2. 2
Table of Contents
Introduction................................................................................................................................... 3
Evaluation of the conditions in the market environment that Tesco occupies........................ 4
Critical success factors for Tesco................................................................................................. 8
Evaluation of the internal environment of Tesco....................................................................... 8
Evaluation of the strategic fit of Tesco...................................................................................... 11
Conclusion ................................................................................................................................... 13
References.................................................................................................................................... 14
3. 3
Introduction
Strategic fit analysis is required to determine the capabilities of an organization to undertake and
implement strategic changes within the organization. Now a day the management of Tesco is
undertaking different strategic change decisions such as joint venture with Trent Limited and
launching 'healthy living' brand etc. So now it is important to conduct a strategic fit analysis on
the company. Tesco world’s second largest and UK’s leading grocery and merchandise retail
multinational company was established by Jack Cohen in 1919 from London’s East End as a
small market stall (Tesco, 2014). Now the organization has business operations in more than 12
countries and 530,000 employees and the company serves more than tens of millions of
customers every week around worldwide. Headquarter of Tesco is located at Cheshunt,
Hertfordshire, United Kingdom. Tesco is committed to provide the best shopping experience to
its customers and it has a strong focus on doing right things for its customers, colleagues and
communities. The Tesco has more than 30% of the market share in its domestic market and in
Thailand, Malaysia and Republic of Ireland’s grocery market. Effective and efficient strategies
has made the organization such giant Multinational Corporation and helped to gain major portion
of the market. Some of the strategic priorities of Tesco include continuing to invest in strong UK
business, establishing multichannel leadership, and pursuing disciplined international growth
(Tesco, 2014).
The total grocery market in the United Kingdom has grown from £93.3bn in 1998 to £146.3bn in
2008 and continues to grow (Emma Li, 2008). There are more than 92, 796 grocery stores in UK
which could be divided into four categories namely traditional retails stores, supermarket,
hypermarket and online channel. More than 73% of grocery sales of the UK are occupied by the
hypermarket and supermarket and 21% are occupied by traditional retail stores (Statista, 2014).
Four major players Tesco, ASDA, Sainsbury, and Morrison occupy more than 78.16% share of
the UK’s supermarket. Tesco has 30.46%, ASDA has 17.95%, Sainsbury has 17.13% and
Morrison has 12.62% of market share (Emma L., 2008). By determining the environmental
factors and resource capabilities of Tesco a strategic fit analysis would be conducted in this
report.
4. 4
Task–A: Market Environment Analysis
Evaluation of the conditions in the market environment that Tesco occupies
Business environment of an organization is defined as the areas within which the business
activities of that organization are operated. There are mainly two types of business environment
namely internal and external environment (Miller, D. 1988). Internal business environment is
also called micro environment and external environment is called macro environment. There are
many factors in both the micro and macro environment. Management, employees, different
resources, tools and techniques, market structure, trends in the market, machine and equipment,
marketing strategies etc. are factors of the internal environment where politics, economics,
society, technology, environment and laws are major factors of macro environment (Bremser, W.
G., & Chung, Q. B 2006).). All the factors and sub factors of both the micro and macro
environment affect the business decisions and activities of Tesco. With the help of PESTEL and
Porter’s five forces model the market environment of the Tesco is analyzed below:
PESTEL Analysis: PESTEL analysis is a widely used tool to analyze the market environment of
a business organization. PESTEL means following elements-
Figure: Elements of PESTEL analysis (Porter E.M., 2009)
External
environment
al factors
Politics
Economy
Social
Technology
Environment
Laws
5. 5
Political environment: The political environment of an organization has different factors such
as government system, political views, political stability, tax system, rules and regulations
formulated by the political leaders etc. The government stability of UK is high. David Cameron
is the present prime minister of UK he and his cabinet has positive views toward business
activities of the country and provide all kinds of necessary support to local business organization
(Gov.UK, 2014). The monetary and fiscal policy of the country is also favorable to Tesco. Tax
rate of UK is 20% (Helen S, 2014).
