7% in the UK in 2019 – a lot higher than the market shares of 17.6% and 15.3% of Asda and Ocado, respectively (GlobeNewswire, 2020). However, competitive advantage depends on continuous improvement in technological methods.
3.2.3. Technological
Technological advancements change the e-commerce industry; therefore, companies should continuously invest in technology integration policies. Some of the basic technological trends of the e-commerce industry are; mobile commerce (sales through a mobile application), eWallet technology for online payments, products customization to create a personalized experience for customers, CRM (Customer Relationship Management) tools to transfer information about products and development of in-house of AI (Artificial Intelligence) and data analytics technologies and capabilities (Hallman, 2021). Among different trends, AI and data analytics trends create the highest impact on retail companies. AI helps develop customer-centric search, personalized experience, improves online platform safety, and helps identify new sources of revenues using algorithms (Asling, 2021).
Deloitte research identifies that 72% of the businesses in the UK are successful in achieving exceptional and positive results after the implementation of AI (Deloitte, 2019). AI is critical to online retailers' decision-making process (Information Age, 2020); otherwise, it becomes difficult for companies to maintain their market leader position. Tesco already realized the significance of AI and even introduced AI-powered cashier-less stores to compete with competitors like Amazon Go (Skeldon, 2019). Trigo is the cashier-less technology partner of Tesco, and its success is measurable because it raises another $60 million to fund the growth (Benmeleh, 2020). Tesco may need to integrate more AI-related initiatives into every aspect of the organization to compete in the UK, Europe, and other regions around the globe.
3.3. Porter's Five Forces Model
The model is another useful tool to examine the external environment of Tesco PLC.
3.3.1. Competitive Rivalry
High competition exists in the online grocery shopping industry in the UK. Some of the leading companies are; Asda, Morrison, Ocado, and Amazon Fresh (Tighe, 2021). PR Newswire suggests that the online grocery market size expects to rise to $1.1 trillion by 2027 with a CAGR (Compound Annual Growth Rate) of 24.8% (PR Newswire, 2020). Therefore, new customers can enter the market to take advantage of high growth opportunities, leading to a more competitive environment.
3.3.2. Bargaining Power of Buyers
Buyers have a high power because of the large number of online marketplaces to purchase grocery products. Therefore, offerings prices can influence the low switching cost. However, customers prefer companies with more convenient order placing processes and platforms that offer personalized customer experience.
3.3.3. Bargaining Power of Suppliers
Tesco's highest market share in the online grocery shopping segment in the UK enables it to maintain strong control over the suppliers. Thus, they cannot influence the prices. Hence, suppliers' power is low for Tesco, especially in the UK.
3.3.4. Threats of Substitutes
Tesco's business model is imitable because of the lack of uniqueness in the offerings. However, the company sells different types of products in the same category. Therefore, the threat of substitutes is irrelevant for Tesco in the online grocery shopping industry.
3.3.5. Threats of New Entrants
Technological advancements decrease the barrier to entry in the e-commerce industry. Therefore, new startups with better technology can enter the market to accomplish a reasonable market share.
3.4. Key Strategic Issue and Its Significance, and Environmental Challenges
The most important strategic issue is more investment in AI and data analytics technology. However, there are also other strategic issues like continuous reduction in personal disposal income, rapid increase in online shopping, and fluctuations in market shares because of the intense high competition. Tesco's market leader in the e-commerce or online shopping industry depends on the technology integration policies. AI-centric investment enables Tesco to improve its machine learning (ML) and deep learning (DL) capabilities – an important and strategic area for sustainable performance. Behgounia and Zohuri (2020) suggest that the integration of ML, augmented with AI and DL, increases the business resilience of the e-commerce websites, leading to a better position in a competitive market. In addition, AI-based algorithms improve data analytics capabilities to collect the consumers' data to develop sustainable business policies. Kumar et al. (2019) suggest that AI is one of the most effective tools for the personalized engagement marketing and an efficient way to communicate and offer personalized products. AI investment in e-commerce is not a short-term trend because companies decide to permanently integrate AI into their organizational activities, ranging from the supply networks to final products displayed on online platforms. An important competitor, Amazon Go, develops cashier-free store technology and decides to sell the technology to other retailers in the US (Perez, 2020). Therefore, increasing investment in AI is a critical move for Tesco, but the AI technology needs to evolve to meet the necessity for maintaining financial performance.
3.5. Competitive Profile Matrix (CPM)
Figure 2 reflects that Tesco already outperforms its significant UK competitors like Asda and Ocado in almost all critical factors. However, external environment challenges for Tesco exist when it tries to compete with a competitor like Amazon Go. Therefore, more investment in AI and acquiring new startups with AI innovative products is useful for Tesco to expand more in emerging markets like Brazil, India, and China.
Figure 2: CPM: Comparison of Three Important Companies of Tesco PLC, Asda and Ocado Group
4. Part B: Tesco's Ability to Sustain Strategic Advantage (Internal Perspective)
Analysis of Tesco is important to identify its internal capabilities that can help overcome the strategic issue of more investment in data analytics and AI.
4.1. Impact of Strategic Issue on Organizational Capabilities
Tesco increases its dependence on AI in recent years, especially in the period of the pandemic. In 2020, Tesco used almost double its AI usage to develop delivery route optimization algorithms, which helps reduce fuel consumption and CO2 emissions (Stone, 2020). Checkout-free technology is another initiative; however, its success depends on the consumers' behavior in the future years (WARC, 2019). As per an estimate, Tesco successfully integrates AI in its supply chain and accomplishes a 10% savings in terms of money (Chace, 2021). Therefore, one thing is crystal clear; the AI integration policy provides some promising future for the Tesco supermarket.
4.2. Stakeholders Analysis
More investment in AI creates the highest impact on the internal stakeholder of employees and external stakeholder of customers. AI integration provides a vital opportunity to identify improvements in current operational activities and online platforms for employees. For customers, AI and improvement in data analytics provide support to develop a personalized customers experience –suitable for sustainable financial performance in the global online shopping industry.
4.3. Strategic Change
AI and data analytics capabilities help Tesco transform revenues from the traditional grocery stores to the online e-commerce business. However, AI is also essential for developing an effective supply chain network for conventional grocery stores. Still, the post-pandemic era offers some critical opportunities for Tesco to accomplish growth objectives. Therefore, Tesco can expect a change in the strategic direction, such as; more dependence on online grocery shopping than traditional grocery stores. As a result, the cost driver of innovation becomes more important than ever in the future years.
4.4. SWOT Analysis
SWOT analysis helps to examine the internal strengths and weaknesses and external opportunities and threats.
4.4.1. Strengths
* The current market capitali...