Economic environment: There are many economic factors such as inflation rate, interest rate,
Gross Domestic Products (GDP) and Gross National Products (GNP), Purchasing Power Parity
(PPP), growth rate of the economy, unemployment rate, national income level demand and
supply of the country, economic system and market structure. GDP per capita of UK was
39,336.91 USD in 2013 and GNI per capita was 35,760 PPP dollars. GDP growth rate of UK
was 1.7% annual change in 2013. Interest rate of UK is averaged 8.02% and bank rate is 0.5%.
Unemployment rate of UK is 5.9% and inflation rate of UK is 1.3% at October, 2014 (Lambert. S
2014).
Social environment: Social and cultural environmental factors have great impacts on the
business decision of the Tesco. Some of the social and cultural factors include culture,
consumer’s behaviors, religions, income level of citizen, demographic characteristics of
communities, class system, and education level (BBC, 2014).. UK has a total population of 62
348 447 and population density of 255 people per km. literacy rate of UK is 99% and most of the
people are White that is 92.1%. Ethnicity and religion result of UK is shown below:
Ethnic group % of total population Religion Total population
British White 85.67% Christian 42,079,000
Other White 5.27% None 9,104,000
South Asian 4% Not stated 4,289,000
Black 2% Muslim 1,591,000
Mixed 1.2% Hindu 559,000
Figure: Ethnicity and religion result of UK (IRR, 2013)
6. 6
Technological environment: Technologies have great impacts on the business activities of
Tesco since the organization uses different kinds of technologies in its production, transaction
and marketing activities. UK is one of the most technologically updated countries in Europe
(UK-IRC, 2012). The number of research and development organization is higher than many
countries of Europe except few countries. The Tesco also uses many technologies which are
following (Tesco, 2014)-
Online marketing to provide information to customers.
Self-check-out machine to ensure quality of products.
Wireless devices to communicate with customers.
The adoption of Electronic Point of Sale.
Electronic Funds Transfer Systems.
Electronic shelf labeling system.
Radio Frequency Identification.
With the use of the above mentioned technologies the Tesco has achieved increased
effectiveness and efficiencies in its operations and marketing.
Natural environment: Natural environmental factors have also great implication on the
business activities of Tesco. The management of the organization always should ensure
environmental safety and doing manufacturing activities in environment friendly ways. Both the
national and international leaders are concern about the environmental pollution and carbon
emission and formulated strict rules and regulation to reduce environmental pollution and carbon
emission that should be followed by the management of Tesco.
Legal environment: All business activities are governed and directed by the governmental rules
and regulation. No business organization can operate its activities without compiling with the
national and international rules and regulations. Some of the important rules and regulations of
UK include Sex Discrimination Act 1995, Races Relations Act 1992, Equal Pay Act 1970,
National Minimum Wage Rate Act 1998, Employment Rights Act 1996, Employment Relations
Act 2000, and Health and Safety Act 2005 of UK all of these acts have implications on Tesco.
7. 7
Porter’s five forces model: Porter’s developed a model to analyze the market environment of a
business organization. According to this model competition does not come from only one
direction but from different directions. Although this model is mostly used for competitive
analysis but has implication on analysis of market environment. However five forces of the
model are shown below:
Figure: Porter's five force model (Porter E.M., 2009)
UK’s grocery market is dominated by mainly four players Tesco, ASDA, Sainsbury, and
Morrison (Silvera, L 2013). Because of the government barriers and increased capital cost no new
entrants in the market. With the effective and efficient operation these players have made the
market impenetrable for new entrants. Because of the increased competition in the market the
buyers of UK have strong bargaining power. Because of large size of the major player the
suppliers have lower bargaining power in the market. There is no product to product substitute
but has a threat of brand to brand substitute that is acute in UK’s grocery and supermarket
business. The level of existing competition is higher since there are many competitors and most
of the company has huge capital and more stores and product variety. Wal-Mart’s subsidiary
ASDA is the main competitor for Tesco in the UK’s grocery market.
Rivalvary
among
existing
competitiors
Threats of
new entrants
Bargaining
power of
buyers
Threats of
substitute
products &
services
Bargaining
powers of
suppliers
8. 8
Critical success factors for Tesco
Critical success factors are those factors which are needed or critical to achieve success in the
competitive market. Some of the critical success factors of Tesco are discussed in brief below:
Reputation and branding: Tesco is number one brand in grocery market of UK. With high
quality products at lower prices, effective management system, good customer relationship,
increased stores at customer’s doors the organization has achieved strong brand image and
reputation in the market.
Integration of IT: Tesco has increased investment in technologies and IT. The organization use
different innovative technologies in its operations and marketing. Tesco first introduced the club
card and online-selling in UK’s market that makes the organization such success.
Management of supplier: The organization’s main focus is developing multichannel leadership
and management (Tesco, 2014). With effective and efficient management of its employees,
suppliers and production and marketing activities and resources the organization has become
such successful in the market. The organization manages international and national suppliers to
ensure production at lower cost.
Task-B: Resource and Capability Analysis
Evaluation of the internal environment of Tesco
To implement strategic changes within the organization the management of the organization
must evaluate the internal environmental factors, resources and capabilities of the organization to
implement that change. There are different tools and techniques that could be used by the
management of the business organization to evaluate the internal environment such as generic
strategies, marketing objective and strategies, marketing mix, vision, mission and value
proposition, value chain analysis, Key Success Factor (KSF) or Critical Success Factor (CSF)
analysis. Among the mentioned techniques the value chain analysis is most prominent and will
9. 9
be used to analyze the internal environment of Tesco here. Value chain analysis include
following activities of the Tesco-
Figure: The value chain analysis of Tesco (Tesco, 2014)
Unique resource of Tesco: Resources mean factors of production which are used to produce
something of value. Resources are those assets of the organization that has worth and value such
as man, machine, materials, market, and money. Unique resources are those that have only the
Tesco limited and those resources are not having of other competitors or they have limited access
to those resources (Tesco, 2014). Resources of an organization could be divided into two type
namely tangible and intangible resources. Some of the tangible unique resources of Tesco
include innovative technology, sophisticated retail stores, effective and efficient leadership and
management team, quality products etc. Some of the intangible resources of Tesco include brand
reputation, customer satisfaction and loyalty, SMART objectives and strategies.
Core competencies of Tesco: Core competencies are those activities or processes which are
directly underpinned with the company’s competitive advantages. Higher the number of core
competencies of an organization has higher the competitive advantages in the market. Some of
Inbound
Logistic
Operations Outbound
logistics
Marketing &
sales
Services
Ordering and
collecting raw
materials on
time,
scheduling
production,
managing
supplier and
plant,
inventory
management
Total Quality
Approach,
fulfillment of
orders,
managing
operations, and
customer visit
and market
analysis
Taking and
fulfillment of
orders timely,
transaction
and delivery
on time,
building and
maintaining
relationship
with
customers
Marketing
mix,
understanding
value of
product and
pricing,
determining
customers’
requirements,
advertising,
promotion
Providing help
to the
customers after
sales, problem
solving of the
customers, club
card facilities,
CSR, Healthy
Living
Programs
10. 10
the core competencies of Tesco include cost efficiency, economies of scale, market experience,
and large volume of sales, bargaining power and standardization (Tesco, 2014).
Core capabilities of the company: Core capabilities of an organization are those that ensure the
operational excellence and help to develop core competencies for the organization. Some of the
core capabilities of Tesco are discussed briefly in below (Richard B., 2014):
Environment is suitable for customer: Only the Tesco has 6 different store formats namely
Extra stores, Superstores, Home Plus stores, Metro stores, Express stores, and One-stop
stores which offer suitable environment for its customers. If one buys from one of the stores
of Tesco he or she must make repurchase decision from that store.
Wide ranges of products: The Tesco offer more than 4000 product range to its customers.
Among these products more than three-quarters of 1500 products are either new or improved
(Tesco, 2014).
Highly concerned about quality and value of product: One of the major strategic focus of
Tesco is ensuring customer’s satisfaction by providing best quality products and services.
Integration of Knowledge: The management of the organization makes integration of
knowledge from both the inside and outside of the organization. The organization treats its
employees as colleagues and has developed partnership with suppliers.
Strong logistic services: In the above mentioned value chain analysis we found that the
Tesco has strong both the inbound and outbound logistic support.
Capability of innovation: The organization has capability of innovating innovative products
and process. The organization makes huge investment in technologies and IT.
11. 11
Task-C: Strategic Fit Analysis
Evaluation of the strategic fit of Tesco
The Tesco has become such a leading company in its domestic and international market because
of the initiating different strategic changes. With increased merger and acquisition and increased
investment in developing innovative products and ways of marketing the organization has
achieved such strong brand image in the market. To implement the strategic changes effectively
and efficiently the management of the organization has to conduct strategic fit analysis. Strategic
fit is a situation that occurs when a particular product, project and targeted company is seen as
appropriate with respect to an organization’s overall goals and objectives (Raymond B. C.,
1988). Tesco has an aggressive expansion strategy where the company seeks to expand its
business activities through a merger or acquisition. In this case the management of the Tesco
look to those small companies that makes a good strategic fit with their own company.
SWOT analysis
SWOT analysis is an important strategic analytical tool that is widely used by the management
of the business organizations to take their strategic decisions by determining both the micro and
macro environmental factors of the business organization. SWOT analysis stands for strengths,
weaknesses, opportunities and threats have for an organization within a particular market. Tesco
is one of the leading multinational grocery retail companies in UK that has all strengths,
weaknesses, opportunities and threats in the market. A SWOT analysis on the organization is
given below:
Strengths: The Tesco has a strong brand image in the supermarket and it is listed in world’s
most 100 valued brands. The organization offers a wide range of products to its customers.
Under its healthy living brand program the organization has been offering over 400 new products
among which three-quarters of the 1500 products either new or improved. The organization has
more than 6,784 stores around worldwide and the organization continues to increase its stores
(Tesco, 2014). The organization has innovative business method by which the organization can
create more value of money, offer products at cheaper price than the competitors, provide online
12. 12
shopping experience to customers etc. The organization develops multichannel leadership and
management that is one of the major strategic focuses of the company.
Figure: Result of SWOT analysis on the Tesco
Weaknesses: With much strength the Tesco has also many weaknesses. One of the main
weakness of the company is the organization has many operations such as food, books, furniture,
insurance, clothing, financial services and petrol that is problematic for the management of the
organization to manage a wide range of activities at a same time (Mbaskool, 2014). The
organization offer credit card services to its customers where some of the customers do not pay
the due amount. The government of the country has increased household budget therefore the
customers cannot afford more products from the organization. One of the other weaknesses of
Tesco is its lack of experience in some new market such as smartphone and tablets and also in
some foreign countries where the local cultural practices are compulsory. The organization
Strengths
Strong brand position
Wide range of products
Large number of stores
Innovative business methods
Multichannel leadership
Weaknessess
Wide range of operations
Bad debt from credit card services
Increased household claims
Lack of experience in some new market
Increased investment in IT
Opportunities
Expansion to new markets
Online shopping to ensure flexibility
Availing the opportunitites of ongoning
recession
Threats
Increased competition
Town planning of UK government
Recession and economic slowdown
Tight household budget
High unemployment
SWOT analysis on
Tesco
13. 13
invest more in its IT and new web technologies such as the organization started online selling for
the first time that has adverse impacts on its sales.
Opportunities: Tesco has many opportunities in both its local and international market. The
organization has opportunities to expand its business operations globally with standard quality,
skilled workforce and huge capital. The organization has operations in more than 12 countries
and the management of the organization is now expanding its operation into many other
countries around worldwide (Tesco, 2014). Tesco is traced as first seller that offers online
shopping system to its customers. With this system the workers of the organization can enjoy
flexibilities in their working. Because of the ongoing most of the people of UK are busy with
their working who have no time to cook they can buy the food products from the Tesco’s stores
to save their time of cooking.
Threats: The organization is facing increased level of competition in the market where
competitors from both the local and international market are creating pressure for the
organization. Wal-Mart is the world’s largest grocery company that’s subsidiary ASDA is the
main competitor of Tesco in UK’s market and there are other competitors of the company such
as Sainsbury and Morrison. The government of the UK has undertaken Town planning where the
government banned to open new stores in city areas that is major threat for the organization.
Because of the ongoing recession that started in 2008 and increased unemployment rate the
organization is facing threats (Mbaskool, 2014).
Conclusion
From the above discussion we can say that the organization has strong resources capabilities by
which the organization can undertake and implement any strategic changes within the
organization in order to achieving its strategic goals and objectives effectively and efficiently.
14. 14
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